Fifth Third Bancorp (FITB) Earnings Call Transcript & Summary

We're going to get started. Kicking off day 2. We're excited to have Fifth Third joining us once again. Fifth Third has continued to execute on its strategy, including building out its Southeast footprint, having strong fee income growth and best-in-class cost control. In addition, we continue to have pure leading returns and a strong capital position puts it in a strong position to increase capital returns to shareholders. So here to tell us more about the story, CEO, Tim Spence; and Chief Financial Officer, Bryan Preston. Tim is going to walk us through some slides, and then we're going to have a Q&A session.

Great. Thank you, Ryan. We're aggressively microphoned up here. I think I got 3 going. So if you can't hear me, that's on you. So thank you, and good morning, everybody. We published a slide presentation last night on our investor research [indiscernible] Relations website, which I'm going to reference in my prepared remarks. And after that, as Ryan mentioned, Bryan and I are happy to answer your questions. At Fifth Third, we believe that great banks distinguish themselves not by how they perform in benign environments, but rather how they navigate challenging and uncertain ones. Throughout 2024, interest rate and industry-wide loan growth expectation swung wildly. Despite this, we've maintained our full year NII and PPNR guidance that we provided in January, and we did so without expending shareholder capital on an investment portfolio restructuring charge. Our business model is simple and well diversified. We focus on stability, profitability and growth in that order. This approach has delivered strong and stable shareholder returns, ranking among the best over the last 5, 7 and 10 years within our peer group. Strategically, to achieve stable growth and strong profitability in a highly competitive industry, you must invest significantly in a limited number of very large opportunities over a sustained period of time. Our strategies have been consistent: building density and driving growth in our Southeast and expansion markets, investing in differentiated fee-based capabilities and leveraging tech platform investments to boost operating efficiency. These investments position us for growth that does not require stretching on credit or sacrificing pricing margins. We expect these areas to continue to produce strong growth and market share gains. Earlier this quarter, we discussed the success of our de novo branches and our intention to double the pace of this investment in the Southeast. By the end of 2028, nearly half of all Fifth Third's branches will be in the Southeast, and we will have achieved our goal of top 5 locational share in these high-growth markets. The continued maturation of the 119 de novos we have already opened, combined with the growth of the new branches we will build, should generate an additional $15 billion in deposits over the next 10 years. Fee income represents 34% of total revenue at Fifth Third compared to peer median at 28%. Wealth management, commercial payments and capital markets represent 55% of our total fee base. Our investments in wealth management and commercial payments have shown an accelerating contribution to our performance in 2024, with each having double-digit growth over 2023 levels. Our fee contribution from consumer overdraft to monthly maintenance fees is less than 5% of total fees below the peer averages, despite our retail strength and in line with peers with significantly smaller retail deposit franchises. Slide 9 highlights our wealth and asset management business, which contributes 21% to our fee income. It is one of the largest wealth businesses among our peers as measured by assets under management and assets under custody. As of November, assets under management were $70 billion, nearly doubling over the last 6 years, and wealth and asset management revenue has grown 10% year-over-year in 2024. Our wealth business is a foundational component of our relationship banking model with referrals from other business lines representing 3/4 of all new opportunities. We were recently recognized as Best Private Bank by Global Finance for the fifth consecutive year and best for customer service. Our Net Promoter Score in wealth is 75. Our growth strategies in wealth include the build-out of Fifth Third Wealth Advisors, an independent RIA platform that we launched in 2022 and the dedicated service model to help business owners prepare financially and personally for the sale of their businesses. Together, these strategies have generated over $4 billion in net new flows in the past 3 years. Slide 10 highlights commercial payments, which contributes 20% of our overall fee income. Payments innovation has long been in Fifth Third's DNA, and our commercial payments business has significant scale and national recognition. Fifth Third is the 15th largest bank in the U.S. by assets, but we are the fifth largest in commercial payments fee equivalent with top 5 market share in 6 product categories. We will process more than $17 trillion in payments transactions in 2024 and have over 1,300 employees in commercial payments serving more than 10,000 commercial clients. Our managed services platform where we provide software to reduce friction and automate manual workflows in addition to payments processing is how we differentiate in the market. Our largest markets are managed receivable services in retail, entertainment and health care verticals. And manage payables in B2B verticals, including manufacturing, logistics and education services. These solutions produce tens of millions of dollars in hard cost savings for our clients on an annual basis, and the increased fee income and operating deposits for Fifth Third. Clients utilizing a managed service contribute more than 35% of annual commercial payments revenues for Fifth Third. In 2022, we formed Newline, our embedded payments business. Newline is a vertically integrated platform for software developers to develop and launch payment, card and deposit solutions through modern APIs to connect with Fifth Third's payments infrastructure. We first entered embedded payments when we spun out our legacy card processing business then known as Vantiv, and had to externalize our payments capabilities and network compliance for AML and BSA. Our platform offers payments and software companies and industrial strength partner on which to build their business and their product capabilities. In 2024, commercial payments fees have grown 11%, driven by managed services delivering 15% growth. Over the next 5 years, we expect managed services to continue to grow at double-digit rates and embedded payments fee contributions to accelerate, making commercial payments our first $1 billion fee income business. Slide 11 highlights our capital markets business, which represents 14% of our fee income. We've always placed a strong emphasis on providing financial risk management solutions to our clients, led by our hedging capabilities and interest rates, FX and commodities. Our clients value the advice that helps protect them against volatile movements in FX, commodities and rates. We value this business for its recurring revenue stream and its essential role in the client's core operations. As our chart shows, we have the highest percent of fee income associated with hedging activities of our peers and the second highest growth rate. We continue to expand our advisory investment banking and debt capital markets capabilities to accelerate the growth in capital markets. And since 2019, our capital markets fees have grown at a 6% annualized rate. We are excited about our company's current performance and future opportunities. We remain confident in delivering strong outcomes, including PPNR and earnings outcomes consistent with our original expectations for the full year in 2024. As we look forward to '25, we continue to expect record NII, given the current economic and interest rate outlook and a return to positive operating leverage for the full year. We will stay disciplined with expenses while investing for the long-term. With that, Bryan and I are happy to take your questions.

Great. Thanks for that, Tim. Back to 1 microphone.

There we go.

So -- since the last time we heard from you, there's obviously been a lot of change, particularly on the political side, where we could be in a more business-friendly environment. As you think about the next year, maybe start off on talking about how you feel the bank is positioned for the environment we're about to enter?

Then that would assume that we have a clear view of the environment we're about to enter. I think we're in a mode here. It's probably ironic that it's the holiday season because some people like surprises under the Christmas tree and other people like to have exactly what's on their list. But we're not people who like surprises. And I think one of the challenges that we all face is there is no more complex ecosystem than the U.S. economy, and we're about to introduce a ton of change to it, right? So on the positive side of the spectrum, we're going to get deregulation. We're going to get more favorable tax policy. The outlook in the markets continues to be that we're going to get more relief on interest rates, and those things are all good. On the negative side of the equation, we have deficit spending and essentially a concern over price discovery at the long end of the curve. We have a potential negative impact to the labor markets, and you have the geopolitical instability, potential impacts to tariffs and otherwise. So when you introduce that much change into complex systems, you tend to get unpredictable outcomes. So our focus has been less on how do we position the bank to benefit from the absolute best scenario and much more how do we deliver a more consistent return profile like collar, the profitability profile of the company under a scenario where we get good loan growth, under a scenario where we don't get great loan growth, under a scenario where we get more relief from rates and a favorable curve in a scenario where we don't get more relief from rates, and we have a sort of a stagflationary outlook. So that bluntly is how I feel. Now I think our clients are feeling optimistic. Like you can tell that the animal spirits have returned a little bit here, like I think an element which is a collective side of relief on tax policy, it's a big deal for them. And with the Overton window having shifted a little bit here on what's possible from a regulation or deregulation perspective, there's a lot of excitement about the opportunities that could open up. But that sentiment needs to then translate into actual sort of constructive activity, investments in capital equipment, investments in expansion, investments in inventory building in anticipation more demand for us to get the benefit.

And my follow-up question was going to be, is there any early signs of that actually starting to take place? Or is it -- and if not, over what time frame do you expect?

Yes. Yes. I mean we are only a month away from the election...

Not longer.

Yes. Yes. Markets move faster than private companies. I think the positive trend is the reversal in what had been going on in the form of destocking, right, and the reduction in inventory levels across supply chains. I wouldn't say we're seeing people hoard inventories or raw materials yet. But there is no question that the sort of effort to manage down the debt service costs associated with more raw material in your balance sheet has definitely stabilized and even reversed a little bit. So I think that -- I don't anticipate a big drag in loan utilization being a challenge going forward. And it's clearly risk on in the capital markets. So the markets businesses where we help people -- whether it's syndicated credit or bonds have continued to move briskly the way they have across the industry.

I guess given that view, how are you feeling about loan growth into 2025? What do you expect the main drivers to be? And do you think we're kind of back in GDP plus 1 to 2? Or do you think there could be pent-up demand as we move into next year?

Yes. I mean from a near-term perspective, I don't think we're going to say in the first 6 months of the year, you're going to see this explosion of loan growth because I think people are really going to want to have a little bit more line of sight to what comes out from a policy perspective. But we certainly feel optimistic that in the second half of the year, you can have more of a pickup. I think GDP loan growth is not something that would be unreasonable for the industry. And the investments that we've been making, we feel like it continues to position us to perform well, and we feel confident that we have an ability to beat the industry by a point or 2 between the investments we've made in the sales force or how we've continued to shift the geographic profile of the company into higher growth markets.

Yes. I think that -- to me, the more interesting challenge is who can get record NII, who can get positive operating leverage in an environment where they don't get that level of robust loan growth. And that is the thing, again, that is a little bit unique and differentiated about Fifth Third is because of the structure of the balance sheet, because of the business composition, we have the ability to get to a level of NII, which would be at record levels without that level of robustness in the environment.

You are doing a good job leading the witness, because my next question was on record NII, which you noted in the [indiscernible]...

I said I don't like surprises under the Christmas tree, I actually like exactly what was there.

If I had a Christmas tree, I would know. Fair enough. But -- so if you look, obviously, we'll get to the fourth quarter in a second, but just based on the expectation to kind of almost gets you there for record NII. Bryan, maybe just talk a little bit about the drivers of record NII and fixed rate asset pricing, how does that look? How is the balance sheet positioned in a world where there's less cuts? And how do we drive -- how do we continue to drive upside to NII in '25?

Yes, absolutely. So a couple of things I'd call out. We continue to be very neutrally positioned from rates perspective. Like we feel good about the positioning. And if you look at the results in this year, hopefully, you see that that's what you see coming through. In a year where we've talked about having as many as 6 or 7 rate cuts and as few as 3 or 4 rate cuts, the amount of volatility throughout this year to be able to continue to deliver our NII in line with our original guidance. We hope that, that is real evidence of the balance sheet flexibility that we have. What I would tell you is that the puts and takes, the fixed asset repricing is going to continue to be a benefit for us for some time. $4 million to $5 million a quarter of fixed rate assets repricing. Now we've been picking up about 200 basis points over the last several quarters from book to back book. That will start to come in some as the back book repricing rates will tick up over time and depending on the shape of the curve, and how competitive the loan environment will be. But that is a benefit that will continue through the end of 2025 and beyond. Like the balance sheet is very well positioned. The other component is just the flexibility that our liquidity is provided, because it puts us in a position where whether the loan growth shows up or whether it's a more muted loan growth environment, we can manage deposit costs and other liability costs in a way that helps us position NII for success as well. On an earnings call a couple of quarters ago, I talked about not needing heroic loan growth to deliver record NII. I mean and what that means is we can deliver record NII with 1% to 2% loan growth. It's not a significant item for us. So any upside from a loan growth perspective relative to those levels, puts us in a good position to deliver more significant NII performance.

Maybe just to focus in a minute on the fourth quarter update, which probably made Matt's job easy that he didn't have to make any changes on to the slide. But Bryan, anything sort of within the details that you'd like to call out. Obviously, we've been hearing a message from people of loan growth being a little slower, deposit pricing being a little bit better, some banks are highlighting better capital markets, some with an extra charge-off for 2. Maybe just give us some color on how you're feeling about the moving parts in the fourth quarter?

Yes. The quarter is coming together nicely. We're very happy with what we're seeing. Basically, everything is coming in, in line with our expectations. NII, up 1%, high confidence in that. Obviously, we've had a lot of -- we've gotten a lot of questions through the years on our assumptions around betas and our belief that we could get cost sell. That is absolutely playing out. We're not having challenges right now in terms of repricing the deposits and that's playing out as expected. We weren't overly robust from a loan growth perspective, only up 1%. No change on that as well. So again, not -- no surprises on that front. The fees are coming in right as expected as well. I would tell you, there's a little bit of a mix component of that. There was an article in Bloomberg this morning. We talked about this a little bit last night, commodity hedging, volatility in the rates market. Certainly, the hedging businesses continue to be a little bit challenged in this environment. But overall, fees are coming in where expected. And expenses, we feel good about as well. Charge-offs, no change on that front. It feels like we've hit a stability point. The midpoint is 48 basis points. I feel very comfortable with where we are from a charge-off perspective, and it's in line with where we've been for a couple of quarters now. So it's just to be right at the high end of the range, we feel good about what we're seeing.

Yes. I don't know if the word boring is trademarked at this point. If it's not, that's the one that we would use here.

Yes. Boring is beautiful.

Boring is beautiful.

So Tim, maybe to highlight some things from the presentation. You talked about the success you're having across the 3-pronged commercial payments, wealth and capital markets. You set a goal to grow this faster than the balance sheet, which seems to be having some successes. Maybe just talk about how you're taking share in these businesses and what do you think it means for overall fee income growth in '25?

Yes. So I think it's probably a little bit different in each of them. So I'll walk through a laundry list style and then you can choose if you want to follow-up. So the commercial payments business is the sort of the crown jewel of these in terms of its differentiation and our ability to grow. Like there is not another business of that scale inside Fifth Third that has 3x the market share nationally than we would in the balance sheet side of the equation. The secret sauce there is that we offer products that don't require a credit extension to win client relationships, right? So the treasury management fee equivalent across the industry has been sort of a low single-digit grower, like around GDP levels for many, many years now. If you're going to grow faster than that, you either have to be growing -- outgrowing the market on credit, which nobody is really getting any growth anywhere on that front or you have to be able to add relationships that are purely payments led. So we are adding nearly 1 new client that has no credit relationship with Fifth Third, purely payments led for every client we add that is a relationship client today. And it really is those managed services that we offer. The sale there is not the cost of processing payments. It's not the tech, although the tech is the enabler. It's the fact that we can reduce operational expenses, whether that is manual processes, revenue shrinkage, courier routing in the case of some of the physical currency businesses or speed to access to working capital. And that is the way that we make the sale. So that would be the way you get from, call it, 3%, 4% to 7%, 8%. Then what you add on top of it is this business we have in supporting third-party software developers, who would be people like Stripe, like Toast, like Blackbaud, like Trustly, like 150 of them that are essentially premium names in the sectors where they compete, where we are enabling them to add payments as a service inside a broader enterprise software offering. And then we get the benefit of growing at the rate that they're growing. And that has the additional seasoning is the way that you get to the 10%, 11%, 12% basis. The wealth business, I think we do as good a job as anybody in penetrating existing client relationships. I gave the stat on 3/4 of the new business activity come through referrals. So the growth there isn't doing well. It's something we haven't done before or have been bad at. It's been finding ways to access new markets, new flows of wealth. And the amount of business, whether you talk to a private equity firm or a private credit firm, or a private business owner, like the number of businesses that are currently privately owned that are likely to transact in the next 5 to 10 years is substantial. And we have a service offering that is available to business owners like oftentimes years before they reach a point where they make the sale of the business to help them with whether it's the ownership or tax efficiency concerns or facilitating different conversations where you got multiple generations involved in the business to prepare for the sale of that business, and then to execute the sale of that business and to land the proceeds on Fifth Third's platform. And that plus this RIA that we started, that's now north of $2.5 billion in assets under management in 24 months have been the real accelerant there. Capital markets, on the other hand, really has been about continuing to penetrate our existing client base. We think there is a big untapped opportunity in middle-market businesses, if you take hedging as an example, in helping them to manage input costs, gross margins and to be certain about the revenues that they're going to generate in a world where you have more financial risk and more volatility. And that has been a really nice growth platform for us over the past several years as has then the build-out of an M&A advisory capability for middle market companies.

If you look back over the last few years, you've made some strategic tuck-in -- or bolt-on acquisitions to supplement these businesses.

Yes.

Are there more things that you're looking for to take these to the next level? Or do you think you can achieve your goals organically?

Yes. So we have maybe a little bit different view. We like the payments tuck-in acquisitions. You have to pay significant multiples for all of these businesses. And if you're going to pay a significant multiple, you've got to believe that there's durable franchise value. So the beauty and the payments things we've done is you're buying -- the franchise value is in the tech and in the engineering capacity. And we've been pretty good at demonstrating that we can keep the engineers, and then we get leverage out of the tech over time. The challenge in buying a boutique RIA or a boutique capital market shop, is those folks are generally independent by choice, like they didn't end up independent. They chose to go independent, and it can be very difficult to integrate them on to the platform, to retain the talent. So we have done a few of those things in the past where we thought we had a unique cultural fit or the right team, but that really is not a focus for us. In terms of M&A, you tend to have to buy those things over and over and over and over again, and we don't like that.

So Bryan, you've -- you guys have done a great job on expense discipline and while continuing to invest for growth. I think when we heard from you last month, you said you felt good about the way the market was thinking about expenses. But maybe just talk a little bit about how you're thinking about expenses, and Tim, if you want to get involved. How do you think about the right balance in terms of the investments you need to make versus improving efficiency and returns?

Yes. I mean, from a long-term perspective, you have to continually invest, as Tim even said in his prepared remarks, you have to continually invest in the company for growth. To grow stable, reliable returns through the cycle, growing the investment, the production capacity of the company, through the sales force, through productivity enhancements, through technology and product enhancements, those are all going to be valuable for us and things you're going to continue to see us do. We expect 2025 expense growth right now to be about 3%. We feel like that puts us in a good spot where we're able to make those right investments the right way, including the acceleration of the de novo investments that we've been talking about. The de novo investments alone are a point of the expense growth. Now what we do is we focus on efficiencies to make sure that we can find more capacity for investment. And if you were to look at our strategic investments over the last several years, we funded about half of our strategic investments through our efficiency initiatives. Expense allocation, capital allocation, that is a strategic exercise for us, and we stay very focused on making sure that we can deliver that. Combining that then with being able to deliver the right revenue growth, as the revenue of all these investments are ramping even with higher expense growth in 2025, as Tim said, we expect positive operating leverage. We're targeting 1 to 2 points of positive operating leverage in 2025, and that's going to put us to have continued progression and improvement in our efficiency ratio. And put us in a position where we think 55% is a nice target from an efficiency ratio to run the company. It will take a little bit of time to get there still, but we'll be progressing in the right direction.

Excellent.

We have [indiscernible] under the [indiscernible] for you there.

I was actually going to ask you about the efficiency, right? It's like Tim is taking a test and he's cheating by reading the question.

You've got to tilt your notebook a little bit here, Ryan. If you want me not to see what's coming.

That's remind me of third grade. Tim, maybe we spend a minute on digging deeper on the Southeast build-out. I think you guys spent, had Jamie spend a lot of time on the expansion last month, you're opening 50 to 60 branches a year, goal with a roughly 50-50 split. I guess given the success you've identified a lot of the branches, why is this the right pace? Are you moving fast enough? Can you accelerate the pace?

Yes. I mean the pace -- I -- we are -- what Jamie said is right. We are practically doubling the pace at which we're opening these things. I think the way that we elected to talk about it made it sound like a more dramatic increase than it actually is. And we have 115 of those 200 sites already secured. What's really happened here is there is a learning curve at every step along the way in building a new branch. Like if you say you're going to do a de novo expansion and you haven't been building a lot. You've got 5 to 7 years of learning in front of you because you got to be able to figure out how to choose the physical real estate, then you got to get into the market, which either means knock and talks, where we get a lot of our best locations or getting involved in the brokers, then you got to negotiate the LOIs and you got to figure out what to build and you got to get through the zoning and permitting process. You can argue with some jurisdictions about whether or not people still want to drive through which they do, right? And whether they need 2 points of ingress and egress and where you can put your sign, then you got to figure out how to staff these things and then you got to figure out how to market them. And the right way to undertake a thing that is this significant in terms of your capital investment is to do some and to figure out how to make them work before you lean all the way in. So the first 20 of the 119 that we built are definitely not as strong performers as the next 99 were, right? We just are at a point where we have a system. We have some patent-pending tools in terms of our geospatial analytics capabilities. We have the know-how on the marketing front, which is evidenced in the fact that our de novos are doing about 2x the deposits within the first few years, which is a really critical inflection point. And it makes sense now to continue to accelerate the pace. So I think one thing I do have a little bit more conviction on as it relates to the medium-term outlook is that we're in an environment where interest rates are not going to be 0, and where they're more likely to be in the 3.5% to 4% range than they are in the 2% to 2.5% range. And in that environment, granular consumer deposits are extremely valuable, right? So it is the confluence of a good market opportunity with our having industrialized the know-how on how to do this stuff that gave us confidence to really lean in here.

And you guys have obviously chosen to go about this organically.

Yes.

Obviously, markets are optimistic that there will be -- may potentially be more M&A. Does that at all fit into your strategy? How do you think about the trade-off of speed to market versus customization of location selection and the like, which I know has been a big part for you?

Yes. I mean I think exactly the way that you described it as a trade-off. Like, the best thing you can have as a strategist is choices, right? You don't like to be in a position where you have one option because you tend to then have to be a taker as opposed to being deliberate about the choices you make. So we have an organic expansion option that works that has proven that delivers very strong IRR and that is granular and therefore, the mistake at the margin isn't a big deal. But it takes time, like we've been at it for 5 years. We were talking about needing another 4 to get to the point where we're 50-50. And then we got to wait 7 years for those branches to fully mature in terms of getting the value out of it. So that is a trade-off that we will always evaluate, right, but it's good to have choices. M&A is not a thing we need to be able to do in order to continue to generate stable, highly profitable growth at Fifth Third.

Tim, in your early remarks, you mentioned markets you're expecting deregulation. When you think about it from a bank perspective, whether it's regulatory-wise, the ways you supervise new regulations, changing the heads of administration -- of regulatory agencies. What are some of your expectations? How are you thinking about any rules that haven't been finalized. How does that really impact Fifth Third?

I mean it's -- we don't even have all the nominees yet, much less the full appointment. So we got to be a little bit patient here and wait to see. I think what I would say is the proposals that have been made -- now they don't feel like the minimum anymore. They feel like a maximum right in terms of the potential range of outcomes here. What I will say is this is, I think it is clear from what we hear from the incoming administration that their focus is on driving up the organic growth rate of the U.S. economy, right? They are operating under the belief which I can subscribe that high-quality growth fixes a lot of problems better than the other means to fix them. So I would expect for them to want more capital to be available to invest in lending, right, for more liquidity to be available to support lending and other financial activity for fewer rules that constrain investments in innovation or that slow the pace of bringing those innovations to market because that is the path for them if you're also going to do some things that have potential inflationary impacts like managing down the size of the labor force, like looking at tariffs, which would have an impact on input costs. And without doing anything on taxes to get this issue of the deficits that we've got more under control in terms of GDP. So I mean that at least where we sit, based on what we hear is the direction of travel is get the government out of the way from an innovation perspective and from a pace of play perspective, get as much capital as we can prudently make available, available to support lending and real economic growth.

You mentioned capital twice there. The bank is obviously in a very strong capital position. You've been consistently repurchasing shares, I think, including this quarter, 3 quarters in a row. Maybe just how are you thinking about uses of capital into 2025. Stock is obviously trading at a nice premium to peers. How do you think about using for buyback as opposed to holding on some capital for a potential return of organic growth?

Yes. We feel -- one, we try to keep things pretty simple. We -- for us, it's -- the math tends to work out about a 1/3, 1/3, 1/3 is how we think of it with the dividend, organic growth and then basically the excess capital that you have to figure out what to do with. We like the dividend payout ratio in the low 40s, so it's been a good stable spot for us. With the profitability outlook, we feel good about the dividend outlook for 2025, obviously. The organic growth, we can deliver that GDP, that GDP plus organic growth with kind of 20% to 40%, and then that gives you a lot of flexibility. We're very cognizant of the cost of undeployed capital because we do want to make good decisions for our shareholders on that. And at the same time, because of that level of profitability, we are able to build capital rapidly. I mean we grew 100 basis points of capital in a year because of the profitability of the company. And so similar to Tim's comments on strategic flexibility, that gives us a lot of capital flexibility as well, where we can continue to support the stock with our profitability outlook. We feel very good about our stock as an investment, and we're comfortable buying our stock. But we will be flexible around the needs as we look at organic growth opportunities for those ultimate decisions.

And you've been targeting sort of 10.5%? Do you feel there will come a time where we could be talking about capital ratios in or around 10% or potentially lower?

Yes, I absolutely think capital ratios can go down from here.

Got you. Maybe one last question for me. So Bryan, you talked about credit in terms of the fourth quarter, you are running around 45 basis points. You guys obviously have had best-in-class performance across CRE. Maybe just talk a little bit about what are the areas you're seeing losses come through? Do you think we're fully normalized and we're going to see more stability into next year? How are you feeling about that overall?

We're feeling fairly normalized at this point. We've talked about 35 to 45 basis points as normalized charge-off levels for our company for several years now. That was before we were in a plus 500 scenario and higher rates and higher volatility. Our range, we'll probably think we're going to sit around the higher end of that range, obviously, again this quarter, and that's probably our outlook for next year as well. In an environment like this, in the C&I space, in particular, you're going to have some companies that are in a weaker position. And you see it in headlines today. There will be more bankruptcies, there will be more failures in the space, but it's very manageable and navigable. We continue to feel great about CRE and consumer has certainly normalized as well.

Got you. Well, unfortunately, we're out of time. So please join me in thanking Fifth Third.

Thank you.