Started here. So next up, we have with us from Fifth Third, CFO Bryan Preston. For those of you who don't know, Bryan played tight end for the University of Cincinnati.
Long time ago.
So what did you make of the Super Bowl?
That was an interesting one for us in Cincinnati because we were kind of hoping that nobody would win, but obviously that can't happen. It was nice to see a little bit of variety. I felt like the Eagles were the better team, and that kind of is what played out. Running the ball in the NFL today is clearly a priority. If you can do it the right way and if you can get a special athlete like Saquon Barkley, it makes a big difference.
It does. And as a Giants fan, you can only feel even worse about yourself.
Yeah, you have to feel bad. I feel bad for the Giants fans.
So, moving on to better things, Bryan. We talked about this last night, continuing on a conversation. Give us a sense of your perspective around the operating outlook for the bank as you think about today versus this time last year, both in terms of how good or bad you're feeling about Fifth Third's outlook as well as what you're hearing from customers.
Yeah, it's obviously a much different environment starting this year than it was last year. Last year, the conversations we were trying to figure out what does the rate environment look like. We started the year with an expectation of three to six cuts. We had as many as 10 cuts at one point priced in over a kind of an 18- to 24-month horizon. And the conversation was really around your ability to manage through that rate environment. Much different scenario today. You think about we're actually starting to see some green shoots. We feel really good about the loan growth that we saw in the fourth quarter. That activity, we've seen some continuation in the first quarter as well.
We're not expecting to deliver 3% end of period loan growth every quarter, but we feel good about the broad strength that we're seeing in the loan portfolio today, and we've done a lot of investments over the last couple of years as we're building out the production capacity of the company, whether that is the Southeast branch expansions and what that has meant from a deposit perspective, investments in our middle market sales force across the regions of our company where we have middle market loan production offices, as well as investments in the payments business through the TM sales force, through investments in products and investments in our wealth and asset management business, so all of those things have started clicking really well for us, and we're seeing the benefits and we feel really good about the tailwinds that we're seeing from a production perspective.
We feel good for what we think is going to be a pretty productive environment in 2025. Is this going to be a blowout year for the industry for loan growth? We'll see. Obviously, a lot of uncertainty right now in terms of fiscal policy, a lot of uncertainty in what the tariffs could mean. But at the end of the day, it does feel like it's going to be a more productive environment than we've seen the last couple of years. We feel well positioned for that.
Thanks for that. And so you did end, I think it was one of the strongest 4 Q in terms of loan growth of the banks we cover. Was that something one-off or idiosyncratic that drove that fourth quarter growth, or are you seeing that momentum continue so far this year?
We're seeing the momentum continue through January. We feel really good about the performance in the month of January, not at quite the same level. There's some seasonality that we see in our business that is normal for us from a fourth quarter perspective. That certainly was a little bit of it. There are some specific industries that had some tailwinds. Obviously, we had low rates in the third quarter out the curve that created some opportunity in the mortgage space. So some of the mortgage warehouse facilities funded up a little bit during the fourth quarter that we'd expect some of that to reverse given what the long end of the curve has done. But broadly speaking, the middle market trends are good. We saw growth in 13 of our 15 regions in the fourth quarter.
We're seeing that kind of growth continue in the first quarter, continuing to see a lot of opportunity and success in the Southeast. The Carolinas continue to be a really strong region for us, both in North and South Carolina. Georgia has been very strong, continuing to see opportunity in Alabama with the addition of our Birmingham team. We're also seeing good opportunity in the Midwest, the Indianapolis market, the Columbus market, Cincinnati, are all markets that are performing well. So we feel good about what we're seeing out of the middle market franchise, and it's the benefits of those continued investments that we've made over the last couple of years, and then from a consumer perspective, we're also seeing broad-based strength. This is probably the first time in a long time where we can talk about consumer loan growth across virtually every category.
We've seen an environment where we're seeing home equity growth for the first time basically since the financial crisis. And we're now three or four quarters in a row where we've seen home equity growth, which makes sense. You think about the last 15 plus years, people have been accessing their home equity, but they've been doing it with cash out refis. And in today's market, with so many people locked into mortgages below 4%, they still want to access home equity, but it's going to occur through that second lien product. So that is a good, we like the risk reward of that product and we're seeing good strength there. The auto business continues to be a strong performer for us. It's a good market opportunity there from a balance sheet management perspective.
And the combination of all these things, and I think that's the piece that is probably not appreciated enough about our story, is the investments that we've made over the last several years to really build out diversification in our loan origination capabilities, maintaining the auto business, building out the middle market teams, building out expertise in corporate banking across verticals, the medical practice finance origination capabilities that we acquired when we acquired Provide, as well as the benefits that we get from the solar business. Those are all things that have been beneficial for us to manage the balance sheet and to give us as many opportunities to growth as possible and do it within a way that we're able to manage the risk appetite of the company.
I want to come back to the Southeast expansion in a bit, but maybe also talk to us in terms of the interest rate backdrop. I think it's widely expected today that the Fed may stay on the sidelines. What do rates staying where they are today mean? And does the yield curve steepening further, is that more good news versus bad news?
We think the yield curve steepening would be good news. We're trying to stay relatively neutral to rates. We just think that we don't have a lot of conviction at this point in terms of are rates going to move up meaningfully or if rates are going to move down meaningfully. And so as a result of that, we're trying to stay pretty neutral. We do think it is good for everyone to recognize this is the first time in basically 20 years where we're talking about a persistent rate environment above zero and some positive slope on the yield curve. What does that mean? It means that companies that have great deposit franchises, they're getting paid for their deposit base again in a way they haven't for a really long time. And banks are also getting paid for maturity transformation again.
Both of those things to us are really good tailwinds for the industry. And we feel really well positioned in terms of what our franchise is going to be able to generate. In the fourth quarter, the weighted average cost of our consumer core deposits, we're about 163 basis points in an environment where the Fed funds rate average north of 4.5%. That's 300 basis points of deposit margin that we're generating today that when rates were zero, that economics wasn't there. The fixed rate asset repricing that we've been talking about for a couple of years, that to us, that is a benefit that we're going to continue to see because of the steepness in the yield curve.
If we have a period of time where we have this higher curve and we have some steepness to the yield curve, banks are going to be in a position where they're going to be able to put some nice loans and structure on their balance sheet that should drive a fair amount of profitability for some time. So we feel really good about the tailwinds for the industry and we feel really well positioned to be able to take advantage of some of those opportunities.
It's helpful. I guess part of the tailwind to the margin and NII story is also deposit costs are coming down. Where are we in the journey of flexing deposit costs lower? At what point do things stabilize and maybe potentially we can see competition pick up again?
It's going to be dependent on loan growth from here. There'll be a little bit of, there'll continue to be a little bit of lag from the last cuts, and if let's assume that the Fed makes no more cuts from here, for us, we'll have some benefit here due to the CD portfolio. We have about 75%-80% of our CD portfolio that's going to mature during the first quarter. That'll be a tailwind where there should be some repricing that we're able to achieve out of that. The rest of the portfolio, we've done a decent job from a repricing perspective. We talked last year about being able to recycle interest expense.
That is a program that we would expect to continue in the future as we basically have the ability to have some deposit rates come off promo to reinvest those promo rates in the new customer acquisition tactics. That is something that I would expect us to continue from here. And if you see loan growth pick up in a more meaningful way, that is probably the thing that will drive deposit competition to pick up. But if that's happening in general, if you're participating in the loan growth, that should be a net benefit for the industry from an NII trajectory perspective. It'll be interesting whether you see some rational competition from a margin perspective. If people are more focused on driving loan growth than driving NII growth, that would be an interesting kind of dynamic.
But for the most part, we're seeing a decent amount of discipline just because the industry is so focused on showing that turn from an NII and showing a positive trajectory from an NII and NIM perspective and showing some recapture of profitability that was lost as a result of the rising rate cycle.
Got it. I guess maybe let's talk about the Southeast expansion and the strategy there. I mean, we're seeing every bank you talk to is keen on investing in the Southeast, growing there. Now, Fifth Third, obviously, you can go back two decades before you sort of make entrance into some of the Carolinas, North and South Carolina markets. But remind us in terms of the last few years around what the strategy has been in the Southeast and early proof points of success.
Yeah. So at the end of the day, what we're focused on is how do we build a franchise that actually has the ability to sustain strong growth rates through the cycle, being in a position where we can grow at GDP plus a point or two from a loan and a deposit perspective over time. And the first way to do that is better attach yourself to areas of the country that have higher inherent growth characteristics. And that has been the foundation of a big part of the Southeast strategy. We obviously have had a lot of exposure and a lot of investment in the Southeast for a long time. It started in the 1990s when we started acquiring institutions in South Florida. The Naples area was kind of our first foray into the Southeast. And we made additional acquisitions in the early 2000s.
So for us, the Southeast investment, it's a continuation of a build out of our franchise. And for us, it's also not, we're not starting the Southeast play. We're finishing the Southeast play. 200 branches over the next four years in the Southeast. We're going to end with almost 600 branches in our Southeast markets. And we're going to be in a top five position in almost all of the markets where we participate in. So it really is about finishing the play. And we're not just starting here. The one thing that we feel really good about is that we're 130 branches, about 130 branches into our campaign. And we have learned a lot on how to do this the right way. You can see it in the FDIC data. We've talked about it at some other conferences previously. The de novo performance has been very strong.
We see great growth. We model to a three-year earnback in terms of getting to break even. That's been happening faster. We try to get to $20 million of deposits per branch by year one, $30 million by year two. We're outperforming our modeled expectations by about 20%. Some of that certainly the rate environment helps in terms of there is a little bit more of a balance theme today as cash is seeking deposits as an area of investment.
But the system that we've put together in a combination of the analytics behind our location selection, how we then think about staffing and putting the right sales rhythms in place, supporting our branch personnel with analytically driven opportunities to talk to customers about, and then putting it all together in a way where we actually are getting network effects out of the branch network because we are getting to the right density in those markets. All of those things together are what's driving that performance. And there are things that we would expect to be able to continue in the future. We feel very good about the lead that we have and our ability to continue to execute as we do this build out.
We've got a lot of experience and we're going to take advantage of that as we accelerate with a couple hundred branches over the next four years.
Just talk to us when you think about client acquisition across the Southeast. Is it consumer driven? Is it deposit promotion driven? Is it commercial bankers bringing in business? Just what are the one or two big areas, ways in which the bank is acquiring new clients?
In the consumer space, it's deposit driven. It's household driven. So depending on the environment, really the last 18 months has been more balance driven. But in front of that, it was household driven. We feel very good about our household acquisition tactics. And that's why you've been able to see kind of persistent kind of three-ish% household growth out of us now for several years because we have good tactics then and to execute to bring customers into the branch and retain those customers as long-term households for the company. So from a retail perspective, that is the foundation and the focus of the marketing spending and the branch build. In the commercial space, it is about the middle market bankers. The thing that we like to do, we like to hire bankers that know the markets.
The objective isn't that we're going to bring in people from legacy Fifth Third markets and drop them into the Southeast markets and expect them to know the market. We want to bring a team. The spots where we've, we want to have a team in that market that knows the market, and it's more than just the RMs. The places where we've had success, it's where we have opportunity both from a first line perspective as well as a second line credit perspective. Our credit people, everybody reports to our Chief Credit Officer, Greg Schroeck, but they're distributed out in our market. They're getting to know our customers. They know the specifics of the individual markets. That's part of the strategy. Our customers want to know their credit person.
They want to know the person and be able to tell their story to the person that has the power of the pen in terms of credit capacity. For us, that has really been part of the strategy. How do we bring the right sales force and so that we have that combined coordination between both sales force and credit and serving our customers in our market? And then from a fee perspective, bringing the rest of the bank along. So having the right wealth and asset management support associated with the middle market banking in each region, having capital markets representatives that understand how to support customers' capital markets needs out in the markets, and having our TM sales forces that understand product expertise and capabilities and how to solve customer problems. We're very focused on having leadership teams in the markets that can bring the whole bank.
It is a holistic strategy. When you look at all of our businesses and all of our fee businesses, the majority of the fee businesses that we deliver through capital markets, through wealth and asset management, through commercial payments, it's all from relationship banking. These businesses aren't operating as independent silos. They're part of a solution where we bring the whole bank to our customers.
Maybe if we could follow up on those three businesses you mentioned, maybe starting with payments, you broke it out differently for investors to kind of have a better sense of what's happening. I think Tim talked about it during the earnings call, but what are you doing on the payments business? Is it a wallet share play or is it a client acquisition play? And what's the growth runway look like?
Yeah, we have been really pleased with what we've seen out of the payments business. We think long term for us, for a period of time, it's going to continue to be a high single digit, low double digit kind of growth business for us from a fee perspective. It's about a $600 million fee business for us today. And in addition to that, it brings $30-plus billion of operational deposits associated with that, the majority of which are DDA. When you take the NII contribution associated with those deposits and you assume something as simple as even a Fed funds crediting rate, it's a $2 billion revenue business for us today. So it is a sizable business for us from a revenue contribution and it is a growing business. And that excites us. So then the question is, what are we doing that's creating success there?
How do you think about driving or what's driving that long-term growth? Foundationally, a core part of payments is traditional treasury management services. That business grows 3%-4% a year and it grows when the balance sheet grows, and it's part of how we deliver our one bank model to our customers. When we extend credit, we know that we're winning our fair share and potentially more than our fair share from a treasury management perspective, so that delivers for us and delivers for the industry typically 3%-4% a year. The next component is our managed services. This is the spot where we're basically trying to use technology to solve operational problems for our customers. We've spent a lot of time talking about that, but we talk about where we're acquiring.
We're typically acquiring these days about one customer with no credit in our commercial payments business for every customer that we acquire with credit, and that's because of the quality of the products associated with managed services where we're able to actually help customers take out hard operational costs. They're able to take people out because of receivables or payables automation. They're able to take courier costs out or other cash flow costs out associated with management of their physical currency needs. Those are real hard dollar saves that we're able to deliver for customers that they value, and that is adding about one extra customer for every customer we acquire with credit in the payment space, so you take the 3%-4% baseline rate, you add another 3%-4% because of the power of those managed services.
And that gets you to that kind of 6%-8% kind of growth rate. And then the last component is Newline, the embedded payments business. This is one where we're trying to be the infrastructure provider that gives access to software developers that have payments needs within their ecosystem. We want to be the best. We want to be the partner of choice for payments needs for the best developers. And that's why you're seeing names like Stripe and Trustly and Nuvei and Blackbaud and Toast. These are all people that ride on the Newline rails. We have more than half of the large payroll processors in the country that ride on these rails because we want to be the vendor of choice in that area.
And as more and more innovation occurs and as more and more things move off of things like card rails onto kind of new software-based platforms, we're going to benefit from that. And that business has been a 30% or 40% revenue growth business for us. Now that's off of a very small base, but that's going to continue to grow at a very high rate would be the expectation. And that's what adds that last couple points of growth that gets you to that high single digit, low double digit kind of growth rate, which we feel good about that trajectory, and we feel really good about our market positioning.
And very quick, remind us about the go-to-market strategy on this. Is there a dedicated sales force or the commercial bankers selling payments capabilities to their clients? How are you acquiring them across the three channels you mentioned?
So across TM, there are dedicated sales forces. There's a dedicated sales force. We have sales forces that support different regions of the country. We have sales forces that support different verticals when there's industry expertise that's needed. And then we also have product expertise where, especially in the managed services space, it almost becomes more of a software sale than it becomes a banking services sale. So having the right sales force that knows how to sell that product to the right person within a company has been very valuable. On the embedded payments on the Newline space, that is its own unique sales force because what you're trying to do is you're trying to partner capabilities with developers and helping them understand and working with them from a product development perspective on how your capabilities can enhance what they're trying to accomplish from a product development perspective.
I guess maybe spending a few minutes on the other two, you mentioned wealth is a big focus. Is this more in terms of mining your existing client base and getting their wealth assets to Fifth Third?
Yeah, it's always about 70% of the AUM inflows that we see in our wealth business come from a different part of the Fifth Third franchise. So it's either coming from middle market customers, middle market business owners when they make a decision to sell their business and transition from being a business owner to a financial asset owner. We capture a lot of that value as part of our capabilities and wealth. We have a team that's dedicated to helping our customers transition through the sale of their business. And that has been a great ability. It has been a great capability for us as we've acquired AUM over time. The second component is we grow with our customers that grow through our retail franchise as they accumulate wealth over time and then they may upstream into our private bank.
Those two areas are foundationally where we get most of our growth from a wealth perspective. As we've continued to make middle market investments in new markets, there is going to continue to be opportunity for us to add wealth resources in those markets as well. That'll continue to be a virtuous cycle where we should be able to see growth from there. The other component in wealth has been our Fifth Third Wealth Advisors strategy. This is an independent RIA that we have developed and have basically been attracting people that we felt like there was a gap in the market for bankers that were looking for basically traditional trust bank capabilities on an independent platform.
If you came from a wirehouse, if you came from a former kind of B of A Merrill kind of platform, you were probably looking for something that was more in line with something like LPL Financial provided. We've seen opportunity in a space where people want to have the ability to offer a full service associated with trust bank, but have some independence, and Fifth Third really has a trust bank heritage, and if you actually go back to our legacy name, the two big banks that were the foundation of Fifth Third, it was the original Fifth Third franchise and it was Union Trust. And so we have a trust bank heritage and we've been using that to take advantage of some growth opportunities in the market.
Are there a lot of small wealth managers that you can acquire or I guess team lift out? What's the opportunities that look like there?
We've seen about $2.5 billion of AUM growth over the last 24 months from the strategy. The goal would be to attract a couple few, two, three, four teams a year to the platform. It's not one where we're not buying books as part of this. We're not paying sign-ons. We're finding people that want to be part of a little bit more flexible platform and have been able to attract people. It's a diversifying strategy for us in the wealth space. And it's one that we think there's some tailwinds behind still, but it won't be long. It'll be part of the strategy, but it's also not the most dominant portion of our wealth strategy from here. The continuation of providing service in particular to the middle market customers, that'll be the spot where we would continue to expect to see strong growth out of wealth.
Our wealth business is a scaled business. We have $70 billion of AUM, approximately $70 billion of AUM. And we only have about $4 billion of loans for the wealth business. So it is a true asset management business. It's not a lending business. It is really managing the needs of our customers from a wealth and asset management perspective.
This may be around if we can switch gears to expenses. So you're investing in the franchise, but talk to us around when you look at the bank today, efficiency opportunities, how you think about in the near term and over the medium term, just driving continued efficiencies, positive uplift. What's the growth? What's the runway on that front?
There is a lot of runway on the expense front still. The reality is there's a lot of processes over time, whether it is as new technologies become available or as we continue to modernize the core systems, it creates a lot of opportunity from an efficiency perspective. We talk a lot about value streams. We have a focus of kind of continuous improvement through value streams. We organize things in an end-to-end way so that we can see where things are getting lost in the cracks when there are handoffs between groups. And in general, we have a target of finding two to three points of savings every year. And on a $5 billion expense base, that's trying to find $100+ million of savings out of the core run rate costs of the business so that we can reinvest that into the growth strategies.
That's how we've built 130 branches. That's how the 50 to 60 branches that we're going to open in 2025, those cost us about a point of expenses, throw in the additional sales force that we're hiring across our markets and the tech investments we're making. We've been able to, I think we've been able to do more in terms of investments over the last four to five years than most people have and at the same time manage expense discipline. And that day to day in the details, kind of grinding on expenses, understanding where opportunities are and working to find, relentlessly working to find automation and the removal of manual processes as part of our day-to-day activities is a big part of that. And there's a lot of runway to still happen on that front.
We're an industry where there are a lot of handoffs and a lot of processes, and whether it's through technology advancements, AI, there's going to be a lot of advancements over the next five to 10 years that's going to create opportunity to get expenses out.
Got it. Maybe switching to credit quality, I think you're in charge of guidance 40-49 basis points. It felt quite precise, by the way, the 49 basis points. But it seems like we saw some normalization in losses last year for the industry and things are kind of leveling out at current level. Just give us a sense of when you look at credit quality, any areas of stress, what's the outlook? Is the risk more in terms of credits better than expected or worse than expected?
We think we're pretty well down the middle from a credit perspective. We feel pretty balanced on what we're seeing. And we're actually pretty positive on the trends that we've been seeing. It does feel like as long as kind of nothing significant happens from an economics perspective to the negative, that we're on an improving trajectory right now from a credit perspective. It does feel like that charge-offs for us peaked in the second quarter of last year. We saw a couple basis points of improvement into the third quarter, a few more basis points into the fourth quarter. And we feel like that kind of trajectory is trending. We look across the portfolio, both from a commercial and a consumer perspective, we feel really good about what we're seeing. Broad-based commercial, there's really nothing where we see any broad-based deteriorations across a geography or an industry.
We feel like our customers have done a really nice job of navigating what has been a fairly volatile interest rate and inflation environment, and they've taken the right actions to keep their balance sheet well positioned. The CRE portfolio, we continue to feel incredible about our CRE portfolio. Zero charge-offs in CRE for a couple years now. We hope that exhibits to people that we've got some really good disciplines around credit within commercial real estate. I don't know that there's anybody that can talk about that kind of performance, and we feel really good as a result of that. The one place, and Greg Schroeck, our Chief Credit Officer is here with me, that I think always keeps him up at night because as a credit person, he has to be cautious and he has to be nervous. He keeps an eye on the leverage portfolio.
When you talk about a higher rate environment, companies that have more exposure to higher debt service costs, they're the ones that are going to have less capacity to deal with challenges in the future. And so that's the spot that we continue to keep an eye on, but we feel really good about what we're seeing in that portfolio as well. On the consumer front, broad-based, our consumers are continuing to perform really well. We're a prime super prime lender. 85% of our consumer exposure is to homeowners.
And you think about homeowners, if you were able to lock in your most significant expense on a monthly basis as part of the refi boom of kind of 2021, 2022, you're in a great spot from a cash flow perspective where a little bit of wage inflation has put you in a spot where you saw real wage growth over the last couple of years. And that's what we're seeing out of our consumer loan portfolio right now. While we don't do a lot of lending, we don't do any lending really to subprime, we still see what lower FICO customers look like in our deposit portfolio. And certainly we're seeing them back to what we would have described as pre-COVID levels of financial resources.
And they're back to about a week and a half of cash in general, a week and a half of spending in general on their deposit accounts, back to truly living paycheck to paycheck. But for us, that's not the customer base that we're lending to. So broadly based, we feel good about the credit performance and the credit outlook from here, and we feel like that 2025 should be a good year.
I guess maybe finally just talk about there is optimism in terms of a changing regulatory backdrop and maybe having a more balanced, predictable sort of regulatory regime. What are you expecting? What does it mean for Fifth Third from a tangibly? What does it do for you either from a capital or liquidity standpoint or from how you run the bank day to day?
Yeah, there's still a lot of questions, obviously, on where things are going to end up from a regulatory perspective. We do think that something still likely happens on the Basel III front. It wouldn't surprise us that the AOCI opt-out goes away for banks our size. So that is an item that we take into account as we think about balance sheet management. We talked about this a little bit last night where coming out of the banking crisis of March of 2023 and the fallout from Silicon Valley, do you think about managing your balance sheet differently? We would tell you that yes, we would do some things a little bit differently as a takeaway from that scenario. I don't think you'll see us get back to a loan-to-deposit ratio that's in the mid-80s, which was a spot that we were operating at for a while.
We don't think we have to stay at the 72% or 73% loan-to-deposit ratio that we have today. But I think you're probably still talking about a number that has a seven handle on it. It just may get into the high 70s over time. We'll make some different decisions in terms of how we manage the investment portfolio. For our balance sheet, from a long-term perspective, a five-year duration was about the right spot that we typically tried to manage the investment portfolio to over time. We just have a lot of floating rate loan origination capabilities. Typically, we're about 60-65% of our portfolio on the lending side had been commercial, and the majority of that had been floating rate. So we needed a little bit of duration in the investment portfolio for us to manage interest rate risk through the cycle.
That probably shortens a bit with the AOCI opt-out going away. We're down to about a 3.8 duration on our portfolio right now. I tell you, we probably plan to manage that portfolio with a three- to four-year duration from here. Certainly, the rate environment from here is a big question because we're into the range where you might start doing a little bit from a duration perspective, but we're still being cautious on that front. For the last 18 months, we have been putting most of our cash flows into floaters out of the investment portfolio.
Would expect that to still be the predominant investment for a little while until we have a little bit more clarity on what fiscal policy looks like coming out of the new administration because we do want to make sure that we're thinking about this the right way in terms of what are the right long-term entry points from a fixed rate perspective. And so those are some of the things that we think about and that you'll potentially get some change on. We would expect something on the liquidity front still. We think that there has to be some discussion of treatment of held-to-maturity securities. We will see what happens on the long-term debt front, whether or not they actually try to push something forward from a long-term debt requirement down to Cat IV .
And then more broadly speaking, it just feels like the theme is about a little bit more friendly interactions with the industry. So some potential benefits, hopefully from a supervisory perspective, that actually allows management teams to spend a little bit more time on managing the business, managing growth opportunities for the business, and a little bit less time on dealing with some of the governance associated with supervisory activities.
Maybe Bryan, just talk about how you're thinking about capital management in that construct. You mentioned you do think the AOCI opt-out goes away. So either C&I or adjusted C&I loan growth seems like things are picking up and momentum is continuing. How do you think about buybacks versus building capital?
Yeah, so based on what we know right now and based off of the economic environment that we see today and that we expect to see for the next couple of years, we feel very good that 10.5% from a CET1 perspective today, using the current rules, puts us in the right spot to be able to navigate to the transition of a potential future rule that would include the AOCI opt-out going away. Like 10.5%, we've done a lot of analysis around this. The certainty that we have in the burndown of AOCI in our investment portfolio because of the bullet locked-out structures, we feel very good that 10.5% is the right spot to be managing our company to right now. If the rules, if the proposals change associated with the capital rules, we would potentially revisit. But right now, that is a good spot to manage to.
So with that, we're really targeting capital ratios as we think about ultimately what drives the share repurchase volume. First and foremost, we're going to pay a strong and stable dividend. For us, that's about a 40% payout ratio is the spot where we've been. The next would be funding organic growth. When we see the right opportunities from an organic growth perspective, we've been able to deliver high teens returns for our shareholders on the deployment of capital and organic opportunities. That is a great return for our shareholders that we would expect to continue. If you see mid-single digit, if you see mid-single digit loan growth, that equates to about a 40% of your capital of your earnings that you would have to retain to support organic loan growth for us. So that leaves about 20% for share repurchases.
There'll be a little bit of movement around that level depending on where loan growth is each quarter. That puts you back into that ballpark of, say, $100 million-$150 million a quarter of share repurchases, which is kind of a normalized rate for us. That's the way out for us. That's the way I would be thinking about capital returns over time.
That's helpful, and talk to us whether or not inorganic growth, be it from a bank M&A or non-bank M&A. Would that be appealing? Does that make sense for the franchise? Sounds like your growth is firing on all cylinders across the bank, but would love to hear how you're thinking about that.
The one thing that we feel good about and that we will, it's inherent in how we think about managing our company, is we like to have options. Options in terms of balance sheet growth, options in terms of managing through rate scenarios, and optionality in terms of thinking about organic versus inorganic strategies. The benefit that we have today is that our organic investment strategies are working. And what that creates is a hurdle for us as we think about whether or not we would want to do anything from an inorganic perspective. Obviously, there's a lot of discussion out there that with a friendlier environment out of the regulators, that there may be more opportunities for inorganic growth. But for us, we don't feel like we have to do anything. The organic strategies are working.
And if we were to consider anything in the organic space, it has to make sense for our shareholders, and it has to make sense strategically for the company that we're trying to have and the company that we want to have for our shareholders and our communities and our employees in the future. So for us, that gives us a lot of ability to make sure that we're going to do the right transaction if we were to do a transaction at all. We don't feel like we have to stretch for anything from a bank space because the things that we're doing today are working, and we'd rather not distract our team from executing on things that we have high confidence in the returns that we're able to deliver. Outside of banks, there's always opportunities.
We did a couple of small things over the last couple of years in the fintech commercial payment space. We feel very good about what we've accomplished there. If we're able to do some smaller bite-sized things that create some capabilities for us that we think advance the strategic objectives of the company and continuing to drive the income growth, those are things that we would consider. But all of these things have to be done at the right price.
All right. With that, Bryan, thank you so much.
Thank you.