Q2 2020 Fifth Third Bancorp Earnings Call
This time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you'll need to press star one in your telephone you require any further systems. Please press star Zero I would now like turn the call over to crystals director of Investor Relations. Please go ahead.
Thank you any good morning, Thank you for joining us today, we'll be discussing our financial results for the second favorite 2020.
Please review the cautionary statements about materials, which can be found in our earnings release and presentation materials contain reconciliations to non-GAAP measures along with information pertaining to the use of non-GAAP measures as long as forward looking statements about two thirds performance. We undertake no obligation to it would not expect you update any such forward looking statements. After the date of this call.
This morning, I'm joined by our President and CEO got Carmichael.
So it's actually because he chief risk Officer, Jim You Wonder Chief Credit Officer, Richard Stein.
Following prepared remarks by Greg anti soon we will open the call for questions.
On the colder not exact for his comments thanks, Chris that goal you for joining us this morning.
Oh focus most of my comments on the after you get taken to navigate this challenging environment.
Provide some highlights on our strong financial performance this quarter.
Well, if you will provide more details related to the quarterly financial results in his remarks.
Ladies young we challenge is borne by the pandemic into heightened civil unrest, resulting from the in equities in our country.
We continue to prioritize or actions where customers or communities and our employees.
You correctly made over 3 million close to our customers since the onset of the pandemic two shuster financial situation.
In total we are processed over 150000 Liberal Barents request.
It's a rollout of workover hardship programs approximately 6%.
Total loans.
35% of those in our consumer approval for Barents programs have made one or more payments.
Consumer hardship relief request, including mortgage declined approximately 85% in the mid April peak last we could you beginning July 1st.
We started methodically transitioning our customers from the koby departure programs to a combination of short and long term options. If the customer Clark further assistance, depending on the product type borrowers circumstances. This approach is consistent with our pre cobot hardship programs.
As in the last week more than 50% of the consumer loan deferrals have transitioned off the coast programs, which only 12% of requested additional hardship assistance.
In total consumers actually koby programs and request additional relief represent less than <unk>, 0.5% total consumer loans.
The decline in request a high percentage of customers, who have made it payment.
In a small number of customers requesting additional assistance give us confidence in the strength of the underlying credit quality.
How about consumer portfolio.
In addition to provide report separately, we could to support customers to the paycheck protection program.
Due to the tremendous efforts by hundreds at the third employees, we have successfully originated $5.5 billion of loans, but instead of 38000 small and midsize businesses, which in turn helps approximately 500000 employees.
Our PPP customers.
Looking ahead to climb forget this request.
Well, we are waiting for the clarity from U.S.P.A., we have developed and automate solution, which should help simplify the forget this process.
Ultimately, we just made nearly 90% of PPP clients.
Yes.
What we're forgetting.
Our top priority remains at health and safety of our customers employees. We have kept approximately nine nine personable branches open Ralph endemic to serve our customers. We continue to monitor developments in select geographies given the recent increasing koby cases, and we will continue to fall the state and CDC guidelines to protect.
The safety of our employees and customers.
We continue to encourage customers to utilize our digital tools joint pandemic as a result, we're seeing increased adoption rates with adults, 25% of old transactions now occurring or digital channels.
Now moving on to financial results.
Our second quarter performance was strong.
Once again our results.
Highlights the strength of our franchise and our ability to navigate the dynamic environment and mitigate the impact of lower rates do well diversified the revenues and continued expense discipline.
We have now generate year over year, just a plausible operating leverage in seven.
Although the past eight quarters and grew tangible book value per share for five consecutive quarters.
The group common equity tier one capital this quarter, despite adding to our reserves and paying nearly $200 million in common dividends.
Our C E T. One ratio improved 35 basis points to 9.7%. Additionally, although the core deposit ratio reached historically low level of 72% excluding PPP loans.
Our strong capital liquidity ratios or indicative of our balance sheet strength, which will serve us well as we navigate this challenging environment.
With respect to capital, we recently announced or indicative stress.
Capital buffer requirement from the 2020 C Corps exercise 2.5%.
Which is a four under the regulatory capital rules.
Got the floor, we estimate a buffer would have an approximately 2.1%.
We also announced their intention to maintain our current common dividend per share we continue the suspension or share repurchases through at least year end.
We will continue to provide our board with the necessary information to make forward looking data driven decisions about the sustainability.
Well the dividend.
In terms of credit quality, the net charge off ratio of 44 basis points. This quarter was better than the low end of our previous guidance range, reflecting improvement in consumer and relative stability in commercial.
Well, we do not have perfect foresight.
Respect to the duration were severity of this downturn, we have consistently communicated or through the cycle principles disciplined client selection conservative underwriting and overall balance sheet management approach focused on long term performance.
Well economic visibility remains low or unwavering adherence to these principles in our balance sheet strength gives us confidence as we navigate this environment.
From a commercial clients standpoint, we continue to focus on generating relationships with clients, who have more diversified and resilient balance sheets as well as multiple sources of repayment.
Given very successful.
Keeping our client relationships and as a result of generated record capital markets revenue three l. the last four quarters.
We believe this composition towards larger relationships will serve us well as our clients navigate the pin debit in fact corporate banking clients, representing approximately 20% of our exposures successfully.
Excess debt and equity capital markets since the onset other pandemic to bolster liquidity, including 20% in a coated high impact industries.
We continue to believe we are well positioned relative to peers in commercial real estate and area, where we have been deliberately underway.
We have focused predominantly on top tier developers with the track record of resilience is significantly lower ltvs compared to last downturn.
Our portfolio is well diversified by geography, and property type, including virtually no land loans.
And as we've discussed before would be to get the low end appears as a percentage of total cash.
It is worth noting that across both of our portfolio as a consumer and commercial we have focused on maintaining geographical diversification through several national businesses, including indirect auto residential mortgage in addition to see an eye and CRT.
Our credit risk as well diversified beyond our retail footprint through these national lending businesses, which will be instrumental in delivering a differentiated credit performance given the likelihood of an uneven economic recovery.
In addition to our deliberate positioning with respect to credit risk exposures. We have also spent many years preparing for churn the economic cycle by improving in diversifying boats are key revenues now loan portfolios.
Which was evident in the second quarter results.
Our PDP and our increased 10% from a year ago quarter. Despite the continued headwinds from lower rates. This reflects a record quarter in capital markets strong mortgage origination revenue.
Correct of liability management and continued expense discipline.
Our four key strategic priorities.
Leveraging technology to celebrate our digital transformation driving organic growth and profitability.
Expanding market share in key geographies and maintaining a disciplined approach on expenses and client selection remain intact.
Clearly in this type of environment, we are putting the appropriate level focus your participation on the initiatives within those four properties, which had the highest probability of driving long term financial success.
Before I turn over time to discuss our financial results and outlook in more detail.
I will like to once again, thank our employees I'm very proud the way you have responded extraordinary ways to support our customers or communities in each other doing these unprecedented times.
Now I'll turn it which I food to discuss our second quarter results our current outlook.
Thank you Greg Good morning, and thank you for joining us today before I begin my review over the quarter. Let me also reiterate that we are very proud of our how our colleagues have responded to the many uncertainties that be phased in navigating through the challenges associated with the nature of this downturn, we do believe that the actions that we have taken so far.
And those that we will be taking in the coming quarters, we'll continue to display our strong desire to fulfill our role in reinvigorating the economy.
Maintaining and leveraging our strength to support our clients in managing through this difficult period.
The data and information that are available to us today continue to indicate low visibility regarding the direction of the economy.
Our discussion today and our decisions during the second quarter collectively reflects our cautious approach behind our decisions on managing risk exposures in this uncertain period.
As we commented during our first quarter earnings conference call, our economic assumptions based on Moody's economic scenarios, which underlie our outlook, including the background scenario is reflected in our reserve build did not and still do not assume a V shaped recovery.
Our downside scenario assumes that GDP will remain below the end of 2019 levels until the second quarter of 2023, and the base case assumes that it does not recover until the second quarter of 2022.
Also our downside scenario assumes the unemployment rate will remain near 12% until the second quarter of 2021 and.
And remain above 11% heading into 2022.
With the base case scenario, assuming that after the current spike in recovery the unemployment rate will worsen and peak at nearly 9.5% in the second quarter of 2021 before slowly recover.
This reflects our belief that the downturn will be prolonged and the recovery uneven.
Turning to slide four.
With respect to the second quarter, we were pleased with our overall financial performance despite the economic conditions.
We took advantage of favorable market conditions in mortgage and capital markets, which helped us exceed our fee income projections.
Credit performance remained relatively strong during the quarter.
Charge offs were better than our prior expectations and the NPL ratio increased just five basis points sequentially.
Deposit growth significantly exceeded our expectations.
Although clearly a good portion of the inflows were related to the stimulus programs. We believe that we can leverage our clients demonstrated preference to back with us for future revenue opportunities and enhanced client interaction.
We improved our regulatory capital and liquidity position during the quarter.
RCT, one ratio increased 35 basis points to above 9.7%. Despite the reserve build and exceeds the required minimum including the indicative stress capital buffer by over 270 basis points.
Our loan to core deposit ratio improved to 75 basis point at 75% as our short term investments predominantly interest bearing cash were approximately $28 billion at quarter end.
Our loan to core deposit ratio was 72% excluding PPP loans.
The combined hedge and investment portfolio unrealized gain position stands at $3.9 billion, reflecting the growing value associated with the long term protection that these portfolios provide.
As a proof points the sequential decline of our investment portfolio yield is about a third of the peer median decline.
Reported results for the quarter included negative seven cents impact from several notable items, including a charge related to devaluation of the pizza total return swap certain real estate impairments, including from our branch network specific coated related expenses and be merger related charge.
Yes, and debt extinguishment charge.
Second quarter pre provision net revenue improved 4% from the prior quarter and 10% from the prior year as we generated positive operating leverage again, despite the rate headwinds.
Our adjusted efficiency ratio improved nearly 200 basis points from last quarter and improved nearly 100 basis points from the year ago quarter.
Return metrics were impacted by our reserve build like we continue to produce strong revenues, while also generating efficiencies throughout the company.
Moving to slide five.
Total average loans increased 7% sequentially, reflecting growth in CNS <unk> from increased line draws and PPP loans as well as growth in construction and auto loans.
Excluding PPP total average loans increased 4% sequentially.
Given the rather uneven line utilization trends during the quarter the timing of PPP loans.
We are also providing period and balanced performance.
End of period loans declined $3 billion sequentially or 3%, reflecting a repayment of line draws as well as subdued borrower demand in both our commercial and consumer portfolios.
Our commercial line utilization rate was 38% at quarter end down 9% from mid April and essentially flat compared to the pre pandemic rates.
Line utilization so far this quarter has been stable.
Commercial pipelines remain generally salt as we would expect and our focus continues to be on our existing client base in this environment.
Average commercial real estate loans increased 4% sequentially, reflecting draws on previous commitments.
Period on CRT loans were flat compared to the prior quarter.
As we discussed many times before we believe that our industry low CRT balance as a percentage of risk based capital, which is less than half of what it was during the last downturn.
Combined with the strong risk profile of our borrowers will benefit our future credit results given the likelihood that commercial real estate will be exposed rather severely during this downturn.
Average total consumer loans decreased 1% from last quarter.
Growth in auto was offset by declines in home equity and credit card.
Auto production in the quarter was strong at one $1.5 billion rebounding nicely. After the April slowdown with healthy spreads and the same super Prime profile as before.
Our average origination FICO scores or nearly 770 this quarter.
Most of the other consumer loan categories reflected the generally subdued borrower demand and consumer spending levels due to both weak economic activity and government stimulus and other benefit programs.
Moving on to slide six.
Average core deposits increased 19% sequentially.
Double digit growth in all deposits captions, except consumer Cds and foreign office deposits.
Our growth so far is multiple points ahead of the peer banks.
This record deposit growth came from growth in every line of business and was very granular across product types and customer size.
Growth in the initial amounts of the quarter reflected deposits from line draw proceeds followed by growth from depositors will obtain funding through the PPP.
Overall, the deposit performance reflects our strong longstanding client relationships our customers desire to remain extremely liquid in this environment and the lack of significant investments and growth opportunities.
Average commercial transaction deposits increased 34% and average consumer transaction deposits increased 8%.
Commercial growth was well diversified between corporate banking and middle market clients.
Average demand deposits represented 31% of total core deposits in the current quarter compared to 29% in the prior quarter.
As shown on slide seven we have continued to take proactive steps to mitigate the impact of lower rates, which should provide additional support in the coming quarters.
Compared to last quarter, we lowered our interest bearing core deposit rates 41 basis points, while generating record deposit growth more than the high end of our previous rate guidance range and sooner than we expected.
As a result.
Our June interest bearing core deposit rate of 21 basis points was below the floor of the previous rate cycle with every product category meaningfully lower as we exited the second quarter.
Our total core deposit costs, including Deejays, let's just 19 basis points in the second quarter.
And 14 basis points in June.
We expect third quarter interest bearing core deposits costs to benefit from our actions and decline another 11 basis points.
This reflects a cumulative beta in excess of 40.
In addition to the actions taken with respect to deposits. We also terminated $3 billion in FHLB advances.
End of period wholesale borrowings declined 13% sequentially as I mentioned earlier, our current loan to core deposit ratio was 72% excluding PPP loans at the end of the second quarter significantly below almost all peers.
Our current expectation is that the liquidity environment will be slow to change.
We expect that our current loan to core deposit ratio will remain at or around the current levels at least through the end of this year.
Although we are aggressively lowering our deposit rates, we will maintain a strong preference to meet the needs of our clients, which we believe will reward us into long term.
Ultimately, we believe that the strength of our deposit franchise will help lower at and keep deposit cost below previous levels, while growing our client relationships.
Turning to slide page.
Net interest income decreased $30 million or two per cent compared to the prior quarter.
The Eni performance reflects the impact of lower market rates on commercial loans mortgage portfolio prepayments and a decline in home equity and credit card balances.
These impacts were partially offset by elevated average commercial revolving line of credit balances and growth from lower yielding PPP loans as well as continued focus on reducing deposit costs and a favorable impact of previously executed hedges.
As you can see on this slide the hat hedges added incremental $30 million second quarter.
For a total contribution of $62 million during the quarter.
Purchase accounting adjustments benefited our second quarter net interest margin by four basis points this quarter.
Our NIM decreased 53 basis points sequentially.
Although not detrimental to our net interest income elevated cash had a 29 basis points incremental negative impact on our NIM. In addition to a one basis point drag from PPP loans.
Our period and short term cash position increased by four and a half times from $6.3 billion at the end of March to $28 billion at the end of June with period end excess cash 18 times higher than our 2019 average.
Excluding the impact of elevated cash positions and PPP loans, we estimate that our NIM would have been just about 3%.
Our focus in this environment is on long term in performance.
As such.
Given the lack of attractive alternative investments and the uncertainty on the timing of future deposit outflows, we expect to remain in this cash position longer than we anticipated in early June.
We don't believe that it is in our best interest to deploy any portion of the cash reserves today.
We believe that there was more leverage in continuing to reduce our blended.
With the help of our strong liquidity position, but we will reevaluate our options at the market environment changes.
In addition to the anticipated longer duration of our cash position our expected NIM Eni progression over the next two quarters also changed compared to our earlier expectations as the PPP forgiveness barrier lengthen, which resulted in pushing out our expectations of the timing of the recognition of interest income to that.
Fourth quarter and early next year.
At this time, we anticipate forgiveness to commence in the fourth quarter with about 60% of the Eni benefit to accrue into fourth quarter and the rest during the first quarter of 2021.
We expect that our normalized NIM, excluding the impact of elevated cash and PPP loans is approximately 3% and will remain there for the foreseeable future helped by our interest rate hedges and investment portfolio composition.
And our investment portfolio, we had a net discount accretion this quarter over $1 million as opposed to multiple millions of dollars or premium amortization some of our peers are experiencing.
As we have always stated one needs to look at both the derivative portfolio, where we took early actions with great entry points for a longer duration as well as the structure of the investment portfolio to gauge the long term men performance.
The significant impact of our cash reserves and the PPP portfolio. During the next few quarters will create some noise, but we anticipate and more stable environment past that.
The third quarter NIM is expected to contract another seven to 10 basis points driven by the full quarter impact of higher cash positions and PPP loans with NIM expected to then recover in the fourth quarter.
Third quarter contraction is predominantly related to higher average cash balances on our balance sheet as the impact of lower rates is expected to the offset by the continued benefits of our hedge portfolio and deposit rate reductions.
Moving on to slide nine.
We once again had a very strong quarter generating fee revenue to offset the pressure on interest income.
The resilience in our fees continues to highlight the level of revenue diversification that we have achieved.
Reported noninterest income decreased by 3% sequentially adjusted noninterest income of $670 million exceeded the high end of our previous guidance range by approximately $20 million.
The strong performance was driven by another record in capital markets as well as better than previously anticipated results in mortgage and wealth and asset management.
In our commercial business with strong performance was led by capital markets revenue, which increased nearly 20% from last quarter and approximately 50% from the year ago quarter.
Debt and equity capital markets, both achieved record quarters again, reflecting our clients ability to access the market to bolster their liquidity positions.
Mortgage banking origination fees and gains on loan sales were strong in the second quarter up nearly 20% reflecting improved margins.
Originations of $3.4 billion decreased 15% sequentially due to temporary pause in the correspondent channel in May as we waited for clarification from the agencies regarding loans for sale that entered the forbearance category.
Mortgage originations, excluding correspondent channel production increased 22% compared to the prior quarter.
Our retail originations were up 37% versus last quarter.
Asset management fees were down 4%, reflecting the impact of equity market levels throughout the quarter.
Total wealth asset management revenue decreased 10%.
To a large extent, reflecting the seasonal decline in tax preparation fees.
Card and processing revenue decreased $4 million or 5%, resulting from lower credit and debit volumes throughout the quarter, reflecting reduced because customer spend partially offset by lower rewards.
As we look ahead to the third quarter, we expect low to mid single digit growth and processing fees.
Deposit service charges decreased sequentially, reflecting lower consumer and commercial fees, which were impacted by the record growth in deposit balances as well as hardship related fee waivers granted throughout the quarter.
Given some of the trends that we have seen towards the end of the quarter, we expect double digit growth in deposit fees in the third quarter.
Moving on to slide 10.
Second quarter reported pre tax expenses included Colbert related expenses of $12 million merger related items of $9 million and FHLB debt extinguishment charge of $6 million and intangible amortization expense of $12 million.
Adjusting for these items and prior items shown in our materials non interest expense decreased over 5% sequentially and decrease approximately 3.5% compared to year ago.
Also.
Due to the mark to market nature of our nonqualified deferred comp players are expenses include the impact of a 22 million dollar expense compared to a $26 million benefits last quarter.
Excluding this impact our expenses declined $110 million or over 9% sequentially driven by the declines from seasonal items reduced marketing expense and continued discipline in managing expenses throughout the company.
As we are diligently managing in period expenses. We are also assessing our longer term efficiency opportunities.
We will continue to accelerate our investments in technology and all option as we see permanent shifts in customer behavior, and any and an increased need to reduce our dependence on manual processes in our operations.
We are also very focused on improving the resiliency of our technology infrastructure to achieve a world class network structure as more and more customer interactions are shifting to the visual.
We are also accelerating our implementation of encino in our commercial business.
At the same time, we're very focused on working with an expense base that is more aligned with the muted revenue growth expectations over the next few years.
We are sizing our targets within that context, and approaching this comprehensively, including opportunities in corporate real estate vendor management alignment of our sales capacity with market opportunities the size of our retail branch network and more efficient middle office and back office operations.
Some but not all of these actions will be based on environmental factors.
We are performing a deeper structural review of our business lines and Middle office and back office functions to identify opportunities that improve the profitability of our company.
We plan to share the outcome of our review with you in the next couple of months, when we finalize our findings and decisions.
As always you can trust us to be prudent in managing our expenses with utmost flexibility.
[noise] Slide 11 provides an update on our Covance high impact portfolios.
Amounts on this page represents approximately 11% of our total loans and are down 9% from last quarter, excluding PPP loans.
As you can see the paydowns during the quarter reduced our balances relative to the first quarter in all sub categories, except for leisure travel, where we havent, rather small overall exposures all to larger operators.
The total balances on this slide includes approximately $1 billion from our leverage loan portfolio, which is now under $4 billion.
The information on this slide lays out the reasons why we believe that our client selection in these portfolios has been very disciplined with a focus on larger companies that have access to capital and stress environments and that we have the appropriate credit mitigants in place to limit the ultimate loss content in this portfolios.
In addition on slide 12, we give you a snapshot of our energy portfolio.
This portfolio is less levered and carries a higher hedge position than the portfolio during the last downturn in oil prices.
As you can see the leverage in this portfolio has two turns lower with a higher RBL balance and approximately one third of the percentage exposure to oil field services compared to 2015.
Our ongoing stress tests indicates that the level of charge offs in our energy portfolio under stress conditions would not meaningfully deviate from the rest of our commercial portfolio.
Nearly 80% of the portfolio is in reserve based structures and we recently reduced our overall RBL borrowing base approximately 15% as a result of the spring Redetermination.
On slide 13, we provided updated view of the consumer and mortgage portfolios.
The FICO scores clearly indicates the high credit quality of the portfolio with over 55% containing FICO scores of 750 or higher on a balanced weighted basis.
Approximately 90% of the consumer portfolio is secured and as you can see by our FICO band distributions. Our portfolio is heavily weighted in the high Prime Super Prime space.
As we have previously discussed we've taken proactive steps to enhance our underwriting standards, specifically on minimum FICA scores and maximum LTV levels. In addition to increasing our efforts in collections.
Turning to credit results on slide 14.
Net charge offs were flat flat sequentially.
The consumer net charge off ratio declined 14 basis points. This quarter following at 12 basis points decline in the prior quarter and commercial net charge offs were relatively stable, resulting in a no at a total net charge off ratio of 44 basis points better than the low end of our previous expectations.
Npis continue to be well behaved that 65 basis points up just three basis points since before the pandemic.
The sequential increase was entirely in commercial predominantly in the energy portfolio.
As I just mentioned, we are comfortable with the loss content in our energy portfolio the consumer nonperforming loans remained.
We added $355 million to our credit reserves this quarter, increasing our hcl they share by 37 basis points to 2.5%.
The incremental reserve build this quarter reflected the continued deterioration in the macroeconomic outlook.
The cumulative increasing our allowance for credit losses since the end of 2019, including the day one impact is now over $1.5 billion.
As a reference point, we compare our current reserve level with a nine quarter total loss estimates within the recent severe stress test for us seek our severe stress test drives our current reserves stand over.
At over 60% of our company around losses, and nearly 40% of fed losses.
Fifth models at the Federal reserve is utilizing still appear to be heavily influenced by our credit results. During the last downturn, which result in a wide gap between our expectations and effects.
Slide 15 provides more information on the allocation of our allowance and the composition of the changes this quarter.
Higher levels of reserves in real estate based portfolios reflect the deteriorated outlook and the economic scenarios related to real estate valuations in future periods.
Including the impact of approximately $170 million in remaining discounts associated with the M.B. loan portfolio.
Our Hcl ratio was 2.64%.
Additionally, excluding the $5 billion in PPP loans with virtually no associated credit reserve, the Hcl ratio would be approximately 2.76%.
Our thoughts on the need for future reserve builds are similar to what do you have heard from other banks.
Our reserves reflect the current macro economic expectations embedded in the scenarios that we deploy in this exercise.
If the outlook does not further deteriorated there should not be a need to increase our reserve coverage beyond the current levels.
Any further increases in reserves, which results from a higher likelihood of a more severe and prolonged double dip scenario.
Turning to slide 16.
Our capital and liquidity position remained very strong during the quarter.
Our cetone ratio ended the quarter at over 9.7% exceeding the first quarter level, even as we built reserves.
Given the dynamics during the quarter, we are providing you see one reconciliation between net income risk weighted assets and the impact of dividends as you can see dividend payouts constitute a very small portion of the change in C. One.
It is important to note that our capital levels are now well above our targets.
As you May recall, our capital target in early 2019 was 9% we raised that level closer to that Tonight, and a half percent about a year and a half ago and we are now above denied and a half percent level.
As a reminder, we had no buybacks in the first or second quarter and our decision to extend that to the end of this year. This change the trajectory of our capital ratios.
Even with buildup in reserves. We are ahead of our capital plan and we expect continued strong levels of ERP in PPNR to support our current capital levels.
We will be submitting our stress that sometime in the fall with the rest of the C car banks.
We have in very consistent in stating our view that given our very strong capital ratios balance sheet strength earnings power and relatively modest Pico the dividend payout ratio, we expect to farewell.
We believe that our performance in this downturn ultimately will prove the resiliency of our model.
Despite the difference in projected loss rates between the two models that I just mentioned.
Continued to show significant cushion in our forecasted capital ratios under stress conditions.
Our tangible book value per share was $22.66 this quarter up 13% year over year.
At the end of the quarter, our unrealized pre tax gain in our securities and hedge portfolios was approximately $3.9 billion, which is not included in our regulatory capital ratios.
From a liquidity perspective, we have over $100 billion in total liquidity sources.
Slide 17 provides a summary of our current outlook.
Given the uncertain environment, we continue to provide only quarterly expectations until we have more long term visibility on the economic outlook.
For the third quarter, we expected decline in total average loan balances in the 3.5% to 4% range on a quarter over quarter basis, with a 6% to 7% decline in commercial loans.
And a 3% increase in consumer balances.
The decline in commercial balances as the result of the Paydowns in commercial credit lines.
Net interest income as expected decline approximately 3% compared to last quarter.
Assuming no benefits from accelerated amortization of PPP fees.
This decline is primarily attributable to the impact of line Paydowns in our commercial business.
As the impact of lower floating rate loans is fully offset by the hedges as well as the funding rate benefits.
We expect noninterest income to increased two plus percent sequentially and expenses to increase about the same.
Part of the expense increase is due to performance based comp related to mortgage wealth and asset management and leasing revenues that tend to result in higher dollar payouts.
In addition, there are some accelerated expenses related to our focus on automation.
As I mentioned earlier, we are working on a broader expense reduction target that we will share with you in the coming months that is intended to reduce the pressure on our efficiency ratio, resulting from the weak revenue environment and will also include longer term structural targets.
Total net charge offs are expected to be in the 50 to 55 basis point range continuing to reflect the widening gap between the near term credit performance and the anticipated deterioration in credit metrics beyond point.
In summary.
Our second quarter results were strong and continue to demonstrate the progress we've made over the past few years, improving our resiliency diversifying our revenues and proactively managing the balance sheet.
Limits its forecast visibility, we will continue to rely on the same principles disciplined client selection conservative underwriting and a focus on a long term performance horizon, which gives us confidence as we navigate navigate this anymore.
We fully intend to preserve the optimal level efficiency of our operations in this weak economic weak revenue environment, while we maintain the investments that we believe are vital to preserve the earnings power and the operational resiliency of our company.
With that let me turn it over to Chris to open the call up for QNX.
I've been before we start Una is the others. Please limit yourself to one question in a follow up returns in Q.
We have time for additional questions.
During the question and answer period. Please provide your name and that of your company to the operator in East. Please open the call for questions.
Ladies and gentlemen to ask a question. Please press star and the number one on your telephone keypad.
To withdraw your question press the pound key your first question comes from Scott Siefers with Piper Sandler Your line is open.
Morning, guys. Thanks for taking my question.
Good morning.
Thanks.
Just wanted to sort of follow up on the liquidity you give a ton of good detail. So thank you for that and I certainly understand kind of a nuance of the elevated cash balances why they'll stick around but you know to two large degree. These are issues that that affect everyone is would you say is there anything unique about fifth third that kind of.
Amplifies the order of magnitude so much.
I think the at we believe that we've stayed very close to our clients during the past five six months as.
We entered this period and you know our Salesforce has been in close contact.
And you know I relationships are very strong across the board in both corporate banking as well as middle market banking and they are clearly showing a preference.
To bank with us and to increase the size of their relationships. I mean, this is purely a function of their willingness to.
To work with up because we are not offering any significant rate rates to them that they can't get with with rival banks. So yeah. We've lowered our deposit rates are well below where we were into first quarter, but I think the strength of our relationships and our salesforce coverage is enabling.
Estimate.
And we I mean, our liquidity levels are significantly higher than 19% deposit growth.
Exceeds all of our peers and the increase in our liquidity position.
Is significantly higher than others look I mean I think.
It doesn't impact YY you reflected liquidity.
Profile over the balance sheet and it also gives us many opportunities in coming quarters to continue to deepen our relationships with our class that's our pressprich.
Okay perfect. Thank you and just as the follow up that I think you said, an additional seven to 10 basis points of margin erosion in the third quarter based on I guess like the full quarter impact of the higher cash balances and then I believe you said it would recover in the fourth quarter.
With the PDP forgiveness, I know it can be tough to cut through the noise of what's going on margins These days, but ex.
The benefit of the PPP benefits in the fourth quarter. We would you expect sorted that the steady state margin to stabilize after the Threeq you.
Oh I.
Scott I don't want to give fourth quarter guidance at this point, but I think what you should.
Rely on is not just for Q4, but also beyond Q4, we believe that 3% level the treatment effect.
Once we are passed the BPP and once we are passed the impact of the higher cash balances is probably a good and sort of target.
For for for Us.
Perfect. Okay, great. Thank you very much sure.
Your next question comes from Erika Najarian Bank of America. Your line is open.
Hi, good morning.
Morning.
So as we think about.
Pretty sizable reserve and some of the PPNR puts and takes that you're expecting I guess, if the fed of rolls forward the dividend.
Income cast beyond the third quarter.
Are you confident that youre gap level of pre preferred earning two would be above that 27 cents run rate as calculated a dividend rate as calculated by the fed.
As I everything that we look out today as well as sort of the outlook that we have in place gives us a lot of confidence that.
We will have plenty of room.
Got it thank you and the second follow up and as I'm sure a lot of my peers are going to try to tease out this expense reduction announcement, but I'm wondering how does how less initiative compare to north star and how confident are you have incurring chop.
Origin.
Given the light the possibility that this income tests could extend beyond third quarter on the dividend.
So northstar was a combination of.
Revenue actions as well as expense actions. So we are talking here a focus on expenses only a and with respect to charges. It is way too early.
And not necessarily all expense.
Actions would accompany a and a charge associated with it so.
I would not necessarily be too worried about that I'm, not saying that there's not a charge associated.
With any of the expense actions, but you know size wise at this point I'm not too worried about.
Got it thank you.
Your next question comes from Peter Winter with Wedbush Securities. Your line is open.
Good morning.
I wanted to I wanted to follow up on the expense initiative and I'm. Just wondering is the thought.
To bring the expense base down going forward or is the idea just to kind of hold expenses flat in a more challenging revenue environment.
Peter This is Greg first off our intent is obviously too.
The opportunities in front of us and the question just asked about more store lauded expense opportunities in front of servers. Some rumors color you think about our branch.
Transformation and opportunities optimize our branch network, you could but the opportunities around those vendor management lanes that we spent in those areas in the attractive opportunities or sit there rightsizing our organization for the sales opportunities a lot of opportunities out there in front of us. So our intent would be continue to invest in the critical aspects of our business on that.
Mentioned before Digitization of all of our platforms.
Or southeast expansion, so forth when could see those investments over time.
We expect to run at a lower rate on expenses in realities of the revenue.
Opportunities that are out there in the environment, we expect to run at a lower level going forward.
Great.
Hi, just another question you guys provided some really good color on the forbearance on the consumer side.
I'm just wondering if you can give some updates on the commercial side about a loan deferrals.
Coming in for a second request and what's happening there on the commercial side.
Peter It's Jamie Thanks for the question.
On the commercial side I think you saw in the presentation.
You look at payment deferrals at 6% of the loan balances are in payment deferral.
On the vast majority over 80% of the payment deferrals, we had were 90 days in duration.
Because they started midway through the quarter not many of them have.
Come off.
So I don't want to give you.
Too much of a false positive but to date, we've not had.
Any requests.
For the second 90 day, a deferral and the commercial book I guess, some additional color would be the about 75% of our commercial customers that were on deferral.
I have made payments while in the deferral.
And then beyond the payment deferral information that we provided in terms of other types of Forbearances. So there is about 7% of the commercial book.
That's received a covenant waiver.
Got it.
Thanks, Jamie.
Your next question comes from Mike Mayo with Wells Fargo Securities. Your line is open.
Hi, I guess I have one negative question one positive question I'll go to negative question first is.
I mean flattish.
Hi, Josh.
Turning to flattish problem loans.
Just doesn't seem accurate.
This is not unique to us it's an industry question I mean, if you didnt have the forbearance. If you didnt have the government assistance, how much worse wed.
Charge off and then ph D. and it it is a question because eventually these programs run off and then bankers have to be bankers again and reality headset. So we're I mean I know, there's just a terms. The general question, how bad would have de if you didnt have this other support for bats.
Yes, so Mike it's Jamie on the commercial side I think you know what you see is once you get its pretty straight forward and there was a slight uptick in the charge offs, but it was offset by the improvement we saw on the consumer side.
And so I think the the heart of your question as you know how how good is the consumer.
In this environment given both the government support plus the support we've given a customers that have requested an order for the forbearance and.
And payment deferrals. So when you look at our portfolio on the consumer side, taking you mentioned a couple of items. If you exclude mortgage because those were six month and you look at the non mortgage loans, only 12% have reenrolled and additional hardship relief and through.
Last Friday, we've had over half of our original.
Deferrals they've come off.
The program. So I think that's one good data point, we initially expected that number to be is highest 30%. So the fact that we're experiencing 12 shows us.
Moody's published a study July 7th and they evaluated the M. assays most impacted by coded they use number coven cases population density tourism global Connectiveness et cetera, and the national average weighted by GDP was 0.31 and this was on a scale up to two.
0.0, we're playing golf so lower is better our score for our consumer portfolio is 0.1, too so were 60% better than the national average and so I think.
There's a lot of hard work going on in our consumer portfolio, we stop the 90 day.
Offers at the end of June and really we're working to move to the top of the customer payment priority.
And I think ultimately.
Between the geographic.
Diversification, we have the overall credit quality of the book you see in the FICO scores plus an hour.
Revamped hardship programs I think we're getting.
Good view that the consumers doing better in fact, so much so that the second half of 2020, we expect our consumer charge offs to be below the second half of 2019.
Wow Okay.
And then the other question was $3.9 billion securities and derivatives gains.
Let me to what degree do you expect would you try to bank some of those gains and look at what where rates are and then you have cushion for more charges for he had north star part two or more cushion for your dividends or maybe you could you buy back sooner.
As you were a little more unique saying no buybacks, including the fourth quarter. You went the extra step to be more conservative just wondering why you did that and if you might want to bank some of those gains. Thanks.
I will answer the question about the reality conservative stance look I mean, I think we all recognize that there is a lot of uncertainty at very low level of visibility under those circumstances I think its natural for us to be a bit more conservative and with respect to the 3.9 billion.
$1 gain it gives us a lot of Flexibilities. If there is a need or if we view that the future outlook for rates changes.
In our perspective, such that that gain is better off harvested.
And deployed for other purposes.
Some accounting realities that bulk sale allow you to immediately recognize all of that gain but it clearly provides a very significant.
A pool of I.
I would say capital that we can deploy going forward at this point given our view, we're very happy with the portfolios as they stand and we will continue to harvest and we have a long maturity date, so we will benefit but as you stated Mike.
Rich man's problem and it gives us a good amount of flexible.
Hi, Thank you.
Your next question comes from Saul Martinez with FBR. Your line is open.
Hey, good morning, guys.
So one thing I'm struggling with this quarter.
So it wasn't banks and challenges is a very.
Divergent performance in terms of not much as news.
Trajectory this quarter.
Also with regards to the outlook in I mean, you guys have been more conservative I think.
Here is in terms of managing risks hedging.
We managed security portfolio, yes.
I was under pressure this quarter, it's like maybe under pressure.
The next quarter, so I guess.
Yes, I'm asking how you see we should we should see this diane.
Routines to use is really simply a function of you guys just being much more conservative in terms of.
[music].
Risking that's reflected in your balance sheet Danny Anderson.
And your short term investments in.
Loan. So is it really just a function of how you're managing risk.
Driving that.
And and or is there something else.
We should also be aware of that maybe mortgages.
Hi, two comments a salt so one is if you actually normalize the NIM.
Dress from the first quarter into the second quarter with cash positions and the PPP across all banks getting to a much tighter distribution. So if you get to how core NIM has behaved.
That volatility goes down significantly.
From our perspective, you know we have $28 billion in cash and we are choosing not to deploy any over that parts just to show a higher eni outcome, others have done that everybody has their own risk profile and risk preferences, I think what needs to be really.
We are more instrumental as we look forward, it's a long game and our outlook that the normalized NIM. Once we pass through this PPP period, and a more normalized level of cash is 3%. When you think about it arc Park, our NIM was 3.24% into first quarter.
So you know what with better in the short term rates are and where the yield curve is.
A 24 basis point movement between the first quarter NIM and are sort of longer term outlook on NIM is it pretty good performance.
And ultimately again. This is just that we're talking about a few quarters here, where things are going to look a little bit choppy, but NIM adjusted outcome and we are habit strong preference and not going after a eni boost in the short term that would put us into a riskier position in the long term.
Okay.
If you follow ups, though table that.
Switch gears.
We have different topic in.
I actually want to ask you about your reserving.
Actually taken in the other direction.
I think you've been curve in terms of building reserves.
But what did you should actually start to think about.
Releasing reserves and I mean.
Especially as charge offs start to move the have reserved for those for those loans that are that are charged off and you presumably that your provisioning will reflect.
Serves on growth in any sort of recalibration of crushers backbone resets the losses there.
But I'm curious is.
Shoot could we start to see reserve releases wintery than people expected charge offs.
Or do you think that there's sort of predisposition reserves to be sticky and.
Less reserve releases and going forward, just because of the vast uncertain macro environment. So I'm just curious.
We see things in terms of reserve levels.
As sort of credit normalized.
We get a little bit more visibility on that.
Yes.
So.
Setting aside the impact of loan balances on reserves clearly you know if the bone balances decline, there's going to be impact of that setting that aside for a moment. What we have so far observed is coming out of the first quarter into may into June and now into July there is more the.
Ability and economic scenarios that are being.
Being provided by Moody's as well as just overall market expectations. My expectation is that banks will continue to watch that progress over the next quarter or too because in order to be able to release.
Reserves.
You need to develop a confidence that the sustainability of the economic outlook and if that is the level of sustainability is truly dependable and if the economic indicators or give us the confidence the answer to your question is yes at 1.0, we will.
Start releasing reserves, but I do believe that we are a few quarters.
Early on that assuming that there is the ability we do need some time in order to develop that level of confidence.
Okay got it thank you very much.
Your next question comes from Matt O'connor with Deutsche Bank. Your line is open.
Good morning.
Good morning.
Well I Wonder if you could just talk about the process of credit risk management more on like a granular basis like of the ground level, obviously effect from time.
Yeah, the role of collector was.
All that important so let's talk about.
Hi, or reallocating I would just so from your resources from originating loans to collecting alone in anticipation of you know more more work to do though.
Yeah, Hey, Matt it's Richard so.
If we think about portfolio management broadly.
The expectation is that the the relationship managers and their portfolio managers that work with them are continuously reviewing the portfolio.
Since the pandemic, we've increased the frequency of this portfolio reviews, we've got specific targeted reviews around industry, and geography and product and out from those outcomes. We've seen some re rating and rating changes and as a result. This thing slide we move we start to leverage our special assets for if there had been really.
Helpful. It at a helping us work through problem credits, making sure that we can rehabilitate where appropriate and what we're doing is we are absolutely reallocating resources from both the relationship management teams and our underwriting teams into special assets to increase the capacity there.
Virtually all of that come from inside of a third a and all the what the people Weve drafted have have historical experience and workouts and special assets until we're trying to leverage that expertise across the platform, but it's the frequency of the reviews and making sure. We've got continuity from a coverage standpoint from into it.
Okay as the plan that you should build a campaign to do it in house reallocating or do you think you might need to staff up with them.
Or partnering with like third parties.
We're not going to we're not looking to partner with third parties. We believe we can.
Resources.
Okay alright, thank you.
Your next question comes from Gerard Cassidy with RBC. Your line is open.
Thank you good morning, Greg Wilmington enjoy.
[noise] typing earn maybe Jamie on the loan loss reserves that you have established taking new wildly begins to economic scenario insurance, the downside bone and the base case.
Are those reserves set to a mix of those scenarios or are they sent to the base case scenarios and second what metrics are you looking at going forward to see if you need to increase those reserves beacons and for worsening in the economy.
Yes, Gerard its Jamie we do use three scenarios a weighted a with a baseline and then using Moody's one upside scenario, one downside scenario the typhoon outlined for you the major.
Economic variables that have.
The greatest impact on the reserve levels would be unemployment GDP.
H.P.I.
Are the ones that have the biggest impact on the models.
As Terry mentioned this quarter, the build of 355 million.
Yeah ill.
The vast majority of that build was driven by the deterioration in the outlook and then you had the net impact of loan portfolio decline and migration and ratings almost offsetting each other.
Very good and then moving over to the higher risk commercial portfolio that exposed to the coded 19.
Issues.
Fell 9% and she showed us to 12.8 billion.
When you look going forward is there any momentum that you can continue having a drop that much in a quarter and second what what percentage of charge offs are attributed to bringing that balance them.
Yeah, I wouldn't say in terms of the momentum going forward.
The biggest.
Improvement or biggest factor in the second quarter improvement was the pay down of the defensive draws we saw in the first quarter.
Not drove a healthy portion of that decline in terms of.
The.
Charge off composition this quarter.
You had a.
A decent amount of the growth.
Driven by energy and leisure and entertainment as we look ahead to the third quarter.
I think you'll see.
A common theme with entertainment leisure.
Perhaps some seery and then obviously energy as it.
Completes its its restructure so I would say, it's a healthy portion.
Of the charge off expectation is driven by that cobot stress portfolio, but again, we still feel good about our client selection and the fact, but as Richard pointed out it's a well managed portfolio. That's just in this environment. There will be there will be losses, but we think there'll be manageable.
Great. Thank you.
Your next question comes from Ken Jimmy with Morgan Stanley. Your line is open.
Alright, great. Thanks.
He has mentioned that some of the lower that are the loan balances being lower in the lower guidance for third quarter is really driven by at least in part by further corporate line drawdowns.
How much of the extra find draws in terms of balances you still have a standing and I guess are you assuming that all those fully run off or normalize or the line utilization normalizes by the end of three queue. Thanks.
Yes, Ken I think the guidance is based on average loan balances. So they really truly reflect what happens, especially sort of second half of may into June.
So the second to third quarter guidance truly reflects that speed the.
Paybacks deanne towards the end of the second quarter, it's been stable. So far a utilization rate is basically back to where it was a pre pandemic, but again the as the decline in average commercial balances is more of a function of what happened at the end of the second quarter.
More so than the third quarter.
Got it understood. Okay. Thanks, and I may have missed this but have you addressed or did you just like this commentary around surf ex corporate line tries just the general sentiment around seen I borrowers like are you building in any expectation that.
See an eye or other loan balances Asher declining and three queue. Thanks.
There's not a lot of customer demand for new loans can did that the market is very muted at this point both for economic reasons as well as for what's going on with sort of the healthcare situation that limits interactions, but so far we're not seeing a whole lot.
Out of activity from our clients.
Thank you very much.
Your next question comes from John Pancari with Evercore. Your line is open.
Hi. This is a this is a button on John.
I just want to go back to the discussion around a reserve release and I want to put some numbers around it. So correct me if I'm wrong. So.
So you've guided to average loans down that's gonna have said.
Let's say you know noga loans are declining looks like it on $4 billion off that.
Commercial loans are coming down 5 billion consumer is going up by a billion dollars.
And you've guided to charge offs off around it looks like it down to $150 million in Threeq you on charge offs. So am I thinking about this made that in terms of provisioning in threeq.
The really the main driver provision would be the consumer new loan growth off a billion dollars and basically it's fair to then assume a and apply that see percent reserve ratio on that billion dollars of new logos and basically that you know that would imply like 30 to 40 minutes.
And as the provision in.
Third quarter am I thinking about that right.
One needs to take into account what happens at the end of period. So you just have to yeah. Obviously, if it's useful to look at the average loan guidance, but we will when we get to the end of the third quarter. We will come we will see word balances are at that point.
And you know if there are zero builds our reserve position rural back the end of period balances compared to end the movement will be compared to the end of period balances in the second quarter.
Okay, but I just want to make sure like.
It conceptually am I thinking about this correctly into.
But you got supervision and this is all the also assuming that the macro doesn't get worse or better.
Tesco.
Yes, the provision could go down clearly I mean, if it loans continue to go down on the charge offs stayed flat and you know there is a path, which would indicate that the provision number on our income statement will be lower.
So that could happen.
Okay. Thank you yes.
Your next question comes from can Ah that's done with Jefferies. Your line is open.
Hey, everyone. This is the man the markdown can on can you talk about the accelerated pace technology investment that you expect what did you learn about your technology during the Pan down that are your structure all use technology not as efficient as you hoped or is it more about client facing technology and you felt limited in your ability to service your client.
Our superior and then as an it Dan Dan if there's any business that meant that you can touch on that may or acquiring like better half that would be helpful and now thanks.
Good question. Amanda. This is this is Greg the first off we know our strategy focused on investing in our technology platforms and better serve our customers, who use the product distribution or servicing capabilities.
Hasn't changed and I think we've made tremendous progress as evidenced by the fact is 75% of all of our transactions now go through digital channels using that technology to serve our clients and I'm not an a much more efficient way, there's more opportunities in front of us when there's an opportunity to read replatform or commercial loan system, which we're going to do that reserve.
Actually system, we're gonna do that there's opportunities to continue to make the whole mortgage process.
A digital experience and that's rolling out as we speak so we'll continue to invest those opportunities. In addition to that there's tremendous opportunities I believe.
You think about our back office to applied technologies robotics, artificial intelligence and that environment in a more aggressive way to take a long term cost. So we think about our expense base and how we're looking forward here on will replace our technology dollars to try to bis best outcome on for shareholders.
And serve our customers, it's going to be area of automation of our back office is going to be continued automation of all of our of our originations systems and is going to be continue automation of our ability to distribute our products.
In addition to that if you think about the environmental property and resiliency is extremely important.
You always have to beyond this isn't 10 years ago five years ago, where you can afford to have your systems offline you have to always be on for your customer so investments in our core infrastructure.
We don't want to put new technology, new capabilities on old infrastructure. So it's refurbishing our older infrastructure pulling our new infrastructure.
Focus on once again, serving our clients and make us more efficient going forward in operations.
Okay, Great and then can you talk about the outlook for consumer loan growth I mean, certainly found more positive on the consumer credit performance, where do you expect to 3% can timberland got to come for entry cow and auto auto are easing leading and elsewhere.
Auto auto I think obviously we've spent.
She has done a fantastic job.
As we've talked before we're super Prime borrow in that space, we expect to get to see growth in auto and attractive spreads on an addition sales we expect our mortgage business also in our mortgage portfolio continues to expand on as we go forward here card and so forth. We don't expect you see much growth in those areas.
Alright, thank you.
<unk>.
Your next question comes from Christopher Marinac with Janney Montgomery Your line is open.
Thanks, Good morning, Greg is not an update on the CNP is there something on the see if PB issue and is that possible to get resolved before the end of the year.
First off a a wish it was resolved and I do not have an update.
This the loans like a process as we've stated.
Good news channels, we're very comfortable and on our position here and willing to two to a deal with that as we move forward here, but there was no update is or potential gets settled sure. There's always a potential could get settled.
During the day, we want to make sure that.
The third is viewed appropriately and the opportunity to characterize you know or behavior reaction that we took proactively I think is very very important to us. So no update at this point, but hopefully we could sold.
Sounds good. Thank you very much for the feedback I appreciate it.
Your next question comes from Brian Klock, with Keith right. What your line is open.
Hey, good morning, guys.
Morning.
Thanks for taking my question on just a one real quick follow up I know that that you guys talked about somebody elevated expenses from the better.
Revenue production that came in some of your fee businesses.
And you talked about some of the technology spend.
Well I guess thinking about the guidance for the third quarter includes some acceleration of some automation and tech expenses.
And if we if we think about what a normalized run rate is even before you think about the new initiatives on the expense savings that you're going to be reviewing and do we think that normal run rate I guess beyond the third quarter should be something that's maybe back towards that 1 billion 50 range, where you kind of where before that's the way to think about it.
Yeah, I mean at this point given the fact that so we are spending a lot of time on analyzing the expense base and looking for opportunities for efficiencies I'd, rather not get into to longer term outlook for expenses, but it is clear.
Here that our intent is to lower our expense base from where it is today. So I will make that statement ER and as Greg said, we continue to invest in areas, where we believe.
We need to invest into continued to grow our company bar, but our intent is to do it in a way with the utmost efficiency and the rest of the company.
So you know the focus of this study is going to be lowering the expense base that we are running today and taking it from there.
Fair enough. Thanks for your time appreciate it.
Right.
Your last question comes from Gerard Cassidy with RBC. Your line is open.
Thank you.
Hello.
Jamie can you tell us on the consumer portfolio were you guys mentioned tanking, 53% on the deferrals and exiting the program.
Where did they go are they all back on accruing status or gain some sort of work out for the separate from the covert relief programs over the turnstile.
Yeah, so of the loans the consumer portfolio. This was through last Friday, 53% exited 12% went into a new relief program and those programs I think we've got a.
Pretty good approach, there, where we offer a short term program of.
Six months that 50% of your normal payment or we can we offer with.
Certain eligibility criteria and proof of hardship.
Longer term loan modification and so.
That's 12% of the of the group and of the remaining group a vast vast majority.
Number 79% or so.
Making payments in our back on track and so one of the earlier questions was just you know how do we feel about the consumer portfolio and ultimately how much support is out there when we look at our roll rates and our delinquency rates on that core book It as it is very good which is why we're confident in our second half of the your outlook on consumer charge offs.
Great and then just finally came from listening to the United question.
Coming back to the cash balances and if you take out the money from the PPP loans, meaning funding to People's deposit accounts and you take down take out the line draws thought were unusual because of the situation. We're in today, where is all the cash coming from companies just won't spending on capital expenditures and.
Winds in such a limited cash balances, excluding those two reasons and I mentioned.
Yeah, I think at Gerard clearly the inability to use the cash in the short term is one aspect. So why are these companies and it's both individuals as most companies.
So we expect that some of the natural run down is going to be base that you know, they're gonna have to spend that cash.
And our operating capital.
The other one is I think it is very likely that they come so some of our clients have consolidated their deposits into a smaller number of banks and we have been a beneficiary of that because as we look at the distribution. The distribution is extremely granular which suggests that.
Again, more always relationship based direction in deposit flows than anything else.
[noise] clean since you very much.
[noise] there Mike now like to turn the call back over to Christophe for closing remarks.
Thank you Denise and thank you all for your interest in fifth third if you have any follow up questions. Please contact the IR Department and we were happy to assist deal.
This concludes today's conference call you may now disconnect.