Q1 2022 Fifth Third Bancorp Earnings Call

Good morning, My name is Emma and I will be your conference operator today at this time I would like to welcome everyone to the fifth third Bancorp first quarter 2022 earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

Would like to withdraw your question again press to Starwood. Thank you.

Crystal Director of Investor Relations you May begin your conference.

Thank you operator, good morning, everyone and thank you for joining US today, we'll be discussing our financial results for the first quarter of 2022.

Please review the cautionary statements our materials, which can be found in our earnings release and presentation. These materials contain reconciliations to non-GAAP measures along with information pertaining to the use of non-GAAP measures.

As well as forward looking statements about fifth third's performance, we undertake no obligation to update any such forward looking statements. After the date of this call.

This morning, I'm joined by our Chairman and CEO , Greg Carmichael, President Tim Spence.

So Jamie Leonard Chief Credit Officer, Richard Stein.

The prepared remarks by Greg image, Amy we will open the call up for questions. Let me turn the call over now to Greg for his comments.

Thanks, Chris and thank all of you for joining US earlier today, we reported first quarter net income of $494 million or <unk> 68 per share.

EPS included a negative impact from the visa total return swap mark to market impact over at avid exchange holdings. Excluding these items adjusted first quarter earnings were <unk> 70 per share.

During the quarter, we generated strong loan growth, including average C&I growth of 8% excluding PPP.

We grew core deposits once again, the strength of consumer transaction deposits of 4%, reflecting our success generating quality household growth, which increased 3% on a year over year basis. We also took advantage of attractive market entry points for deploying our excess cash and grew our securities portfolio by approximately $5 billion.

On an average basis.

As a result of our interest earning asset growth net interest income increased 1% sequentially excluding PPP.

We had yet another quarter of benign credit quality, reflecting our disciplined approach to client selection and underwriting.

This resulted in a near record low charge offs of just 12 basis points.

In addition to our music credit losses.

<unk> remained stable our commercial criticized assets continue to improve.

As many of you saw last week I announced my plans to retire as CEO and transitioned to executive Chairman effective July <unk>.

As part of our thorough succession planning process.

I'm proud to announce the board has unanimously appointed Tim Spence to succeed me as our next CEO I believe this is the right time for a transition given a fifth third's tremendous financial health and performance.

Sure I'll give you a full fifth third for awhile know that when I became CEO I made a commitment that we would generate strong financial results and performed well through the various business cycles.

As our plans and our project North Star, we articulated several key strategic priorities generate strong and sustainable long term financial results.

Including optimizing our balance sheet differentiating our customer experience growing and diversifying our fee revenues building on our legacy of digital innovation and maintaining expense discipline.

I am very proud of what we achieved we transformed our approach to credit risk management centralized credit underwriting with geographic sector product level concentration limits, we exited commercial relationships skewed risk return profile totaling $7 billion.

Focusing on high quality relationships with more diversified and resilient businesses.

We deliberately reduced our leverage lending exposure.

More than 6% since 2015.

Main cautious with respect to our CRE portfolio.

Lower CRE as a percentage of capital among peers.

We maintained our expense discipline, and taking actions when necessary, including exiting noncore businesses, which allowed us to prioritize our investments in areas of strategic importance.

We invested heavily in our Treasury management systems shifting our focus to 1 billion managed service platforms. As a result, we now have the highest <unk> as a percentage of revenue and commitments and we are the fastest growing among our peers.

We made significant investments in technology to improve our resiliency and better serve our customers.

Building consumer business that has consistently added households far in excess of our peers in the U S average while also taking our customers satisfaction scores from below peer median in 2015 to top quartile today regroup.

We grew market share organically in the southeast the West coast and established a leading position in Chicago through the strategic acquisition of MB financial.

We also invest in our strategic nonbank acquisitions like provide dividend Coker capital H C Franklin Street, and more to accelerate growth and broaden our capabilities.

Our securities portfolio to generate stable predictable cash flows.

Allow us to extend our earnings advantage versus peers and.

And we focus on generating sustainable value for all stakeholders, including customers employees and communities.

Day, one my focus was the ability to franchise that would perform well through the cycle.

We will generate consistent and quality earnings quarter after quarter year after year, while some of these decisions impact our near term profitability at the time all these proof points highlights the actions we have taken over the past seven years to improve fifth third set us up for long term outperformance through various business cycles.

Furthermore, we expect our intentionally asset sensitive balance sheet to perform extremely well relative to peers in this rate environment.

While the revenue benefits of higher rates or August we are mindful that there are likely to be elevated risk in the overall U S economy, it's a fed aggressively tightened monetary policy to curb inflation combined with the existing supply chain constraints and labor shortages. However, because of our actions are positioning fifth third is strongest.

We're well positioned for long term outperformance.

I would just like to say that being the CEO of fifth third has been in honor of a lifetime I am grateful for the support of the board and all of our employees and I am incredibly proud of what we've accomplished fifth third is in great shape and Tim is well prepared to lead fifth third into the future Tim is outstanding.

Generic leader has been an integral part of fifth Third's Lisa team since 2015, helping develop strategies and vision that we are executing with excellence through innovation and technology.

Before I hand, it over to Tim. So this is my 29th and final quarterly earnings call.

I can also say that I have enjoyed almost all of these discussions about our financial performance and outlook with the Investor community.

I wanted to say thank you for your confidence that you have given me during my tenure I also want to thank our entire leadership team I have been extremely fortunate to work with such a great season team, which I believe is the best in industry.

We have accomplished together has been nothing short of remarkable.

I know that under Tim's leadership, you will continue to do great things inspire others and improve the lives of our customers and well being of our communities with that let me turn it over to Tim.

Good morning to you all thank.

Thank you Greg for the kind words.

Honored to serve as fifth Third's next CEO and following the footsteps of an incredible leader like you.

Could not be more excited about fifth third future.

Given my role in the company over the past several years and the strength of our performance you should expect continuity and our strategic focus areas and in how we run the bank.

We will maintain our operational focus expense discipline and culture of accountability to produce consistent financial results, while investing for the future.

We will continue to anticipate and respond proactively to demand shifts and new competitive threats consistent with the actions you have seen a stake over the past several years, including our deliberate multiyear reduction in punitive consumer fees before it became an industry topics. The rollout of our award winning momentum banking product suite, which is unparalleled among peers.

Our differentiated digitally enabled treasury management services to automate accounts payable and receivable launched while before the pandemic.

Partnerships and acquisitions of Fintech platforms, like provide and dividend finance that create national scale and a best in class customer experience and our focus on financing renewable energy, while before ESG became a mainstream term.

More broadly we will remain mindful of the long term structural shifts taking place such as the evolving geopolitical environment population aging government debt levels and central bank tightening that will create winners and losers over the next decade.

No one knows for sure what the World will look like 10 years from now, but as prudent risk managers, we are always contemplating the many potential tail risks as well as positioning the bank to take advantage of potential business opportunities that will arise.

We will also be steadfast in our belief that we are most successful when we take care of all our stakeholders.

And yesterday, we announced that we are increasing our minimum wage to $20 an hour across our footprint and that concurrently we will provide a midyear wage increase to employees in our first four job gains. We're taking these actions despite having best in class employee retention. According to leading research because we recognize that rising.

Costs throughout the economy have a disproportionate impact on our frontline employees, who are the face of fifth third and.

In total more than 40% of our workforce will benefit from these increases, including 95% of our retail branch and operations employees.

It is simply the right thing to do.

In the short term. This will result in roughly $18 million in incremental annualized expenses. However, as we have seen with our two previous wage increases we fully expect to achieve stronger financial outcomes from lower turnover improved workforce quality lower recruiting expenses and more effective training.

As Greg mentioned, our balance sheet and earnings power extremely strong from a capital deployment perspective, we will continue to favor organic growth evaluating strategic non bank opportunities such as providing dividend finance paying a strong dividend and then share repurchases Pratt.

Practically speaking given our robust loan growth. We currently anticipate resuming share repurchases in the fourth quarter of 2022.

On behalf of the entire leadership team I would like to say, thank you to our employees.

I am very proud that in addition to producing solid financial results. We have also continued to take deliberate actions to improve the lives of our customers and the wellbeing of our communities.

I also hope you all feel the same sense of pride that ideal and being part of an organization that was just named one of the world's most ethical companies by Ethisphere. One of just five banks globally fifth third is a great company, because we have great people, who live our core values every day.

With that I will turn it over to Jamie to discuss our financial results and our current outlook.

Thank you Tim and thank all of you for joining US today, our first quarter results were solid despite the market volatility during the quarter, we generated strong loan growth in both commercial and consumer categories deployed excess liquidity into securities at attractive entry points and grew deposits expenses were.

Once again, well control, but fees underperformed our January expectations due to the market environment.

Improvements in credit quality resulted in an ACL ratio of 180 basis points compared to 185 basis points last quarter, while an increase in loan balances resulted in the net $11 million increase to our credit reserves.

Combined with another quarter muted net charge offs, we had a $45 million total provision for credit losses.

Moving to the income statement net interest income of approximately $1 $2 billion was stable sequentially.

Reported results were impacted by lower day, count lower PPP income, including a slowdown in forgiveness that resulted in $10 million less than expected PPP related NII and the expected decline in residential mortgage balances from previous Ginnie Mae purchases.

These detriments were offset by the benefit from the deployment of excess liquidity into securities strong loan growth and the impact of higher market rates, excluding PPP, NII increased 1% sequentially and 5% year over year.

Total reported non interest income decreased 9% compared to the year ago quarter or 7% on an adjusted basis similar to peers. Our results were impacted by lower capital markets revenue, primarily due to transaction delays as well as lower mortgage revenue in light of lower origination volumes.

And gain on sale margins, partially offset by improving MSR asset to Kay.

We generated solid year over year fee growth in Treasury management, and wealth and asset management, where we produced net AUM inflows again this quarter.

Consumer deposit fees were stable as our success generating household growth offset the continued decline in punitive consumer fees as part of our momentum banking offering.

Noninterest expenses increased just 1% compared to the year ago quarter, reflecting continued discipline throughout the company compensation expenses were well controlled with a year over year increase reflecting the previously announced broad based restricted equity awards, which will support the continuation of our strong.

Employee retention.

We also continued to invest in the ongoing modernization of our tech platforms. These items were partially offset by lower card and processing fee and expense due to 2021 contract renegotiations.

Adjusted expenses increased 2% sequentially driven by the special equity award and the usual seasonal increase in compensation and benefits expense our.

Our expenses this quarter included a mark to market benefit associated with nonqualified deferred compensation plans of $12 million with a corresponding offset in securities losses.

Moving to the balance sheet total average portfolio loans and leases increased 4% sequentially.

Average total consumer portfolio loans increased 2% compared to the prior quarter as strength in auto originations combined with growth in residential mortgage was partially offset by declines in home equity and other consumer loan balances primarily from green Sky balance runoff.

Average commercial portfolio loans and leases increased 5% compared to the prior quarter, primarily reflecting growth in C&I loans.

Excluding PPP average commercial loans increased 6% with C&I loans up 8%.

Commercial loan production remained strong and in line with our original expectations production was strongest in core middle market, which was well diversified geographically, which increased over 60% year over year, our production and pipelines continued to reflect our strategic investments in talent and our success.

<unk> geographic expansion as we sustained our record pace and add a new quality relationships during the first quarter.

With muted payoffs and higher revolver utilization rates, reflecting the capital market slowdown period end commercial loans, excluding PPP increased 5% sequentially and 13% compared to the year ago quarter.

Over half of the sequential period end growth was due to existing revolvers with a utilization rate increasing 2% to 35, 5%.

Given the market opportunities in the first quarter, we began deploying excess cash to protect against the rising risk of an economic downturn.

During the FERC quarter, we grew our securities portfolio of approximately $13 billion on an average basis securities increased $5 billion or 13% sequentially.

As we have said over the past two years, our balance sheet positioning allowed us to remain patient and not grow the portfolio at historically low interest rates caused by the extraordinary federal reserve intervention.

In the past 90 days have absolutely validated our decision to patiently wait and our actions this quarter and beyond will ensure our strong through the cycle performance under various rate scenarios over the long term.

Our investments continue to focus on adding duration and structure to the portfolio with stable and predictable cash flows. Consequently, our overall allocation to bullet and locked out structures increased from 59% to 64% at quarter end.

Average other short term investments, which includes our interest bearing cash decreased $6 billion, reflecting the growth in loans and securities partially offset by continued core deposit growth.

Compared to the year ago quarter average commercial transaction deposits increased 5% and average consumer transaction deposits increased 11%, reflecting our continued success growing consumer households.

We once again added households in every market compared to last year led by our key southeast markets.

Moving to credit.

As Greg mentioned, our credit performance. This quarter was once again strong with NPA is at 47 basis points and net charge offs at 12 basis points.

We continue to closely monitor areas, where inflation and higher rates may cost stress.

As Greg also mentioned, we have deliberately reduced our highly monitored leveraged loan portfolio for this very reason, which is now below $3 billion in outstandings, while also significantly improving the quality of the portfolio.

Moving to the ACL, our baseline scenario assumes the labor market remains stable with unemployment ending our three year reasonable and supportable period at around three 7%.

We maintained our scenario weights of 60% to the base and 20% to the upside and downside scenarios.

Our ACL build this quarter reflected strong loan growth and a worsening downside economic scenario, partially offset by improvements in the credit risk profile of the loan portfolio, including a reduction in borrowers and prolonged distress.

If the ACL, where based 100% on the downside scenario, the ACL would be $1 $1 billion higher.

If the ACL, we're 100% weighted to the baseline scenario the reserve would be $236 million lower.

While our base case expectations point to continued economic growth. There are several key risks factored into our downside scenario, including escalating geopolitical tensions which could exacerbate existing inflationary pressures and further strained supply chains pressures from the Feds quants.

Potato tightening or additional COVID-19 variance, which could play out given the uncertain environment.

Our March 31 allowance incorporates our best estimate of the economic environment.

Moving to capital.

Our CET one ratio ended the quarter at nine 3% above our stated target of 9%.

The decline in capital was primarily due to strong <unk> growth in light of the robust organic business opportunities and securities purchases combined with an eight basis point impact from the seasonal capital transition rule.

We expect to close the acquisition of dividend finance in the second quarter, which will deploy approximately 30 basis points of capital.

Our tangible book value per share, excluding OCI increased 1% during the quarter and 5% compared to the year ago quarter.

Moving to our current outlook, which includes the financial impacts from dividend finance.

We expect full year average total loan growth between five and 6% compared to 2021.

Including the expected headwind from PPP and the Ginnie Mae forbearance loans, we added last year.

Excluding these items, we expect total average loan growth of around 10%.

Reflecting strong pipelines salesforce additions the dividend then provide acquisitions and stable commercial revolver utilization rates over the remainder of the year.

This should result in commercial loan growth of 9% to 10% or 15% to 16% excluding PPP.

We now expect total average consumer loans to be stable in 2022, reflecting our first quarter decision to lower auto loan production in order to enhance our returns on capital.

We now expect around $8 billion in auto and specialty production for the full year, which will still result in double digit growth in indirect consumer secured balances in 2022.

Our outlook also assumes modest growth in other consumer loans, reflecting the benefits of dividend finance, partially offset by a 20% decline in green Sky loans.

On a sequential basis, we expect second quarter average total loan growth of 2% to 3% comprised of 3% to 4% commercial balance growth and stable consumer balances.

We expect 5% to 6% average C&I growth in the second quarter, excluding PPP.

We expect our average securities portfolio to increase approximately $10 billion in.

In the second quarter, reflecting the full quarter impact of purchases made later in the first quarter combined with the assumption that we add 2 billion more in balances given the market opportunities we have seen through early April .

We also assume $1 billion in additional securities growth in both the third and fourth quarter.

Given our outlook for earning asset growth combined with the implied forward curve as of April one.

We now expect full year NII to increase approximately 13% to 14%.

It is worth noting that our outlook incorporates the impacts from the runoff of the PPP and Ginnie Mae portfolios, which result in a $220 million headwind this year.

Excluding those portfolios NII growth would exceed 18%.

Our current outlook assumes stable to slight growth in deposit balances in 2022 compared to 2021 with continued strong growth in consumer deposits in the mid single digits offset by the expected run off of non operational commercial deposits we.

We expect deposit betas of around 15% on the first 125 basis points of fed rate hikes. The 25 basis points. We saw in March combined with another 50 basis points in both May and June .

While we remain confident in the quality of our deposit base.

The rapid and aggressive policy response by the fed to curb inflation.

<unk> the potential for 10 rate hikes for March 2022 to March 2023, and aggressive fed balance sheet reductions, we expect deposit betas of approximately 25% over the first 200 basis points this cycle compared to the mid Thirty's last cycle.

The ultimate impact to NII of incremental rate hikes will be dependent on the timing and magnitude of interest rate movements balance sheet management strategies, including securities growth and hedging transactions and realized deposit betas.

For the second quarter, we expect NII to be up 11% to 13% sequentially, reflecting strong loan growth the impact of securities purchases and the benefits of our asset sensitive balance sheet.

We expect adjusted non interest income to be stable to down 1% in 2022 compared to our prior expectations of up 3% to 5%.

This change is primarily driven by the change in our rate outlook. The single biggest line contributing to the change as deposit service charges, which is reflective of incremental earnings credits in light of the higher interest rate environment. The.

The rate environment has also impacted our outlook for mortgage revenue, which we now expect to be down 10% or so in 2022 compared to 2021.

We continue to expect strong, but slightly lower than January expectations in commercial banking fees and private equity income in 2022 <unk>.

Provided resolutions of the temporary delays experienced in the first quarter occur.

It is worth noting that even with the decline in expected fee income primarily due to the interest rate environment. We expect total revenue to now be approximately $275 million more than our January guidance.

We expect second quarter, adjusted noninterest income to be up 8% to 9% compared to the first quarter or down around 1% compared to the year ago quarter.

We expect full year adjusted non interest expense to be stable on a standalone basis or up 1% to 2%, including the impact of dividend finance compared to 2021, which is an improvement from our previous guidance of up 2% to 3%.

We continue to strategically invest in our franchise, which should result in low double digit growth in both technology and marketing expenses.

Our outlook also assumes we add 25, new branches, primarily in our high growth southeast markets.

Our guidance also incorporates the minimum wage increased to $20 per hour that Tim mentioned.

We expect these investments in our people platforms and franchise to be partially offset by the savings from our process automation initiatives.

<unk> reduced servicing expenses associated with the Ginnie Mae portfolio a decline in leasing expense given our disposition of Lasalle business solutions, which was completed in April .

And our continued overall expense discipline throughout the company.

We expect total adjusted expenses in the second quarter to be down around 3% to 4% compared to the first quarter, which is up 2% compared to the year ago quarter due to the acquisitions of provide and dividend finance or stable on a standalone basis.

As a result, our full year 2022 total adjusted revenue growth is expected to significantly exceed the growth in expenses, resulting in nearly three five points of improvement in the efficiency ratio.

Our outlook for significantly delivering on our positive operating leverage commitment reflects our recent acquisitions expense discipline and strong balance sheet management. It also considers the known revenue headwinds from PPP in our Ginnie Mae portfolio.

We continue to expect second quarter and full year 2022, net charge offs to be in the 20% to 25 basis points range.

In summary, we continue to take actions to further strengthen our balance sheet positioning for this environment. We are deploying excess cash prudently into both loans and securities to support continued through the cycle outperformance and have a lot of momentum in our businesses to have a very successful 2022.

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

Thanks, Jamie before we start Q&A as a courtesy to others. We ask that you limit yourself to one question and a follow up and then return to the queue. If you have additional questions. We will do our best to answer as many questions as possible in the time, we have this morning.

Operator, please open the call up for questions.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

First question today comes from the line of Scott <unk> with Piper Sandler Your line is now open.

Good morning, guys. Thanks for taking the question.

Hey, Jamie I appreciate.

Yes.

I guess first of all that both Greg and Tim Congratulations to both of you the best wishes, Greg as you go forward in time and the new position.

Thank you Jamie.

Yep.

Jamie I appreciate all the thoughts on sort.

Liquidity deployment, I guess now that you've deployed sort of a majority of the target roughly 10 billion or so in excess liquidity and the rest will be deployed through the remainder of the year is there in your mind sort of an opportunity to kind of redefine what your excess liquidity looks like in other words deposits aren't really coming out of this.

System at large the way one might have thought earlier.

There a point at which you say hey, those are going to stick around and there are sort of the user will they just be absorbed with loan growth etcetera, just maybe any thoughts there.

Thats a good question.

Thanks for asking Scott I, probably should have included it in my prepared remarks that I've recalibrated, our excess liquidity given the first quarter's activity.

To where were sitting on about $15 billion of excess cash here in April I still like the one third one third one third approach, where perhaps a third of it runs off and the commercial deposit book as the Feds.

Starts to move in 50 basis point increments.

And then a third and additional security purchases so $5 billion more during during the course of this year and then obviously the rest of the loan growth, especially with dividend coming onboard where we expect continued nice.

Loan growth throughout the year.

Okay, perfect and then.

You gave some.

Some thoughts on sort of the puts and takes in.

And the expense outlook I guess it was nice to see that you can we can absorb that minimum wage increase and still improve the expense guidance are there any areas, where you guys explicitly dialed back things outside of compensation increase or I guess sort of maybe just a little more thought on that.

Puts and takes as you see them.

Yes, the puts and takes this quarter relative to the January guide really is the interplay of the rate environment between fees and NII, whereas expenses.

Main driver of the improve the expense base on a standalone basis is really the fulfillment costs and related compensation related to the lower fees, but the rest of the franchise and our approach to managing expenses during the year really hasnt.

<unk> from when we started the year, we continue to focus on technology investments.

Supporting our marketing efforts and so the marketing spend is actually a little bit higher as we look out at the year given the strong growth we've had in consumer household acquisitions and the momentum momentum banking product.

Obviously, the minimum wage adjustment was a little bit of an uptick in expenses, but again offset by some of the savings from the lower fee guide. So overall I think the approach remains the same which is continued to invest in the business and continue to let that strong momentum show up in.

And the rest of the balance sheet activities.

Terrific alright, thank you very much.

Your next question comes from the line of Eric.

Net najarian with UBS. Your line is now open.

Hi, good morning.

My first question is really for Greg and Tim.

Greg Congratulations on your retirement I am wondering.

Why you decided now would be a good time to step aside and Tim maybe just as a follow up to that.

What are you most excited about as you look forward outside of macro in terms of the gross prospects for the bank that you are inheriting.

Eric This is Greg Thanks for thanks for the question first of all I think it's.

So it's really a perfect time for me to be stepping down as CEO of the banks in fantastic shape I became CEO in 2015.

As we put in place to be good through cycle I will make the changes that we need to for outperformance through the cycle I feel really good about so position of the bank are bullish for the future success, we've had to great great time to step aside second thing is tim's readiness to support the bank six plus years.

It's been a succession I think well thought out succession plan, Tim is absolutely ready of the time is now for him to step up given the performance of the bank and the third thing is my personal aspiration retire at age 60, which I turned 60 in January .

That's always been an aspiration in mind to be able to be able to do that.

And there's a lot of things I want to I want to focus on less travel on the personal side personal investments and 60 was kind of my timeline also.

That would not have been.

Work, if Tim wasn't ready to banquets and position as well as well so it really came together to be the right time.

Yes.

Erika as it pertains to your question for me I mean, I'm excited about a lot I think.

Are in as good a shape as fifth third has been at any point since I have been around the company, including the several years.

Theres that I spent outside the bank as a consultant to the bank.

Greg.

And I think we have assembled a really outstanding bench of leadership talent, we talk a lot about experience being a team sport here. So you have deeply experienced folks from.

From inside the company you have folks who have joined from outside the bank, who brought in fresh perspectives and it really helped us to think about how we shape the business going forward and if you think about the long term objective, we set for ourselves which is to outperform through the cycle I think all the pieces parts are in place we have a great culture of expense discipline, we've been cocaine.

Our credit discipline that will support through the cycle performance, we have been investing continuously I think sometimes maybe we havent gotten enough credit for it because we have essentially been harvesting expenses in some areas and redeploying them in growth and the byproduct of that is we have a really excellent footprint and a nice balance between the southeast and the Midwest.

And we're seeing the bloom coming from many of the investments we've made in digital capabilities I think in particular with a focus on product innovation right, whether that is momentum banking and the differentiation that that is provided and supported has provided to our household growth goals or the managed services, which as Greg mentioned in it.

His prepared remarks that helped to really drive.

The right balance.

Fees to total revenue and then I think last but certainly not least the benefits we're going to continue to see from the acquisitions that provide in dividend in terms of providing sustainable loan growth was really attractive.

So there's a lot to feel good about here.

Got it and the second question is for Jamie Jamie ASF has become a bad were hurt this quarter and I'm wondering.

Do you have you've always had a very.

<unk> investment policy, if you could explain to the genre or less that are listening to this call that have been.

Distressed about the CET, one erosion that they've seen at the big banks, where it's been relevant and then.

<unk> and <unk>.

Other regional banks and if it impacted tangible book what you bought.

In the quarter to $10 billion.

And the difference between duration risks at foresee MBS in RMB.

And also if you could translate into January with language, what bullet and locked out structures mean.

I think I can take the next hour of this call.

Yes.

That just tells you how good a question it is jump in if I.

Don't touch on all aspects of it but I guess I would start with saying and maybe im fighting a losing battle on this one but I do struggle with the concept of fair valuing one line item of the balance sheet, but not the rest of it or not evaluating <unk> in combination with iff's because philosophically for me.

Hey.

As a category four bank our election to put a security in the RFS or HTM doesn't change the economics or the risk of the investment and I understand for the largest banks there is value in minimizing the risk of the regulatory capital volatility, but for us well below $700.

And assets.

We believe the benefits of maintaining the flexibility.

To manage the portfolio as the environment unfolds, our or our outlook changes.

Create significant value.

Is that over the last eight years, where we've had the number one performing investment portfolio yield in the industry. So I struggle with the concept of what our company would be worth more in if I place the securities into the Roach motel of HTM or.

I maintained by flexibility in my Optionality and put it in <unk>, but I understand thats, how the valuations work.

Our goal is always to optimize the balance sheet to deliver long term real economic value and not make decisions that optimize an accounting outcome over economic value. So.

That's why we continue to put all of the securities in <unk>, because we like the Optionality in terms of what we're buying in the second part of your question.

We do like the bullet and locked out cash flow structure. So that there is a minimal extension risk.

In that security relative to RMB S P.

Probably the Best example.

For the generalists on that would be our duration.

Was four eight years at the end of the year and it moved to five four years at the end of this quarter all of that duration extension was because of the securities that we purchased we average two and a half yield in six and a half year duration on what we purchased so all of <unk>.

Our duration extension was intentional and we prefer to add duration, when we want to add it as opposed to the market.

Forcing that duration extension upon us and that's really the value of the bullet and locked out cash flow and I'll sacrifice, a little bit of yield in a base environment, but I protect the volatility on up rates are down rates and thats really the philosophy of managing the investment portfolio.

Got it okay. Thank you.

Your next question comes from the line of Mike Mayo with Wells Fargo Security. Your line is now open.

Hi.

I came questions just I just want to clarify there so you've deployed on.

60% of your excess capital.

Cash I'm, sorry, and now you have about 40% of the excess cash to deploy from here.

Yeah, how we should think about this yes I looked at it Mike is I had 30% to $35 billion of excess cash of about 13.

Of additional leverage in the quarter got about 15 left.

Net of loan growth for second quarter purchases and additional cash deployment as the year progresses, and I think to Scott's question early on.

There is a opportunity that perhaps that other $5 billion of runoff in deposits doesn't occur or is offset by growth in other areas, but for now that's how we see the year playing out.

And then can you.

Other question.

With the CEO change Greg you gave a summary of what you've accomplished over the last.

708 years.

Anything that you.

If you had more time you'd like to have achieved.

And then Tim more like.

Who has 10 sets right what is your background.

Maybe Greg why did the board select Tim one of the unique characteristics for Tim could be the stewards fit.

Fifth third's shareholder capital for the next several years for it.

Absolutely like first off.

We accomplished the objectives that I set out for and that we've talked about and we put project North star in place.

What I would like to Doug.

More faster, yet probably but once again, our ability of the organization absorbed amount of change that we are bringing forth.

It was important also so I think we did the right way, there's not a whole lot of I would it change or done differently. So a very probably accomplished as Jamie said, Tim says, it's a team sport and we.

We've got a great organization and we've worked hard to put a grid organization a great team around him.

While Tim right now.

Absolutely the right person.

Tim has a strong technology.

Technology background, he's been instrumental in lot of the acquisitions and the investments that we've made in this space is great great abilities to look ahead.

Understand and assess the challenges that we're going to be faced with not one year two years five years down the road.

So you think about what a bank needs going forward strong technology expertise, but also been a visionary and being able to see down the road and what the challenges might be that we're faced with and also execution Tiv is fantastic on the execution side. You gave me the greatest visionary great strategy, but if we can't execute youre not going to be successful so as demonstrated over the years, especially as president.

So you can execute extremely extremely well and once again if that wasn't the case, we wouldn't be making this transition at this time, but he is absolutely ready is the right person for the reasons I just said I couldnt be more excited of our large shareholders going to be a large shareholder have Timothy help going forward and obviously, we will start in the next phase of my life, which is which is retirement will be all worked hard to achieve it.

Early age.

And I think it's just a great great time for both of us.

Okay, I'll re queue I smart tech questions. Thanks.

Okay.

Your next question comes from the line of Betsy <unk> with Morgan Stanley . Your line is now open.

Hi, good morning.

Good morning, good morning.

Okay. A couple of questions first on the C&I I noticed in the deck that ex PPP you were up 8% <unk> and I just wanted to see if you could unpack the drivers a little bit one of the reasons is inventory builds going up how much longer can that last I've got a colleague internally who is telling me that.

Tories are about peaking and I'm wondering if you agree with that or not.

And maybe give some sense of what you're seeing in your customers' desire for Capex and what the runway is on that yes sure. Betsy. This is Tim thanks for the question and.

So look I think you have to think about our C&I business as being the corporate banking business in the middle market business I think very clearly the corporate banking side of the business that rising utilization. There is at least in part a byproduct of the capital markets, having been in flux and I do we anticipate that as the markets open up and that folks that we bank.

Who are issuers.

On a regular basis go back into them that Youll see more fee income and then in turn a little bit less utilization, but there is no question inventory build there in the core middle market.

I think there is still room to run on inventory build but there is no question that the catalyst.

That for us in terms of our own growth has been now that focus on capex in particular investments that are going to drive labor productivity or at a minimum.

A reduction in labor requirements.

And then in addition to that we have.

Have benefited now and are continuing to benefit from what was a record pace of adding new quality relationships last year, which is carried over into that first quarter, Jamie and Greg and I were laughing before the call. It's really it's the <unk> for us at Cincinnati, Chicago, The Carolinas, and California flats, Tennessee, and we couldn't figure out how.

Again see out of that one.

But that drove.

That outperformance in C&I production in the first quarter.

Okay, I guess, Tennessee, so maybe at the end of that.

Dennis exactly.

And then maybe you could.

Help me understand how youre thinking about deposits and deposits.

Moving from here you know you got fed QE, but then you've got your high quality book, and so where how should we be thinking about deposit growth and what the loan to deposit ratio should look like as we progress over the next year or South Texas.

Yes, we certainly expect the loan to deposit ratio.

<unk>.

What I'll say improve get higher.

We finished the quarter at 69%.

Really the the interaction between the loan to deposit ratio and the deposit betas.

Obviously highly correlated.

We entered the last tightening cycle at fifth third we are in the mid Ninety's. So.

We don't expect to get that high in this over the next couple of years, but we certainly would.

Like to manage the company in the eighties.

Our loan to deposit ratio, but it'll take a little bit of time to get there I think from a deposit activity standpoint, we expect continued strong consumer deposit growth and then we're forecasting and perhaps that's conservative.

Run off in the non a non operational deposits within the commercial book.

We're just not going to chase rate sensitive nonregulated unshipped.

Deposit balances, but with that said I really like the balance sheet that we've put together over the last seven years, where we've really improve the primacy within the consumer book as well as the granularity through the household growth along with the improvements in the operational deposits through our strong Treasury management.

Business I know we've talked about.

At different conferences over the course of the year the strength of our TM business, but that ultimately will pay off.

As rates start to rise.

We can perhaps manage too.

Lower beta in the next 200 basis points of what we saw.

With the start of the 2015 hikes.

And the non operational you size that.

I am sorry, I Couldnt nonoperational deposits, you've you've sized that.

Oh, yes, yes, yes.

Okay. Thanks.

Your next question comes from the line of Ken <unk> with Jefferies. Your line is now open.

Hey, Thanks, good morning.

Jamie just.

Following up on the securities portfolio purchases now that you've moved more in and also rates have moved higher I Wonder if you could just level set us.

Relative to your comments last quarter about where do you think the securities book yields go over the course of the year.

It looks like you are in the mid <unk> type of now can you just give us kind of an updated level set on how that project given the better front book yields that <unk> been able to see.

Yes, we expect the investment yields to be in the $2 75 area in the second quarter as well as for the full year, which is up obviously from the guide we had in January and the $2 60 to $2 70 range.

Perfect Great and then second just question on the deepening on the expense side. So the expense guide got a little better for the full year, even with the incremental minimum wage could you just kind of give us some granularity on.

What was the rest of the Delta was incentive comp related to fees was just incremental efficiencies that <unk> been able to find just details there would be great. Thank you.

It's predominantly the fulfillment costs within mortgage and.

Incentives in the other businesses that were impacted by the lower fee outlook, and then partially offset by.

The higher marketing expenses and the minimum wage increase impact.

Okay got it so everything else related to like brands branch savings et cetera technology spend is intact underneath the surface.

Yes.

Okay, great. Thanks, a lot guys.

Yeah.

Your next question comes from the line of Rahim <unk> with Bank of America. Your line is now open.

Hey, good morning I.

Yes.

One question just around as you think about capital deployment and future M&A.

It's tough to add on.

And maybe Tim if you want to jump in.

And how do we think about.

Adding scale, obviously organically growing into southeast talk to us about like bank M&A is there any appetite for that and then how does that fit in when you think about technology and I know we spend a lot of time on <unk> strategy. So with some perspective on how you see <unk> position.

The tech stack and what are the one or two big sort of yeah.

Areas that youre looking to invest as we think about the next couple of years. Okay. You got a lot of questions of this is <unk>. Let me get started here first off when you think about deploying capital.

We have not changed how we think about number one is organic growth that's extremely important to us will be expansion in the southeast from the west coast of investing in our people technology products services job. One is organic growth building a quality franchise for the future don't perform well second we will get nonbank M&A transactions so opportunity.

Like provide dividend finance HTC Coker, frankly would be examples of non bank opportunities that really add to our products and our service capabilities. That's extremely in a reach shouldnt be important to us. We're always looking for those type of opportunities that make us a better bank.

And this number two number three we would obviously want to continue to pay a strong dividend number four with excess cash will be share repurchases lowered our part of this would be M&A that was M&A bank M&A lower on our priorities for us quite frankly is not a lot of opportunities out there and we don't believe M&A as a strategy unto itself, we think is M&A.

<unk> is a strategy, which will support our strategic direction when.

If you look at some of the transactions that have been done recently, we would not participated did not participate in those type of transactions. So once again.

If there was an opportunity from a bank M&A perspective.

Fit into our strategic objectives, such as being a larger and more relevant in the southeast and attractive markets.

So just a lot of those opportunities that exist today. This was lower than our prior list doesn't mean didn't emerge that fits into our strategic direction.

Makes us more relevant to southeast and the right markets that we're looking for is a good cultural fit that we wouldn't consider it we absolutely. We consider this just lower on our prior list because it is all of those opportunities out there that really fit our strategic trying to accomplish that we think are actionable. So that's why it's lower than of this for us, but once again, if something emerge we will always be assessed.

That.

For long term strategic shareholder value, we would consider it and.

And.

And for what it's worth I concur with all of that I think we said for a long time that we don't believe that scale is an end in and of itself and that certainly will be consistent in terms of our point of view on.

On how we proceed as it pertains to your questions about technology, you can think about the investments that we have been making in basically three areas. One is just the core infrastructure right. We've talked a lot about data centers, we've talked a lot about the cloud data strategy, we talked a lot about information security and otherwise I think we feel very good about where we're at.

On that front.

We are making good progress I cant remember the cricket analogy Simon I have to go with middle innings, but layer.

The platform modernization.

Okay.

And I think feel very good about the migration away from legacy main claim platforms and onto platforms that allow us to spend a lot more of our money on new application development as opposed to maintenance and.

And service and then I think the thing that's probably been.

Hi, Les.

That has been under emphasized in our industry in general, but which is a big point of focus for ours is we are believers that the more fundamental disruption associated with the internet in all sectors is the way that it informs product and product innovation. So.

That is the area, where I think we will continue to look to differentiate we have to be good in all of the other items, they're hygiene factors, but it's the opportunities to leverage technology to change the nature of the value proposition that we have at <unk>.

For our customers the way that we did with momentum banking when we launched it a year ago and as we continue to hone and refine and add feature functionality to that platform. The things that the folks at provide have done over time that they were they have actually been able to accelerate the amount of innovation that they brought to market, we launched five or six new products.

<unk> within the first six months that they were onboard and they had gotten two or three out in the prior few years.

Beforehand.

And then the managed services, which are obviously, a critical platform for us and which provide really stable.

High margin fee income.

Got it thanks for the comprehensive just one quick follow up Jamie sorry, if I missed it did you mentioned what the dollar amount was for the non operational deposits.

We did not.

But it's baked into the 5 billion of outflow that we're assuming occurs.

During the course of the year, so sorry, I didn't answer that more clearly with betsy's question.

Understood.

Meg and Tim Congratulations. Thank you. Thank you.

Yes.

Your next question comes from the line of Matt O'connor with Deutsche Bank. Your line is now open.

Good morning can you guys talk about how C&I spreads are trending I know a few quarters ago, you were talking about pressure, but.

But we've seen obviously widening spreads in capital markets.

Isn't perfect indicator, but.

It's certainly better to widen the narrow.

The flip side as rates go up Theres, obviously more spread to potentially play with as we think about competitor forces. So.

Maybe what Youre seeing now and how you think that will trend next few quarters. Thank you.

Yes, Matt its Jamie Thanks for the question the C&I spreads have definitely stabilized during the course of the first quarter.

Such that the C&I yields ex PPP, we're only down four basis points as opposed to some of the double digit types of declines you saw in other quarters.

So we feel good about stabilization of loan yields and in fact for the balance sheet hitting an inflection point in the second quarter for pretty much every asset class that.

Yields and spreads should be improving as we go forward from here.

Okay, and then as we think about I guess, specifically like on the spreads and yields will go up obviously because rates are going up.

But then a lot of banks are all banks are trying to grow kind of the core C&I, which has been a strength of a third for years.

So how do you think some of the spreads trend. The next few quarters between the puts and takes of again capital market you've seen some spread widening by the competitive forces from the bank.

Yes, I think C&I spreads in the second quarter.

Stable flat and then improvement perhaps as we get to the back end of the second quarter heading into the second half of the year given some of the disruption in the capital markets and the spread widening from the geopolitical tensions that's how we have a model going forward.

Okay. That's helpful. Thank you.

Your next question comes from the line of Jared Cassidy with RBC. Your line is now open.

Good morning, everyone. Good morning.

Greg and Tim Congratulations on the new roles for both of you.

Jamie.

I always appreciate your color commentary about the balance sheet and the asset liability sensitivity as well as the.

The expectations you have for the full year as well as the second quarter.

And the World has changed dramatically in this first quarter as evidenced by your assumptions on the fed funds rate and the powerful impact. It has had on net interest income.

Can you share with us.

If we're here a year from now now granted Greg will be drinking a peanut collateral in the Caribbean and we know that but for you and I can share for periods.

Okay.

Why do we what should we really focus in on a year from now.

Could be a startling.

Just breathtaking, how it's changed and it's not just for you folks of course to everybody, but I am just taken tobacco how strong everyone's net interest income growth is now because of the REIT environment change and a more than a year from now what could it be like that could make us stay up late at night worrying.

Yes, I think a year from now.

And really the value that we see from our actions. This quarter is just how well positioned our balance sheet is to perform well through the cycle. Both from an NII perspective, and a credit perspective and I think.

Perhaps there was some concern here would we have waited too long and missed the opportunity and I think the good news from today's releases that we are well positioned and well protected.

To the.

Possibility of a recession in 2023 or 2024.

That's our base case, but certainly something that we're mindful of and we.

Pride ourselves and really under Greg's leadership over the last seven years of being good risk managers and Thats, how we approach things so that.

Should a downturn occur we're well positioned to.

Be a strong performer.

But should we continue to see good economic growth.

This is a company that is positioned to do well with generating <unk>.

High returns high PPE, PPE and our growth.

And.

Really do well through the cycle.

Gerard if I were to add one thing I think Jamie referenced credit.

<unk> come out of a period here, where that dynamic around rate is I think really obscured the importance of funding quality and.

Just given given the way that reporting gets done it's probably hard to tell from the outside looking in how good the funding basis and that doesn't just extend to banks to non banks as well right. So as the fed tightens.

I think theres going to be more differentiation than maybe the market fully appreciates as it relates to the stability and the quality of our funding base and the banks who have done the things that we've tried to do in terms of growing primary relationships and with a focus on core operational deposits should be much better positioned to weather an environment.

Our liquidity maybe is.

There is a premium attached to it.

Unlike the environment that we really have come out of over the course of the past handful of years.

Very good thank you for the color.

Prime relationships that you've developed with your customers and the low cost funding that comes along with that is obviously very beneficial at what point or is there a point that you folks may look for some term funding is.

If rates were to really go higher 12 months from now just like they've done in these last three or four months does it make sense at some point to start looking at some term funding.

Yes, and that is included in our NII guide as well for the year.

Very good thank you Jamie.

Okay.

Your next question comes from the line of John <unk> with Evercore. Your line is now open.

Good morning, all.

The.

On the deposit beta topic than just wanted to see if you could perhaps discuss any of the.

Risks or concerns that.

And investors have that need is for the industry could surprise higher.

And many of the banks were expecting I know you guys are expecting a lower beta.

That's in the 25% range versus the experience of the previous cycle.

Can you just talk about the concerns there that competition.

It can be much more intense this time around given the various players in the space.

Perhaps influence deposit betas to be.

Higher than expected.

Yes, John Thanks for the question there are a lot of competing factors on where the betas shakeout rethink the overwhelming factor for the industry is the amount of liquidity.

Signified by the loan to deposit ratio in the industry being 20% better than they were at the end of 2015 heading into the last cycle, but you're certainly right the level of competition ultimately dictates.

The deposit betas, we just think the industry is so much better positioned now that the.

The level of that competition should be less.

So from an industry perspective, we think that should win out but then if we're wrong then let's talk about it on an idiosyncratic basis for fifth third.

What we've been able to accomplish with that.

Primacy and operational deposits and the Treasury management business.

That has translated for us what we believe should be a lower beta on the first 235 last time 25 at this time.

But with that said.

90 days ago, we were modeling a 20 beta on.

On those first 200, so we have raised our own expectations a bit.

Hopefully, we will do better than that.

But.

Possibility that we would not.

25% beta.

As what we've settled in and our outlook in the up 200, when you break it down by customer segment, obviously, the wealth and asset management area.

Highly price sensitive portfolio.

Whereas for us the improvement.

And to be as much in that portfolio as it is.

In the commercial business because of the Treasury management.

And then in the retail book the value exchange with the free services that you receive in momentum banking, we believe should result in a little bit lower beta.

This time around so that we're not competing on rate for the retail customer, but rather the value exchange with those other services, including things like less punitive fees, the NSF elimination and all of the other structural changes we made to our product lineup should result in a better beta the cycle, but if.

By chance were wrong, I think we're well positioned.

Be able to compete well regardless of how that plays out.

Got it okay. Thanks, Jamie that pump and then.

Similar question actually on the credit side I know you are not flagging anything too concerning on the credit front and Thats very similar to the message that we've gotten out of.

Out of the banks this earnings season and.

But I know you've used.

Saw a bit of a tick up in your 30 to 89 past dues and a couple of other banks since the end of it as well.

What areas of credit.

Are you watching most closely what areas do you think will move first.

Are there any signs of faster than expected normalization at all.

Within your consumer portfolio for example.

Yeah, Hey, it's Richard let.

Let me start with the last one from a consumer standpoint, we're actually not seeing signs of acceleration. If you think about where the excess liquidity wed certainly to the.

Top 70% of that went to the top 20% of income households.

That liquidity, it's been sticking around for our customer base and again, we are prime and Super Prime.

And activity really Hasnt, we really haven't seen a shift in activity with respect to two behavior changes in terms of that excess liquidity running off faster than we expected in fact, it's running off a little slower than we expected as people continue to strike the right balance across their lifestyles from a delinquency standpoint.

A low level.

And that links the change for US was really in commercial were at such a low level that it just takes one or two.

To slip over the quarter to change the percentages. So we're really not seeing any trends.

In terms of that would be alarming that would.

Point us to an acceleration of the normalization across credit, whether it's consumer or commercial I think areas, we're watching clear.

Clearly, we continue to watch the leveraged space, particularly enterprise value lending.

That's an area that we've been very disciplined on and we are happy with the portfolio, but that's a place where we continue to exercise discipline, there's a handful of segments in CRE.

Our office is one that we're watching long term just given just given the structural changes in that space.

We focus on quality.

As a properties gateway cities, it's all very good stuff.

And then there is and then we're watching consumer products manufacturing and senior living in a couple of more places where.

But what we're watching is places where the ability to pass through cost increase maybe a little harder.

We haven't seen evidence of that at least at this point most people have been able to pass cost increases through but thats where were watching.

Very helpful. Thanks for taking my questions.

Your next question comes from the line of Trevor Mcevoy with Stephens. Your line is now open.

I'll take that good morning.

Jamie maybe a question for you could you just remind us what the mix is within commercial banking revenue it was down 21%, but a bit.

Better than some of your others, who maybe call it capital markets or investment banking and then maybe what are pipelines like today and do you have any near term thoughts on that business.

Yes, the disruption in the in the first quarter definitely impacted.

The debt capital markets groups with the loan syndications in the corporate bond fees.

For us within the commercial banking.

Pretty good split between MRM.

Products, where we're helping customers with hedging called out to a third of the business.

A little bit more than that amount in the investment banking revenue and then the remainder with.

Within some of the lending fee categories that then aggregate to the total so what we've seen is that MRM has done better than we originally expected, but that investment banking category within corporate bond.

Loan syndication and branch fees.

It performed worse than expectations. So that's the the mix there the guide for the year.

Includes some assumption that markets.

Stabilize and reopened and should that not happen. Then we would just have more of the interplay between NII and fees. So that at the end of the day, we still feel good about the revenue generation of the company.

Okay.

And then just as a follow up the average commercial loan growth of 9% to 10% versus 7% to 8% in January is that all layering in dividend financer ex that deal you see a stronger year within commercial lending.

Yes, so dividend finance will show up in other consumer loans. Unlike provide that did show up in C&I. So youll see provides benefit is in the C&I guide and dividend finances in the other consumer loans category.

Okay, great. Thanks for clearing that up and then congrats to both Greg and Tim. Thank you for taking my questions. Thank you Terry.

Okay.

Your next question comes from the line of Christopher Merrimack with Janney Montgomery Scott. Your line is now open.

Thanks, Good morning, Jamie I wanted to ask about the fed balance sheet and if it can shops does make a difference to your rate outlook and or kind of how you perceive the background.

We do expect contraction.

With our outlook of the fed balance sheet as they are.

Potentially begin to sell down in June announced it in May I guess ultimately.

The variable to our outlook would be if they were to move significantly faster than perhaps you have a little bit more deposit outflow or.

Higher deposit betas than what's expected, but it would have to be pretty.

Quick and significant action on their part.

Implement the quantitative tightening more so than what we've got baked in so I think ultimately, we'll it'll play out okay.

Okay, but youre not expecting the opposite where they don't detract at all that's not part of the interaction.

Okay very well thanks.

Yes.

Your next question again comes from the line of Mike Mayo with Wells Fargo. Your line is now open.

Hi.

Greg you define Kim starting with the word tacker technology.

Maybe just dig into a little bit more Tim your vision for what does the bank of the future look like in terms of technology Greg.

We have taken fifth third away, but there is still a lot more to go I am sure. So ill give you call me or column B column.

Would be.

More one premise proprietary in house don't rely too much on third party and you can control your destiny in that.

Polymer where certain banks are where they want to protect a lot there.

Customer data and information safety and security column B would be zero ops, 100% public cloud, maybe 10, 15, 20, Fintech partners and the type of Lego approach, where you piece those together really making use of having kind of breakdown.

The borders around the bank so collyn.

Colony are calling day or maybe I'm framing this wrong and you can give me another answer, but how do you foresee that.

Bank of the future Tim's been answered Dorsey.

Now look Mike I didn't get that.

A mix of both the nice thing about our sector is there really is a very active technology vendor community and it gives you a lot of choices about how.

You rock want to run the business I don't think we're ever going to be all in Bakken or bucket B, we're big believers that where there is an industry utility that drives very limited customer differentiation.

And where there is a benefit to shared scale it makes sense to ride on.

The rails that are available and where there is an opportunity to differentiate <unk>.

<unk> an aspect of the business that's deeply proprietary that it's got to be managed and maintained in house. So I think youre going to see us take a best of blend approach as it relates to those two areas, but with a heavy focus on owning the tech platforms and the products which are <unk>.

Customer facing and probably comparatively lighter emphasis on that as it relates to the back office, where youre talking about a scaled utility.

That's processing credits and debits as opposed to something that's more strategic are proprietary to the business.

Okay that was clear.

Any more concrete metrics that you can get them, it's not ever disclosed this but the.

The number of apps that you have and how much you'd like to reduce that or the number of vendors you have and where you'd like that to go or the percent that youre on the public cloud and where you'd like to take that or number of data centers, where the end state.

What you desire.

Anything concrete those of us on the outside could I, maybe ask you again in a couple of years to track your progress.

Mike This is Greg I don't have concrete numbers for you.

About things like data centers, it's too obviously, we want we want to be down to two to.

Two data centers, and we're approaching that pretty quickly here.

Obviously, we want to make sure we have a hot side that you guys you got latency on how fast things can travel.

Mindful of that but thats going to be the case, when you think about our core apps or run the business something something less than we have today and I'm not sure how substantial will it be agenda, David something less than we have today customer facing apps as you think about that when we can build off of common platforms and expand off of a common platform is very different than the past using open source.

<unk> cloud based computing that technology enables us to do things a little bit differently, we have less applications. So less applications on the customer facing side of the house somewhat less applications on the back end as we consolidate some of our platforms and vendors.

Definitely less vendors and the data centers, we're going to do yes.

The metric that I think I'm really the metrics, where I'm really chiefly focused on has to do with our.

The resiliency of our environment, we have talked a lot about that and then they have to do with the mix of spend and that sort of continued focus on driving a have a heavier share of our overall spend to new application development and products and out of.

Legacy maintenance costs right.

I think our the things coupled then with what you can see publicly in terms of the way that customers evaluate.

Our digital channels in terms of the differentiation that you can see in the quality and the products and the services.

Are going to be the things that you should hold us accountable to.

Last one so the run the bank change the bank spend for technology, where it hasnt been where is it today and where might that go to them.

You include information security and otherwise it's been call. It 35 change the bank 65 around the bank. The goal going forward is 10 for that $65 35.

Great. Thank you very much.

Hi.

Your next question comes from the line of Gerard Cassidy with RBC. Your line is now open.

Thank you just as a follow up and I apologize if you guys addressed this in your opening remarks, but Tim.

Tim you mentioned the four CS.

Your markets.

Plus Tennessee.

Sure.

Can you share with us where youre seeing the best commercial loan growth within the portfolio are they coming from what parts of the four seasons.

Yeah.

As in which industry sectors, Gerard or where within that where geographically within the markets.

More geographic that yeah, yeah sure.

So Betsy did correct me it is the <unk> six if you count the assay at the end of Tennessee is one of them I got an angry tax message from our head of Indiana and pointed out that they had a pretty good quarter as well so.

Yes look I think geographically, we have the benefit of having a really strong presence.

Mid sized natural areas and if you look at both demographics and economic activity, that's where the majority of growth is coming from across the U S. Right now it isn't necessarily the Mega cities and it's certainly not the rural areas.

Charlotte the rallies the Cincinnati is the Indianapolis as the Columbus is.

The inland Empire in California, as a point of example, there as well.

Where youre seeing a lot of the activity and that is very consistent with what you would see inside our book of business as well so that the Cincinnati Columbus Corridor, I think has been very strong and resilient corridor that should be even better as Intel lands here and we get the downstream.

That component.

Suppliers and logistics companies in software engineering companies and otherwise.

That make their way into the space Indianapolis and Columbus are I think are the two bright stars.

In terms of economic growth in the Midwest and obviously, what we are getting out of the upstate and Charlotte and Raleigh has been really outstanding along with Middle Tennessee Nashville.

As opposed to other parts of the state that are growing at.

Less robust pace.

And then as a follow up Tim in the commercial lending areas.

How important is or the treasury management products to complement the actual loan growth obviously.

Lending standards could easily drive loan growth as you lower though can you share with us.

Color as well.

No there I mean, they are extremely important and they have been a big catalyst for the success, we've had in growing our quality relationship.

Gerard so.

Third.

30% to 35% of our.

<unk> of our new relationships have been led by PM.

In terms of the initial product sale, which.

It certainly is anomalous to what I had experienced.

Prior to our having had the success that we've had as it relates to managed services.

And if you look at the available industry research that folks that do benchmarking on this front.

Fifth third is always in the very top of the top quartile in terms of TM penetration in the middle market into our middle market lending relationships, which I think you can kind of evaluate just by looking at the growth of commercial.

Deposit fees over time in commercial deposits as a percentage of commercial total loan commitments both of which fifth third is best in class in relative to its investor peer group. So it's important strategically in terms of how we go to market and the results are bearing out in terms of the financial performance.

Great. Thank you.

There are no further questions at this time I'll turn the call back over to you Crystal.

Thank you Emma and thank you all for your interest in fifth third please contact the IR Department, if you have any questions.

This concludes today's conference call. Thank you for attending you may now disconnect.

Yeah.

[music].

Yes.

[music].

Yeah.

Okay.

[music].

Okay.

Sure.