Q3 2023 Fifth Third Bancorp Earnings Call

Speaker 1: Good morning. My name is Rob and I'll be your conference operator today. At this time, I would like to welcome everyone to the fifth, third Bancorp, third quarter, 2020 three earnings conference.

Good morning, My name is Rob and I'll be your conference operator today at this time I would like to welcome everyone to the fifth third Bancorp third quarter 2023 earnings Conference call.

Speaker 1: A line has been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question again, press the star one. Thank you. Kristall, Head of Investor Relations, you may begin your conference.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

To ask a question during this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again prestige star one.

Crystal head of Investor Relations you May begin your conference.

Yeah.

Good morning, everyone. Welcome to the third third quarter 2023 earnings call. This morning are president and CEO , Tim spent and CFO , Jamie Leonard will provide an overview of our third quarter results and outlook, our Treasurer O'brien, President and Chief Credit Officer, Greg Shrek and also joined the Q&A portion of the call.

Speaker 2: Good morning everyone welcome to 5th, 3rd, 3rd quarter, 2023 earnings call this morning. Our president and Tim spent and Jimmy Leonard will provide an overview of our 3rd quarter results.

Speaker 2: Our treasurer, Brian Preston, and chief credit officer Greg Shreck and also joined us with Q and a portion.

Speaker 2: Please review the cautionary statements on materials, which can be found in our earnings release and presentation.

Please review the cautionary statements on our materials, which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward looking statements about fifth third's performance.

Speaker 2: These materials contain information regarding the use of non-GAAP measures and reconciliation to the gap results. As well as forward looking statements about fifth thirds performance.

Speaker 2: These statements speak only as of October 19th, 2023 and 5th, 3rd undertakes no obligation.

These statements speak only as of October 19, 2023.

Third undertakes no obligation to update them.

Speaker 2: Following some heavy remarks by Tim and Jamie, we will open the call out for questions. With that, let me turn the bell to Tim.

Following the prepared remarks.

We will open the call up for questions.

With that let me turn it over to Tim.

Okay.

Thanks, Chris and good morning, everyone.

Speaker 2: We believe that great banks distinguish themselves not by how they perform in benign environments, but rather by how they...

We believe that great banks distinguish themselves not by how they perform and benign environments.

By how they navigate challenging ones.

Speaker 2: That is why we focus on stability, profitability, and growth in that order.

That is why we focus on stability profitability and growth in that order.

It's also why I'm. So pleased that our key returned to profitability metrics remain resilient. Despite the market related headwinds that all banks are facing.

Speaker 2: is also why I am so pleased that our key return and profitability metrics remain resilient despite the market-related headwinds that all banks are facing.

Speaker 2: Earlier today, we reported earnings per share of 91 cents or 92 cents, excluding a one set impact from our visa swap, reflecting strong results and favorable credit out.

Earlier today, we reported earnings per share of 91.

Well 92 cents, excluding a one set impact from our visa swap, reflecting strong <unk> results and favorable credit outcomes.

Speaker 2: We generated an adjusted return on tangible common equity X of nearly 16%. Which increased 50 basis points sequentially and a return on assets of 1.26.

We generated an adjusted return on tangible common equity ex Aoc I of nearly 16%, which increased 50 basis points sequentially and our return on assets of 126%.

We generated strong fee growth compared to the year ago quarter supported by a more diverse range of fee income streams than peers, and our investments in Treasury management capital markets and wealth management.

Speaker 2: who generated strong feedlose compared to the year ago quarter, supported by a more diverse range of fee income streams than peers, and our investments in treasury management, capital markets, and wealth needs.

Our third quarter total noninterest expense increased less than 2% compared to the year ago quarter, and we generated an adjusted efficiency ratio below 55%.

Speaker 2: A 3rd quarter total non interest expense increase less than 2% compared to the year ago quarter. We generated in the adjusted efficiency ratio below 55%.

Speaker 2: In the last four years, we have managed expenses to the lowest growth rate among peers, despite also investing in growth by building more new branches, raising our minimum wage, modernizing our technology platforms, and acquiring four fintech companies.

And the last four years, we have managed expenses to the lowest growth rate among peers. Despite also investing in growth by building more new branches, raising our minimum wage modernizing our technology platforms and acquiring for Fintech companies.

Expense management at fifth third is a continuous process and not a program.

Speaker 2: Expense management at Fifth Third is a continuous process and not a program.

Rob: Good morning, my name is Rob, and I'll be your conference operator today.

Speaker 2: Since March of this year, full-time equivalent employee headcount is down 3.5%.

Since March of this year full time equivalent employee head count is down three 5%.

Rob: At this time, I would like to welcome everyone to the Fifth Third Bancorp, Third Quarter 2023 earnings conference call. The lines have been placed on mute to prevent any background noise.

Okay.

Speaker 2: Turning to the balance sheet, we generated 4% average deposit growth compared to the year ago quarter, versus a 5% decline for the industry. New relation.

Turning to the balance sheet, we generated 4% average deposit growth compared to the year ago quarter versus a 5% decline for the industry.

Rob: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you.

New relationship growth remains strong.

Speaker 2: Consumer households bloom more than 2%, led by 6% growth in the southeast, a continuation of our multi-year growth base.

Tumor households grew more than 2% led by 6% growth in the southeast a continuation of our multiyear growth base.

Chris Doll: Chris Doll, Head of Investor Relations, you may begin your conference. Good morning, everyone. Welcome to Fifth Thirds, Third Quarter 2023 earnings call.

Speaker 2: Numenal market relationships added year to date remain 25% ahead of last year's record base

New middle market relationships added year to date remained 25% ahead of last year's record pace.

Speaker 2: Thanks to the release of the annual FDIC summary of deposits, the third quarter provides a unique opportunity to understand market share gains and losses on a metro area by metro area basis.

Thanks to the release of the annual FDIC summary of deposits. The third quarter provides a unique opportunity to understand market share gains and losses on our metro area by Metro area basis.

Tim Spence: This morning, our president and CEO Tim Spence and CSR Jimmy Leonard will provide an overview of her third quarter results in outlook.

Unknown Executive: Our Treasurer, Brian Preston and Chief Credit Officer, Greg Schroeck, have also joined us with you and I portion of the call.

Speaker 2: This year, fifth third maintained or improved our market rank in every single one of our 40 logists MSAs.

This year fifth third maintained or improved our market rank in every single one of our 40 largest msas.

Tim Spence: Please review the cautionary statements on materials which can be found in our earnings release and presentation. These materials contain information regarding the use of non-gap measures and reconciliation to the gap results, as well as forward looking statements about Fifth Thirds' performance. These statements speak only as of October 19, 2023, and Fifth Third undertakes no obligations to update them. Following prepared remarks, we will open the call up for questions. With that, let me turn it over to Tim.

Speaker 2: In the Midwest, we maintained our number two overall position behind J. King Morgan chain.

In the Midwest, we maintained our number two overall position behind JP Morgan Chase.

In the southeast where we adjust for years removed for opening our first next Gen branch, we have reached or are approaching target locational share in eight of our original 11 focused markets.

Speaker 2: in the southeast where we are just four years removed for opening our first next gen branch. We have reached our approaching target location share in eight of our original 11 focus marks.

Speaker 2: We intend to continue to open approximately 35 branches per year through 2028 at which time nearly 50% of our branches will be in Southeast Mark.

We intend to continue to open approximately 35 branches per year through 2028 at which time nearly 50% of our branches will be and southeast markets.

Tim Spence: Thanks, Chris. Good morning, everyone. We believe that great banks distinguish themselves, not by how they perform in benign environments, or rather by how they navigate challenging ones. That is why we focus on stability, profitability, and growth in that order. This is also why I am so pleased that our key return and profitability metrics remain resilient despite the market-related headwinds that all banks are facing. Earlier today, we reported earnings per share of 91 cents, or 92 cents, excluding a one-set impact from our visa swap, reflecting strong PPR results and favorable credit outcomes.

Speaker 2: We market share gains to the byproduct of multi-year strategies that are not easilyalar? applicable by competitive

These market share gains of the byproduct of multiyear strategies that are not easily replicable by competitors.

Speaker 2: They include innovative operational deposit-oriented products, like momentum banking, AI-driven customer acquisition strategy.

They include innovative operational deposit oriented products like momentum banking, AI, driven customer acquisition strategies and a top quartile customer service model. In addition to our investments in new branches.

Speaker 2: and a top-core-style customer service model in addition to our investments in new branches. A key credit...

Our key credit metrics remained strong during the quarter.

Speaker 2: Charge-offs were in line with our July expectations, and both early-stage delinquencies and non-performing assets improved sequentially.

Charge offs were in line with our July expectations in both early stage delinquencies and nonperforming assets improved sequentially.

Speaker 2: The ACL increased three basis points, given slight changes to Moody's macroeconomic form.

The ACL increased three basis points, given slight changes to Moody's macroeconomic forecast.

Tim Spence: We generated an adjusted return on tangible common equity xAOCI of nearly 16%, which increased 50 basis points sequentially, and a return on assets of 1.26%. We generated strong fee growth compared to the year ago quarter, supported by a more diverse range of fee income streams than peers, and our investments in treasury management, capital markets, and wealth management. A third quarter total non-interest expense increased less than 2% compared to the year ago quarter, and we generated an adjusted efficiency ratio below 55%.

Speaker 2: Turning to liquidity and capital, we made significant progress against our goal to adapt early to expected changes in the regulatory framework.

Turning to liquidity and capital we made significant progress against our goal to adapt early to expected changes in the regulatory framework.

Speaker 2: Her focused efforts throughout the bank enabled us to end the quarter with $103 billion in total liquidity sources and to achieve full category one LCR compliance at the end of both August and September .

Our focused efforts throughout the bank enabled us to end the quarter with $103 billion in total liquidity sources and to achieve full category. One LCR compliance at the end of both August and September .

Speaker 2: During the quarter, we also made significant progress on our RWA optimization emissions.

During the quarter. We also made significant progress on our <unk> optimization initiative.

Speaker 2: So the RWA declined 1% compared to the prior course.

Total <unk> declined 1% compared to the prior quarter.

Speaker 2: Our exercise should be complete by the end of the fourth quarter, so we can return to growing loans next year.

Our exercise should be complete by the end of the fourth quarter. So we can return to growing loans next year.

Tim Spence: In the last four years, we have managed expenses to the lowest growth rate among peers, despite also investing in growth by building more new branches, raising our minimum wage, modernizing our technology platforms, and acquiring four Fintech companies. Expense management at fifth-third is a continuous process and not a program. Since March of this year, full-time equivalent employee headcount is down 3.5%. Turning to the balance sheet, we generated 4% average deposit growth compared to the year ago quarter versus a 5% decline for the industry.

We accreted over 30 basis points of CET, one capital during the quarter, reflecting our strong earnings power. While we also raised our quarterly dividend by 6%.

Speaker 2: We've created over 30 basis points of CET-1 capital during the quarter, reflecting our strong learnings power, while we also raised our quarterly dividend by 6%.

Speaker 2: With respect to the economy, while aggregate figures on spending and employment remain strong, and market sentiment is shifted more in favor of a soft landing, we continue to be more cautious given concerning signals disguised beneath the agonist.

With respect to the economy, while aggregate figures on spending unemployment remained strong and market sentiment shifted more in favor of the soft landing we continue to be more cautious given concerning signals disguised beneath the aggregates.

Speaker 2: For example, while the most recent headline payroll numbers were strong, most, if not all, the job growth is a byproduct of more people working part-time jobs.

For example, while the most recent headline payroll numbers were strong most if not all of the job growth is a byproduct of more people working part time jobs.

Tim Spence: New relationship growth remains strong. Consumer households grew more than 2%, led by 6% growth in the southeast, a continuation of our multi-year growth base. Gates, Neumannal Market Relationships at a year-to-date remain 25% ahead of last year's record base. Thanks to the release of the annual FIC summary of deposits, the third quarter provides a unique opportunity to understand market share gains and losses on a metro area by metro area basis. This year, fifth third maintained or improved our market rank in every single one of our 40 largest MSAs.

Speaker 2: real average weekly learning slip every month during quarter. And the lower end of the consumer spectrum now maintains deposit balances below pre-COVID level.

We'll average weekly earnings slipped every month during the quarter and the lower end of the consumer spectrum now maintains deposit balances below pre COVID-19 levels.

Speaker 2: anecdotally the last time Google searches for soft landing was this high was in May of 2008

Anecdotally the last time, Google searches for soft landing was this high was in May of 2008.

Speaker 2: Before I turn it over, I want to say thank you to our employees for everything you do to take care of our customers, strengthen our communities, and support one another.

Before I turn it over I want to say, thank you to our employees for everything you do to take care of our customers strengthen our communities and support one another.

Speaker 2: Your effort to Y Time Magazine recently recognized Fifth Third as one of the world's best companies. And why I am as confident as ever in Fifth Third's ability to outperform through the cycle and to deliver innovations that improve lives for all our stakeholders.

Our efforts are wide time magazine recently recognized fifth third is one of the world's best companies and why I am as confident as ever in fifth third's ability to outperform through the cycle and to deliver innovations that improve lives for all our stakeholders.

Tim Spence: In the Midwest, we maintained our number two overall position behind J. King Morgan Chase. In the Southeast, when we are just four years removed from opening our first next gen branch, we have reached or are approaching target locational share in eight of our original 11 focus markets. We intend to continue to open approximately 35 branches per year through 2028, at which time nearly 50% of our branches will be in Southeast markets.

Speaker 2: With that, Jamie will provide more details on our third quarter financial results and out.

With that Jamie will provide more details on our third quarter financial results and outlook.

Speaker 3: Thank you, Tim, and thanks all of you for joining us today. Our third quarter results will once again strong, despite the market head.

Thank you Tim and thank all of you for joining US today, our third quarter results were once again strong despite the market headwinds we.

We continue to strengthen our capital and liquidity levels ahead of pending regulations, while also managing our business very efficiently.

Speaker 3: We continue to strengthen our capital and liquidity levels ahead of pending regulations while also managing our business very efficient.

Speaker 3: We achieved an adjusted efficiency ratio below 55%, reflecting ongoing expense discipline throughout the bank, and the continued diversification and resilience of our fee revenue.

Tim Spence: These market share gains are the byproduct of multi-year strategies that are not easily replicable by competitors. They include innovative operational deposit-oriented products like momentum banking, AI-driven customer acquisition strategies, and a top-core-style customer service model in addition to our investments in new branches. A key credit metrics remain strong during the quarter. Charge-offs were in line with our July expectations, and both early stage frequencies and non-performing assets improved sequentially. The ACL increased three basis points given slight changes to Moody's macroeconomic forecast.

The adjusted efficiency ratio below 55%, reflecting ongoing expense discipline throughout the bank and the continued diversification and resilience of our fee revenue streams.

Net interest income of approximately $1 4 billion decreased 1% sequentially.

Speaker 3: Net interest income of approximately $1.45 billion decreased one percent sequence.

Speaker 3: Power, NII, and minimum results reflect our proactive and continued defensive positioning, given the uncertain economic and regulatory environment.

Our NII and NIM results reflect our proactive and continued defensive positioning.

The uncertain economic and regulatory environments.

Speaker 3: Our short-term investment will primarily represent our cash held at the Fed, increase $5 billion on an average basis, and increase $8 billion on an end of period basis to $19 billion.

Our short term investments, which primarily represent our cash held at the fed increased $5 billion on an average basis and increased $8 billion on an end of period basis to $19 billion.

Tim Spence: Turning to liquidity in capital, we made significant progress against our goal to adapt early to expected changes in the regulatory framework. Our focus efforts throughout the bank enabled us to end the quarter with $103 billion in total liquidity sources, and to achieve full category one LCR compliance at the end of both August and September. During the quarter, we also made significant progress on our RWA optimization initiative. So the RWA declined 1% compared to the prior quarter.

This increased level of cash was the primary driver of our 12 basis point NIM decline.

Speaker 3: This increased level of cash was the primary driver of our 12 basis point men to go.

Speaker 3: Adjusted non-interest income increase 1% compared to the year ago quarter Driven by growth in capital markets and deposit service charge revenue Partially offset by a decrease in mortgage revenue driven primarily by lower origination volume

Adjusted non interest income increased 1% compared to the year ago quarter, driven by growth in capital markets and deposit service charge revenue, partially offset by a decrease in mortgage revenue driven primarily by lower origination volumes.

Our ability to produce strong capital markets revenue in a volatile market has become a key distinction for fifth third compared to many peers.

Speaker 3: Our ability to produce strong capital markets revenue in a volatile market has become a key distinction for fifth third compared to many to the

Tim Spence: Our exercise should be complete by the end of the fourth quarter, so we can return to growing loans next year. We've created over 30 basis points of CET-1 capital during the quarter, reflecting our strong earnings power, while we also raised our quarterly dividend by 6%. With respect to the economy, while aggregate figures on spending and employment remain strong, and market sentiment is shifted more in favor of the soft landing, we continue to be more cautious given concerning signals disguised beneath the aggregates.

Adjusted noninterest expense increased just 2% compared to the year ago quarter, reflecting growth in compensation and benefits occupancy and technology expenses, partially offset by continued expense discipline across the company.

Speaker 3: A just in non-interest expense increased just 2% compared to the year-to-go quarter, reflecting growth in compensation and benefits, occupancy, and technology expenses, partially offset by continued expense discipline across the company.

Moving to the balance sheet.

Speaker 3: Total average portfolio loans and leases decreased 1% sequentially due to softening customer demand and our RWA optimization F.

Total average portfolio loans and leases decreased 1% sequentially.

Due to softening customer demand and our <unk> optimization efforts.

Tim Spence: For example, while the most recent headline payroll numbers were strong, most, if not all, the job growth is a byproduct of more people working part-time jobs. Real average, weekly earnings swept every month during the quarter, and the lower end of the consumer spectrum now maintains deposit balances below pre-COVID levels, anecdotally, the last time Google searches for soft landing were this high was in May of 2008. Before I turn it over, I want to say thank you to our employees for everything you do to take care of our customers, strengthen our communities, and support one another.

Speaker 3: Average CMI balances decrease 2% sequential.

Average C&I balances decreased 2% sequentially as Tim mentioned clients remain cautious with respect to their growth plans.

Speaker 3: As Tim mentioned, clients remain cautious with respect to their growth plans. Consequently, production with...

Consequently production was muted in corporate banking.

Speaker 3: Also, average CRE balance is decreased 1% compared to the prior quarter.

So average CRE balances decreased 1% compared to the prior quarter.

Speaker 3: The period and commercial revolver utilization rate of 36% increased 1% compared to last quarter. Partially due to our exit of certain lower returning unused commercial commitments.

The period end commercial revolver utilization rate of 36% increased 1% compared to last quarter, partially due to our exit of certain lower returning unused commercial commitments.

Tim Spence: Your efforts are why Time Magazine recently recognized Fifth Third as one of the world's best companies, and why I am as confident as ever, and Fifth Third's ability to outperform through the cycle and to deliver innovations that improve lives for all our stakeholders.

On a sequential basis total corporate banking commitments and unused commitments decreased 3% and 4%, respectively, while total middle market commitments and unused commitments increased 5% and 7% respectively.

Speaker 3: On the sequential basis, total color thank you commitments and unused commitments decreased 3% in 4% respect.

Speaker 3: while total middle market commitments and unused commitments increased 5% and 7% respect.

James Leonard: With that, Jamie will provide more details on our third quarter financial results and outlook.

Speaker 3: This trend highlights our capital optimization efforts while we continue to grow share in the middle marks.

This trend highlights our capital optimization efforts, while we continue to grow share in the middle market.

James Leonard: Thank you Tim and thank all of you for joining us today. Our third quarter results will once again strong despite the market headlands. We continue to strengthen our capital and liquidity levels ahead of pending regulations while also managing our business very efficiently. We achieved an adjusted efficiency ratio below 55% reflecting ongoing expense disciplines. We went through out the bank and the continued diversification and resilience of our fee revenue streams net interest income of approximately $1.45 billion decreased one percent sequentially.

Speaker 3: Average total consumer portfolio loan and lease balance has decreased 1% sequentially due to our intentional decline in indirect auto and the overall slowdown and residential mortgage originations given the rain environment, partially offset by growth from dividend prices.

Average total consumer portfolio loan and lease balances decreased 1% sequentially due to our intentional decline in indirect auto and the overall slowdown in residential mortgage originations given the rate environment, partially offset by growth from dividend finance.

Speaker 3: Our card balances increase just 1% this quarter, reflecting our conservative risk culture and focus on transactions.

Our card balances increased just 1% this quarter, reflecting our conservative risk culture and focus on trans actors.

Speaker 3: Balances of increase 3% relative to the year ago quarter compared to 11% for the

Balances have increased 3% relative to the year ago quarter compared to 11% for the industry.

James Leonard: Our NII and minimum results reflect our proactive and continued defensive positioning given the uncertain economic and regulatory environments. Our short term investment, which primarily represent our cash held at the Fed. Increased $5 billion on an average basis and increased $8 billion on an end of period basis to $19 billion. This increased level of cash with the primary driver of our 12 basis point and end decline. Adjustment non interest income increased 1% compared to the year ago quarter driven by growth in capital markets and deposit service charge revenue.

Average total deposits increased 3% sequentially as increases in fees and interest checking balances were partially offset by a decline in demand deposits given the mix shift we have seen for several quarters.

Speaker 3: Average total deposits increased 3% sequentially, as increases in CDs and interest checking balances, will partially offset by a decline in demand deposits, given the mixed shift we have seen for several quarters.

Speaker 3: BDAs as a percent of core deposits were 28% for the quarter compared to 30% in the prior quarter.

DDA as a percent of core deposits were 28% for the quarter compared to 30% in the prior quarter.

Speaker 3: The two point decline was primarily due to the strong deposit growth in the denominator, but Tim highlighted from our net new relationship growth in both consumer and commercial, which are obviously skewed to interest bearing products and misunderstandings.

Two point decline was primarily due to the strong deposit growth in the denominator that Tim highlighted from a net new relationship growth in both consumer and commercial which are obviously skewed to interest bearing products in this environment.

James Leonard: Partially offset by a decrease in mortgage revenue driven primarily by lower origination volumes. Our ability to produce strong capital markets revenue in a volatile market has become a key distinction for fifth third compared to many peers. Adjustment non interest expense increased just 2% compared to the year ago quarter reflecting growth in compensation and benefits occupancy and technology expenses partially offset by continued expense discipline across the company moving to the balance sheet.

Speaker 3: As a result, we added more than $4 billion in court of closets during the quarter, the most since the fourth quarter of 2021.

As a result, we added more than $4 billion in core deposits during the quarter. The most since the fourth quarter of 2021.

Speaker 3: Additionally, the DDA migration continued to show signs of deceleration this quarter.

Additionally, the DDA migration continued to show signs of deceleration this quarter.

Speaker 3: and marked the smallest dollar decline in DDA balances since the onset of the rate hiking cycle.

And Mark the smallest dollar decline in DDA balances since the onset of the rate hiking cycle.

Speaker 3: By segment, average consumer deposits increase 2% sequentially, and commercial deposits increase 4%. While wealth and asset management deposits decline 2%, reflecting clients' alternative investment.

By segment average consumer deposits increased 2% sequentially and commercial deposits increased 4%, while wealth and asset management deposits declined 2%, reflecting clients alternative investment options.

James Leonard: Total average portfolio loans and leases decreased 1% sequentially due to softening customer demand and our RWA optimization efforts. Average CNI balances decreased 2% sequentially as 10 mentioned clients remain cautious with respect to their growth plans. Consequently production was needed in corporate banking. Also average CRE balances decreased 1% compared to the prior quarter. The period and commercial revolver utilization rate of 36% increased 1% compared to last quarter partially due to our exit of certain lower returning unused commercial commitments.

As a result of our balance sheet positioning and success, adding new deposits, we achieved a loan to core deposit ratio of 74% at quarter end, which should be one of the best if not above us compared to our regional peers.

Speaker 3: As a result of our balance sheet positioning in success adding new deposits, we achieved a loan to core deposit ratio 74% at quarter end, which should be one of the best, if not the best compared to our regional-

Speaker 3: We also achieved full category one LCR compliance at 118% at quarter.

We also achieved full category, one LCR compliance at 118% at quarter end.

Moving to credit.

Speaker 3: Moving to credit. As Tim mentioned, credit has remained resilient. The net charge operation of 41 basis points increased 12 basis points compared to the prior quarter, as we expected, reflecting two credits which had been fully reserved.

Tim mentioned credit has remained resilient the net charge off ratio of 41 basis points increased 12 basis points compared to the prior quarter as we expected, reflecting two credits which had been fully reserved.

Speaker 3: Early stage to frequencies decreased 7% compared to the prior quarter, while loans 90 days pass to of just two basis points or a record loan for fifth third. Non-performing loans.

Early stage delinquencies decreased 7% compared to the prior quarter, while loans 90 days past due of just two basis points or a record low for the third.

James Leonard: On the sequential basis total quality thank you commitments and unused commitments decreased 3% in 4% respectively while total middle market commitments and unused commitments increased 5% and 7% respectively. This trend highlights our capital optimization efforts while we continue to grow share in the middle market. Average total consumer portfolio loan and lease balance is decreased 1% sequentially due to our intentional decline in indirect auto and the overall slowdown and residential mortgage originations given the rain environment partially offset by growth from dividend funds, finance.

Nonperforming loans decreased 9%.

Speaker 3: This quarter marked the lowest end was of commercial MPL since the second quarter of 2022.

This quarter marked the lowest inflows of commercial NPL since the second quarter of 2022.

From an overall credit management perspective, we have continually improve the granularity and diversification of our loan portfolios through a focus on generating and maintaining high quality relationships.

Speaker 3: From an overall credit management perspective, we have continually improved the granularity and diversification of our loan portfolios through a focus on generating and maintaining high quality relief.

Speaker 3: As many of you know, we tightened underwriting standards during COVID, which limited our growth, but improved the stability of our balance.

As many of you know, we tightened underwriting standards during Covid, which limited our growth, but improve the stability of our balance sheet.

James Leonard: Our card balances increase just 1% this quarter, reflecting our conservative risk culture and focus on trans actors. Balances have increased 3% relative to the year ago quarter compared to 11% for the industry. Average total deposits increased 3% sequentially as increases in CDs and interest checking balances will partially offset by a decline in demand deposits given in the mixed shift we have seen for several quarters. BDAs as a percent of core deposits were 28% for the quarter compared to 30% in the prior quarter.

In consumer we are focused on lending to homeowners, which is the segment less impacted by inflationary pressures and have maintained conservative underwriting policies.

Speaker 3: In consumer, we have focused on lending the homeowner, which is a segment less impacted by inflationary pressures and have maintained conservative underwriting policy.

In commercial we are maintaining the lowest overall CRE concentration as a percent of total loans relative to peers for many years, our criticized nonperforming and delinquent CRE loans have all improved sequentially and remain very well behaved.

Speaker 3: In commercial, we have maintained the lowest overall CRE concentration as a percent of total loans relative to peers for many years.

Speaker 3: Our criticized, non-performing, and delinquent CRE loans have all improved sequentially and remain very well-behaved.

Speaker 3: And within that, the same is true for our office exposures.

And within that the same is true for our office exposures.

For instance, <unk>.

James Leonard: The two-point decline was primarily due to the strong deposit growth in the denominator that Tim highlighted from our net new relationship growth in both consumer and commercial, which are obviously skewed to interest bearing products in this environment. As a result, we added more than $4 billion in core deposits during the quarter, the most since the fourth quarter of 2021. Additionally, the DDA migration continued to show signs of deceleration in this quarter and marked the smallest dollar decline in DDA balances since the onset of the rate hiking cycle.

Speaker 3: Criticized Office 1s represented just 5.4% of total Office CRE, which improved 180-

Criticized office loans represented just five 4% of total office CRE.

Which improved 180 basis points sequentially.

Additionally, we have zero delinquencies in zero charge offs.

Speaker 3: Additionally, we have zero delinquencies in zero charge.

Speaker 3: We also decreased loan balances by 8% in the office book without any loan sales.

We also decreased loan balances by 8% in the office book without any loan sales.

These credit quality metrics are significantly better than peers, who have reported their office exposure so far this quarter.

Speaker 3: These credit quality metrics are significantly better than peers who have reported their office exposure so far this course.

Speaker 3: While credit quality in the office portfolio has remained very strong and we continue to believe the overall impact on the third will be limited. We nevertheless continue to watch it closely given the invite.

While credit quality in the office portfolio has remained very strong and we continue to believe the overall impact on fifth third will be limited.

James Leonard: By segment, average consumer deposits increased 2% sequentially and commercial deposits increased 4%. While wealth and asset management deposits decline 2%, reflecting clients' alternative investment options. As a result of our balance sheet positioning in success adding new deposits, we achieved a loan to core deposit ratio of 74% at quarter end, which should be one of the best if not the best compared to our regional peers. We also achieved full category 1 LCR compliance at 118% at quarter end.

We nevertheless continue to watch it closely given the environment.

Our shared national credit portfolio also remains very strong from a credit quality perspective with criticized assets nonperforming loans and net charge offs consistently lower than the overall commercial portfolio across a multi year period.

Speaker 3: Our shared national credit portfolio also remains very strong from a credit quality perspective. With criticized assets, non-performing loans, and met charge-offs consistently lower than the overall commercial portfolio across a multi-year period.

Speaker 3: Our credit resilience highlights our proactive risks.

Our credit resilience highlights our proactive risk culture.

Speaker 3: We continue to close a little monitor all exposures where inflation and higher rates may cause stress throughout the entire portfolio, as well as the fallout from the ongoing labor strike and the auto manufacturing sector, where we think our exposures are very manageable.

We continue to closely monitor all exposures, where inflation and higher rates may cost stress throughout the entire portfolio as well as the fallout from the ongoing labor strike in the auto manufacturing sector, where we think our exposures are very manageable.

James Leonard: Moving to credit, as Tim mentioned, credit has remained resilient. The net charge ratio of 41 basis points increased 12 basis points compared to the prior quarter, as we expected, reflecting two credits which had been fully reserved. Early stage delinquencies decreased 7% compared to the prior quarter, while loans 90 days passed due of just two basis points for a record loan for the third. Non-performing loans decreased 9%. This quarter marked the lowest inflows of commercial MPL since the second quarter of 2022.

Moving to the ACL.

Speaker 3: Our reserves decreased $5 million, but the coverage ratio increased three basis points sequentially to 2.11%. As the impact of lower period and loans was offset by slightly worse overall base case economic out.

Our reserves decreased $5 million with the coverage ratio increased three basis points sequentially to $2 one 1%.

As the impact of lower period end loans was offset by a slightly worse overall base case economic outlook.

As you know, we incorporate moody's macroeconomic scenarios when evaluating our allowance.

Speaker 3: As you know, we incorporate Moody's macroeconomic scenarios and we evaluate in our online.

Speaker 3: Both the Moody's base scenario and the downside scenario used for the third quarter ACL, assuming it's slightly worse average unemployment rate compared to the prior quarter, we maintained our scenario ratings of 80% to the base and 10% to each the upside and downside scenario.

Both the Moody's base scenario and the downside scenario used for the third quarter ACL assume a slightly worse average unemployment rate compared to the prior quarter, we maintained our scenario weightings of 80% to the base and 10% to each the upside and downside scenarios.

James Leonard: From an overall credit management perspective, we have continually improved the granularity and diversification of our loan portfolios through a focus on generating and maintaining high quality relationships. As many of you know, we tightened underwriting standards during COVID, which limited our growth, but improved the stability of our balance sheet. In consumer, we have focused on lending to homeowners, which is a segment less impacted by inflationary pressures and have maintained conservative underwriting policies.

Speaker 3: Moving capital, our CET-1 ratio increased 31 basis points sequentially and the recorder at 9.8.

Moving to capital our CET, one ratio increased 31 basis points sequentially ending the quarter at nine 8%.

Speaker 3: Our capital position reflects our ability to build capital quickly through our strong earnings generation combined with the impact of our RWA diet.

Our capital position reflects our ability to build capital quickly through our strong earnings generation combined with the impact of our <unk> diet.

Our tangible book value per share, excluding OCI increased 10% compared to the year ago quarter.

Speaker 3: Our tangible book value per share, excluding AOCI, increased 10% compared to the year ago course.

James Leonard: In commercial, we have maintained the lowest overall CRE concentration as a percent of total loans relative to peers for many years, years. Our criticized, non-performing, and delinquent CRE loans have all improved sequentially and remain very well behaved. And within that, the same is true for our office exposures. For instance, criticized office loans represented just 5.4% of total office CRE, which improved 180 basis points sequentially. Additionally, we have zero delinquent CREs in zero charge offs.

We continue to expect improvement in our unrealized securities losses, resulting in approximately 35% of our current loss position accretive back into equity by the end of 2025.

Speaker 3: We continue to expect improvement in our unrealized securities losses, resulting in approximately 35% of our current loss position accruing back into equity by the end of 2025, and approximately 2-3rd by 2028, assuming the forward curve plays.

And approximately two thirds by 2028, assuming the forward curve plays out.

Speaker 3: Looking forward, we expect to build capital at an accelerated pace given our RWA optimization initiative and our continued deferment of share by the...

Looking forward, we expect to build capital at an accelerated pace given our WMA optimization initiative and our continued deferment of share buybacks.

Speaker 3: We anticipate a creating capital such that our CET-1 ratio ends this year above 10%.

We anticipate accruing capital such that our CET, one ratio and this year above 10%.

James Leonard: We also decrease loan balances by 8% in the office book without any loan sales. These credit quality metrics are significantly better than peers who have reported their office exposure so far this quarter. While credit quality in the office portfolio has remained very strong, and we continue to believe the overall impact on the third will be limited, we nevertheless continue to watch it closely given the environment. Our shared national credit portfolio also remains very strong from a credit quality perspective.

Speaker 3: Moving to our current outlook, we expect fourth quarter average total loan balances to decline to the 3% sequentially with consumer loans down 2% and commercial loans down 3.

Moving to our current outlook, we expect fourth quarter average total loan balances to decline, 2% to 3% sequentially with consumer loans down, 2% and commercial loans down 3%.

Speaker 3: This reflects our overall cautious economic outlook combined with one more quarter of our RWA diet as we are responding quickly to higher risk adjusted return thresholds throughout the bank considering the economic and regulatory and buying.

This reflects our overall cautious economic outlook combined with one more quarter of our <unk> diet, because we are responding quickly to higher risk adjusted return thresholds throughout the bank, considering the economic and regulatory environments.

We expect average deposits to be up slightly on a sequential basis within that we expect core deposits increased 1% due to our multiyear investments in the franchise.

Speaker 3: We'd expect average deposits to be up slightly on a sequential base.

James Leonard: With criticized assets, non-performing loans, and met charge offs consistently lower than the overall commercial portfolio across a multi-year period. Our credit resilience highlights our proactive risk culture. We continue to closely monitor all exposures where inflation and higher rates may cause stress throughout the entire portfolio, as well as the fallout from the ongoing labor strike and the auto manufacturing sector, where we think our exposures are very manageable. Moving to the ACL, our reserves decreased $5 million, but the coverage ratio increased three basis points sequentially to 2.11%.

Speaker 3: Within that, we expect quarter-possets to increase 1% due to our multi-year investments in the franchise. To add households and primary commercial relationships, along with the benefit from season-ass.

To add households in primary commercial relationships, along with the benefit from seasonality.

Speaker 3: While we continue to expect modest migration from DDA into interest bearing products, and they hire for longer interest rate and buyer.

While we continue to expect modest migration from DDA into interest bearing products and a higher for longer interest rate environment.

Speaker 3: Specifically for the fourth quarter, we expect the mix of DDA to core deposits to remain relatively stable given those seasonal benefits.

Typically for the fourth quarter, we expect the mix of DDA to core deposits to remain relatively stable given those seasonal benefits.

Shifting to the income statement, we expect fourth quarter NII to be down approximately 1% to 2% sequentially due to the continued impacts of the balance sheet dynamics I mentioned.

Speaker 3: We expect fourth quarter NII to be down approximately 1 to 2% sequentially due to the continued impacts of the balance sheet dynamics I meant.

James Leonard: As the impact of lower period and loans was offset by slightly worse overall base case economic outlook. As you know, we incorporate Moody's macroeconomic scenarios when evaluating our allowance. Both the Moody's base scenario and the downside scenario used for the third quarter ACL, assuming a slightly worse average unemployment rate compared to the prior quarter, we maintained our scenario ratings of 80% to the base and 10% to each the upside and downside scenarios.

Speaker 3: Our NII guidance will soon know additional rate hikes and accumulative data, which includes CDs and Exploons DDAs, a 55% by the Forest Court.

Our NII guidance assumes no additional rate hikes in our cumulative beta which include Cds and excludes DBA, a 55% by the fourth quarter.

Excluding broker deposits that we have been using as a replacement for other wholesale funding given the pricing considerations.

Speaker 3: blue-team blocored deposits that we have been using as a replacement for other wholesale funding given the pricing consideration.

Speaker 3: Our cumulative data expectation continues to be 53.

Our cumulative beta expectation continues to be 53%.

Speaker 3: This outlook translates to total interest bearing deposit costs increasing 15 to 20 basis points in the fourth quarter.

This outlook translates to total interest bearing deposit costs, increasing 15% to 20 basis points in the fourth quarter.

James Leonard: Moving capital, our CET-1 ratio increased 31 basis points sequentially, ending the quarter at 9.8%. Our capital position reflects our ability to build capital quickly through our strong earnings generation combined with the impact of our RWA diet. Our tangible book value per share excluding AOCI increased 10% compared to the year ago quarter. We continue to expect improvement in our unrealized securities losses, resulting in approximately 35% of our current loss position accruing back into equity by the end of 2025, and approximately two-thirds by 2028, assuming the forward curve plays out.

Speaker 3: Our guidance assumes that our securities portfolio balances remain relatively stable through year S.

Our guidance assumes that our securities portfolio balances remained relatively stable through year end.

Speaker 3: as a byproduct of our strong deposit growth combined with our loan outlook and stable securities balances. We expect to hold closer to $20 billion in cash and cash equivalents by you.

As a byproduct of our strong deposit growth combined with our loan outlook and stable securities balances, we expect to hold closer to $20 billion in cash and cash equivalents by year end.

Speaker 3: Given these balance trends, we expect our loan to court deposit ratio to continue to move lower through the end of the year, which will keep fifth third in a strong liquidity position and anticipation of more stringent regulatory requirements, including remaining extension and employment.

Given these balanced trends, we expect our loan to core deposit ratio to continue to move lower through the end of the year, which will keep fifth third and a strong liquidity position in anticipation of more stringent regulatory requirements, including remaining compliant with the full category one LCR.

Speaker 3: We expect fourth quarter adjusted non-interest income to increase one to two percent compared to the third quarter. We expect revenues to remain resilient across most captions, driven by our multi-year focus on growing a diverse portfolio of fee businesses that should perform well in different economic environments.

We expect fourth quarter adjusted non interest income to increase 1% to 2% compared to the third quarter. We expect revenues to remain resilient across most captions driven by our multi year focus on growing a diverse portfolio of fee businesses that should perform well in different economic.

James Leonard: Looking forward, we expect to build capital at an accelerated pace given our RWA optimization initiative and our continued deferment of share[inaudible] We anticipate a creating capital such that our CET-1 ratio ends this year above 10%. Moving to our current outlook, we expect fourth quarter average total loan balances to decline to the 3% sequentially with consumer loans down 2% and commercial loans down 3%. This reflects our overall cautious economic outlook combined with one more quarter of our RWA diet as we are responding quickly to higher risk-adjusted return thresholds throughout the bank considering the economic and regulatory environments.

<unk>.

Speaker 3: We expect fourth quarter TRA revenue with $22 million compared to $46 million in the fourth quarter of 2022.

We expect fourth quarter, TRA revenue of $22 million compared to $46 million in the fourth quarter of 2022.

Speaker 3: We expect fourth quarter adjusted non-interest expenses to be stable to up 1% compared to the third quarter. Our guidance excludes depending FDIC special assessment, which we currently estimate at $208 million for a set there.

We expect fourth quarter, adjusted noninterest expenses to be stable to up 1% compared to the third quarter, our guidance excludes the pending FDIC special assessment, which we currently estimate at $208 million for fifth third.

With respect to credit quality, we expect fourth quarter net charge offs to be 30 to 35 basis points.

Speaker 3: With respect to credit quality, we expect fourth quarter net charge off to be 30 to 35 basis points. We do expect a grant.

James Leonard: We expect average deposits to be up slightly on a sequential basis. Within that, we expect quarter deposits to increase 1% due to our multi-year investments in the franchise to add households and primary commercial relationships along with the benefit from seasonality. While we continue to expect modest migration from DDA into interest-bearing products in a higher-from-longer interest rate environment, specifically for the fourth quarter, we expect a mix of DDA to core deposits to remain relatively stable given those seasonal benefits.

We do expect to gradually normalize from here, we continue to believe that our through the cycle annual charge offs will be in the 35% to 45 basis point range, given the credit risk profile of the bank.

Speaker 3: We continue to believe that our through the cycle annual charge costs will be in the 35 to 45 basis point range given the credit risk profile.

Given our reduced loan outlook, we expect the change in the ACL for the fourth quarter to be stable to up $25 million, assuming no significant changes in the underlying Moody's economic scenarios.

Speaker 3: Given our reduced loan outlook, we expect the change in the ACL for the fourth quarter to be stable to up $25 million, assuming no significant changes in the underlying Moody's economic scenario.

This considers production from dividend finance of around $700 million in the fourth quarter, which as you know carries a higher reserve level of around 9%.

Speaker 3: This considers production from dividend finance of around $700 million in the fourth quarter, which as you know carries a higher reserve level of around nine-

James Leonard: We expect fourth quarter NII to be down approximately 1% to 2% sequentially due to the continued impacts of the balance sheet dynamics I mentioned. Our NII guidance assumes no additional rate hikes and accumulative data which includes CDs and excludes DDAs of 55% by the fourth quarter. Excluding broker deposits that we have been using as a replacement for other wholesale funding given the pricing considerations, our cumulative data expectation continues to be 53%.

In summary, with our proactive balance sheet management disciplined credit risk management and commitment to delivering strong performance through the cycle. We believe we are well positioned to meet the proposed regulatory requirements, while continuing to generate long term value for our shareholders.

Speaker 3: In summary, with our proactive balance sheet management, disappoint.

Speaker 3: in commitment to delivering strong performance through the cycle.

Speaker 3: We believe we are well positioned to meet the proposed regulatory requirements while continuing to generate long-term value for our shareholders.

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

Speaker 3: Was that? Let me turn it over to Chris. So I'm going to call up for Q&A.

Speaker 4: Thanks, Jamie. Before we start Q&A, given the time we have this morning, we ask that you limit yourself to one question and a follow-up and then return to the queue if you have additional questions. Operator, please.

Jamie before we start Q&A given the time, we have this morning, we ask that you limit yourself to one question and a follow up and then return to the queue. If you have additional questions. Operator, please open the call up for Q&A.

James Leonard: This outlook translates to total interest-bearing deposit costs increasing 15 to 20 basis points in the fourth quarter. Our guidance assumes that our securities portfolio balances remain relatively stable through year end. As a byproduct of our strong deposit growth combined with our loan outlook and stable securities balances, we expect to hold closer to $20 billion in cash and cash equivalent by year. Given the balanced trends, we expect our loan to court deposit ratio to continue to move lower through the end of the year which will keep fifth third in a strong liquidity position and anticipation of more stringent regulatory requirements, including remaining compliant with the full category 1 LCR.

Speaker 1: 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. Your first question comes from a line of Scott Saiferts from Piper Sandler. Your line is open.

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.

And your first question comes from the line of Scott Cyphers from Piper Sandler Your line is open.

Speaker 5: Morning, everybody. Thank you for taking the question. Jamie, I was hoping maybe you could expand even a little more on your thoughts on bringing so many deposits in the third quarter. I know you're trying to get your liquidity to a certain, you know, very high level and you achieved it, but it was just a kind of astonishing number. So just curious, that's what the thinking throughout the quarter was. I guess the additional forward look though, you provided some of the deposit commentary or expectations in there, but just any additional thoughts would be helpful.

Good morning, everybody. Thank you for taking the question.

Jamie I was hoping maybe you can could expand even a little more on your thoughts on bringing so many deposits in the third quarter I know you're trying to get your liquidity to a certain very high level and you achieved it but it was just kind of astonishing number or so.

Just curious as to what Theyre thinking throughout the quarter was I guess the additional forward look there.

You provided some of the deposit commentary or expectations in there, but just any any additional thoughts would be helpful. Please.

James Leonard: We expect fourth quarter adjusted non-interest income to increase 1 to 2% compared to the third quarter. We expect revenues to remain resilient across most captions driven by our multi-year focus on growing a diverse portfolio of fee businesses that should perform well in different economic environments. We expect fourth quarter TRA revenue with $22 million compared to $46 million in the fourth quarter of 2022. We expect fourth quarter adjusted non-interest expenses to be stable to up 1% compared to the third quarter.

Speaker 3: Yeah, thanks Scott for the question. We were certainly ringing the victory bell and deposit this quarter. Um.

Yes. Thanks.

Scott for the question, we were certainly ringing the victory Bell on deposits this quarter.

Speaker 3: Really, when you take a look back coming out of March, man, that's one of the biggest drivers of our deposit success in the second quarter and the third quarter was really transitioning our customer recommendation engine from household growth to deposit growth.

Really when you take a look back.

Coming out of March Madness, one of the biggest drivers of our deposit success in the second quarter.

The third quarter was really transitioning our customer recommendation engine from household growth to deposit growth.

Speaker 3: And while that sacrificed a little bit on the household growth numbers, instead of our typical up 3 or up 4%, we were 2% on households, but that translated to very strong consumer deposit growth. And so within...

And while that sacrificed a little bit on the household growth numbers instead of our typical up three or up 4% we were up 2%.

James Leonard: Our guidance excludes depending FDIC special assessment which we currently estimate at $208 million for a set third. With respect to credit quality, we expect fourth quarter net charge drops to be 30 to 35 basis points. We do expect to gradually normalize from here. We continue to believe that our through the cycle annual charge drops will be in the 35 to 45 basis point range, given the credit risk profile of the bank.

On households, but that translated to very strong consumer deposit growth and so within the deposit growth. We did have during the quarter.

Speaker 3: The deposit growth we did have during the quarter of almost $4.8 billion. About 60% was commercial, 40% was consumer, and within consumer 70% of that growth was in the Southeast market.

Those $4 $8 billion about 60% was commercial 40% was consumer and within consumer 70% of that growth was in the south east southeast markets.

Speaker 3: while 30% of that growth was in the mid-wast. So again, the retail franchise at fifth third is just performing at an extremely high level. And on the commercial side, the growth was...

While 30% of that growth was in the Midwest. So again the retail franchise at fifth third is just performing at an extremely high level.

James Leonard: Given our reduced loan outlook, we expect the change in the ACL for the fourth quarter to be stable to up 25 million dollars, assuming no significant changes in the underlying moodies economic scenarios. This considers production from dividend finance of around 700 million dollars in the fourth quarter, which as you know carries a higher reserve level of around 9%.

On the commercial side the growth.

Was <unk>.

Speaker 3: Surprisingly high given

Surprisingly high given.

Speaker 3: the Corbord Banking book growth within the commercial deposit growth, about 80% of the growth was in Corbord Banking.

The corporate banking book growth within the commercial.

Deposit growth about 80% of the growth was in corporate banking.

Speaker 3: So at the time, we were targeting, let's get LCR, full LCR, north of 100%. We actually came in at 118%. So definitely did better than we initially expected. But we were dissecting the quarter end result.

So at the time, we were targeting let's get LCR full LCR north of a 100% we actually came in at 118% So definitely.

James Leonard: In summary, with our proactive balancing management, discipline credit risk management, in commitment to delivering strong performance through the cycle, we believe we are well positioned to meet the proposed regulatory requirements while continuing to generate long term value for our shareholders.

Did better than we initially expected, but when we were <unk>.

Dissecting the quarter end results.

Speaker 3: It really makes sense that the Cooper-Banky book did better and as one of the...

It really makes sense that the corporate banking book did better and as one of the sort of hidden benefits of the RWC diet is that we are getting better share of wallet.

Speaker 3: sort of hidden benefits of the RWA diet is that we are getting better share of wallet within that corporate banking book and that also help drive the deposit growth. So overall a very strong quarter, again for us, on the positive side, we expect continued growth in the fourth quarter, albeit at a little bit lower growth rate, but still up a bit in the fourth quarter.

Within the corporate banking book and that also helped drive the deposit growth. So overall, a very strong quarter again for us loan the deposit side, we expect.

Chris Doll: With that, let me turn it over to Chris, welcome to call up for Q&A. Thanks, Jamie.

Chris Doll: Before we start Q&A, given the time we have this morning, we ask that you limit yourself to one question and a follow up and then return to the queue if you have additional questions.

Continued growth in the fourth quarter, albeit at a little bit lower growth rate, but still up a bit in the fourth quarter.

Rob: Operator, please let me call up for Q&A. 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.

Perfect Alright, that's very helpful. Thank you and then if I could switch gears for just a second.

Speaker 5: Perfect. All right, that's very helpful. Thank you. And then if I switch gears for just a second, you know, the security portfolio marks, you know, I guess you all might come out looking a little heavier than some others, but by the same token, you guys have been, you know, more hesitant to use the HGM classification, as well, I guess just any updated thoughts on sort of how you're thinking about that, you know, it's,

The securities portfolio marks I guess.

Scott Safer: And your first question comes from a line of Scott Safer's from Hypersandler. Your line is open. Morning, everybody. Thank you for taking the question. Jamie, I was hoping maybe you can expand even a little more on your thoughts on bringing in so many deposits in the third quarter. I know you're trying to get your liquidity to a certain very high level and you achieved it, but it was just a kind of astonishing number.

It might come out looking a little heavier than than some others, but by the same token you guys have been.

More hesitant to use the HTM.

Classification as well I guess, just any any updated thoughts on.

Sort of how youre thinking about that.

Speaker 5: least optically would help out levels if not in terms of real world. But just here's the air update it thought.

So at least optically.

Would help out levels if not.

In terms of real world, but just curious to hear your updated thoughts.

Scott Safer: So just just curious. That's what the thinking throughout the quarter was. I guess additional forward. Look, so you you provided some of the deposit commentary or expectations in there, but just any additional thoughts would be helpful, please. Yeah, thanks Scott for the question. We were certainly ringing the victory bell and deposits this quarter. Really, when you take a look back coming out of March, man, that's one of the biggest drivers of our deposit success in the second quarter in the third quarter was really transitioning our customer recommendation engine from household growth to deposit growth.

Speaker 3: Yeah, if you break it down between real world and regulatory world, that's really how we are looking at this in the real world with really the economic risk. Whenever you have a fixed rate asset, whether that's an AFS, HTM, or in the loan portfolio, you have that economic risk to higher rates. We have elected to hold our securities in AFS and we'll continue to do so.

Yes.

Break it down between real World in regulatory World, That's really how we're looking at this in the real world with really the economic risk whenever you have a fixed rate asset whether thats, an NFS HTM or in the loan portfolio.

Scott Safer: And while that sacrificed a little bit on the household growth numbers, instead of our typical up three or up 4%, we were 2% on households, but that translated to very strong consumer deposit growth. And so within the deposit growth, we did have during the quarter of almost $4.8 billion, about 60% was commercial 40% was consumer, and within consumer 70% of that growth was in the southeast, southeast markets, while 30% of that growth was in the Midwest.

Have that economic risk to higher rates, we have elected to hold our securities.

And we'll continue to do so.

Speaker 3: given that it gives us better flexibility and opportunity to reposition as the environment changes. But when you...

Given that it gives us better flexibility and opportunity to reposition as the environment changes.

Changes, but when you.

Speaker 3: are in the real world managing the balance sheet. How we approach balance sheet management is in totality. And you can look at our strong NII results.

Or in the real world managing the balance sheet, how we approach balance sheet management is in totality and you can look at our strong NII results our interest bearing liability results any of the measures relative to peers. The total balance sheet is performing very well, we're going to grow NII. This year three.

Speaker 3: our intersparing liability, results, any of the measures relative to peers, the total balance sheet is performing very well. We're going to grow NII this year, three to five percent, others are shrinking. So our philosophy is paying off in the real world. The challenge simply comes from

To 5% others are shrinking so our philosophy is paying off in the real world. The challenged simply comes from the fair value of a single line item and putting that into capital we're not insensitive to.

Speaker 3: the fair value of a single line item and putting that into capital. We're not insensitive to...

Scott Safer: So again, the retail franchise at the third is just performing at an extremely high level. And on the commercial side, the growth one, was surprisingly high given the corporate banking book growth within the commercial deposit growth, about 80% of the growth was in corporate banking. So at the time we were targeting, let's get LCR, full LCR north of 100%, we actually came in at 118%, so definitely did better than we initially expected, but we were dissecting the quarter end results.

Speaker 3: how that looks on the face of the baller sheet and the tangible book value per share.

How that looks on the face of the balance sheet and the tangible book value per share.

Speaker 3: but we still believe it is proven to have that flexibility because flexibility has value. In terms of the regulatory risk, we can exhaust our efforts. ovat la sabra.

But we still believe it is prudent.

To have that flexibility because flexibility has value in terms of the regulatory risk.

Perhaps one of the details that we continue to evaluate if something was not really communicated.

Speaker 3: the details that we continue to evaluate if something was not really communicated to all of you.

To all of you externally is that <unk>.

Speaker 3: Given the burn down that you have in the presentation and the significant, whether it's static rate, forward rate, you look in at 60, 65% of the ASC burn down during the transition.

Given the burn down that you have in the presentation unless significant whether it's static rate forward rate youre looking at 60%, 65% of the Aoc birnbaum during the transition.

Scott Safer: It really makes sense that the corporate banking book did better, and as one of the sort of hidden benefits of the RWA diet is that we are getting better share of wallet within that corporate banking book, and that also helped drive the deposit growth. So overall a very strong quarter, again for us, on the deposit side, we expect continued growth in the fourth quarter, albeit at a little bit lower growth rate, but still up a bit.

Speaker 3: into the new capital regimes, assuming the rules play out as currently written.

And of the new capital regimes, assuming the rules play out as currently written and that burn down is going to happen on our portfolio because our portfolio has structure, we have defined maturities.

Speaker 3: And that burn down is going to happen on our portfolio because our portfolio has structure. We have defined maturity.

Speaker 3: unlike those portfolios that are in residential mortgage back.

Unlike those portfolios that are in residential mortgage backed.

Speaker 3: instruments with convexity and extension rest, we know our portfolio is going to pay down and we know that this is going to be very manageable from a regulatory capital perspective. When we model

Instruments with convexity.

Extension risk.

Though our portfolio is going to pay down and we know.

This is going to be very manageable from a regulatory capital perspective, when we model.

Scott Safer: Perfect, that's very helpful, thank you.

Scott Safer: If I switch gears for just a second, the security portfolio marks, I guess you all might come out looking a little heavier than some others, but by the same token, you guys have been more hesitant to use the XM classification as well. I guess just any updated thoughts on how you're thinking about that. You know, at least optically, you know, would help out level that not in terms of real world, but just curious to your updated thoughts.

Speaker 3: the capital impact at a fully phased in level on AOCI, the impact on CET1.

The capital impact at a fully phased in level on a OCI the impact on CET one.

Speaker 3: is about 125 basis points when you reach

Is about 125 basis points when you reach the.

Speaker 3: the third quarter of 2028 and that's why we continue to accrete CET1 is to be able to have sufficient regulatory capital for that world and in fact should we get north of 8 percent? We would still be maintaining the CET1

The third quarter of 2028, and Thats why we continue to accrete CET, one is to be able to.

Have sufficient regulatory capital towards that world and in fact should rates get north of 8%, we would still be maintaining the CET one.

Scott Safer: Yeah, if you break it down between real world and regulatory world, that's really how we are looking at this in the real world with really the economic risk. Whenever you have a fixed rate asset, whether that's an AFS, HTM, or in the loan portfolio, you have that economic risk to higher rates. You know, we have elected to hold our securities in AFS, and we'll continue to do so, given that it gives us better flexibility and opportunity to reposition as the environment changes.

Speaker 3: well above regulatory numbers would be over 8% CEP1 in that environment. So we feel good about how we position, how we will roll down the curve, and ultimately the regulatory capital. It's just...

Well above regulatory minimums would be over 8% CET one in that environment. So we feel good about how we're positioned how we will roll down the curve and ultimately the regulatory.

Capital It's just.

One of the.

Challenges in this environment with everything in <unk> is that you have that mark.

Speaker 3: Challenges in this environment with everything in AFF is that you have that mark

Speaker 2: on the tangible book value per share of that erosion, but at the same time should rates fall. I think all of you would be very pleased with how much tangible book value accretion we would report in that environment. Nice. I just put a point on.

The tangible book value per share that erosion, but at the same time should rates fall.

I. Thank all of you would be very pleased with how much tangible book value accretion.

Scott Safer: But when you are in the real world managing the balance sheet, how we approach balance sheet management is in totality, and you can look at our strong NII results, our interfering liability results, you know, any of the measures relative to peers, the total balance sheet is performing very well. We're going to grow NII this year, three to five percent, others are shrinking. So our philosophy is paying off in the real world.

We would report in that environment.

Got it if I just put a point on the last thing Jamie sentiment, we believe investors want us to do what is best for managing the business for.

Speaker 2: Jamie said, I mean, we believe investors want us to do what is best for managing the business and for recognizing the fact that options have value.

Recognizing the fact that options have value.

Speaker 2: that but if you believe that the uh... a o c i mark is weighing on the stock the other way to look at it is the burn down is you know twenty five percent accretion intangible book value per share in the next two years uh... just get given that current outlook on rate

But if you believe that.

<unk> Mark is weighing on the stock and the other way to look at it as the burn down 25% accretion and tangible book value per share in the next two years.

Scott Safer: The challenge simply comes from the fair value of a single line item and putting that into capital. We're not insensitive to how that looks on the face of the balance sheet and the tangible value per share. But we still believe it is proven to have that flexibility because flexibility has value. In terms of the regulatory risk, perhaps one of the details that we continue to evaluate if something was not really communicated to all of you externally is that Given the burn down that you have in the presentation and the significant whether it's static rate, forward rate, you look in at 60, 65% of the ASC burn down during the transition into the new capital regimes, assuming the rules play out as currently written.

Just given the current outlook on rates, which is a pretty unique buying opportunity via the way to look at it.

Speaker 2: which is a pretty unique buying opportunity. The other way to look at it.

Speaker 5: All right, that's perfect. So Tim and Jeremy, thank you both.

Yes.

Great Alright, thats perfect, So Tim and Jamie Thank you Bob.

Speaker 1: And your next question comes from the line of Eric Kinniserian from UBS. Your line is open.

And your next question comes from the line of Erika Najarian from UBS. Your line is open.

Hi, good morning.

Speaker 6: Hey, Erica. Okay, Jamie, this first one is for you. Not to believe we're the earlier point, but, you know, all the PPR metrics and

Okay. Jamie This first one is for you not to belabor the early your appointment.

All the P PNR metrics.

And balance sheet metrics.

Speaker 6: and so did the forward look. And I guess, you know, if you could just explain what happened in the quarter, I think, given that your security portfolio is 61% CNBS, I think, you know, investors that know you well expected, you know, not as much negative convexity. It was there something unique that happened in this quarter in the portfolio that where, you know, the AOCI was that much worse.

Great and so did the forward luck and I guess if.

If you could just explain what happened in the quarter I think given that your portfolio.

<unk> portfolio of 61% see MBS I think.

<unk> you all expected.

Not as much negative convexity.

Was there something unique that happened in this quarter.

Scott Safer: And that burn down is going to happen on our portfolio because our portfolio has structure. We have defined maturities unlike those portfolios that are in residential mortgage back instruments with convexity and extension rest. We know our portfolio is going to pay down and we know that this is going to be very manageable from a regulatory capital perspective. When we model the capital impact at a fully phased in level on AOCI, the impact on CET1 is about 125 basis points, when you reach the third quarter of 2028.

In our portfolio that were.

OCI was that much wider.

Not really it was a pretty.

Speaker 3: Not really. It was a pretty vanilla quarter for us where we had cash flows in the quarter of about 500 million. We put about 700 million to work of the excess cash in short duration level one's treasury floaters. When you look at the AOCI walk...

Vanilla quarter for Us, where we had cash flows in the quarter of about 500 million, we put about $700 million to work of the excess cash in short duration level ones Treasury floaters. When you look at the Aoc EI.

Walk.

That happened in the quarter the securities portfolio, because everything is in RFS worsened.

Speaker 3: the security portfolio because everything is in AFS, worsened about a billion, too. And if you look at how the five-year moved, it increased about 45 basis points, the 10-year moved about 75, and then spreads white and five.

About $1 billion to and if you look at how the five year moved it.

Scott Safer: And that's why we continue to accrete CET1 is to be able to have sufficient regulatory capital for that world. And in fact, should we get north of 8%, we would still be maintaining the CET1 well above regulatory numbers would be over 8% CET1 in that environment. So we feel good about how well positioned, how we will roll down the curve, and ultimately the regulatory capital. It's just one of the challenges in this environment with everything in AFS is that you have that mark on the tangible book value per share that erosion, but at the same time should rate fall.

Increased about 45 basis points. The 10 year moved about 75, and then spreads widen.

Five bips on the CMV asking about 15 in mortgage so when you add it all up with a <unk> of about $25 million that gets you to.

Speaker 3: on the CMBF and about 15 and mortgage. So we added all up with the DVO one of about 25 million, that gets you to the AOCI movement for the quarter on the investment portfolio. And.

The OCI movement for the quarter on the investment portfolio.

And so it was.

Speaker 6: in line at least with our expectations, with how rates were moving during the corner. And my follow-up question was

In line at least with our expectations with how rates were moving.

During the quarter.

Got it and my follow up question for you Tim I think.

It was a very powerful statement you said in the beginning of the call in terms of the confidence that you could return to loan growth next year I.

Speaker 6: and grow next year. You know, I think several of your peers that have similar.

Scott Safer: I think all of you would be very pleased with how much tangible book value accretion we would report in that environment. Now if I just put a point on the last thing, Jamie said I mean we believe investors want us to do what is best for managing the business and for recognizing the fact that options have value. But if you believe that the AOCI mark is weighing on the stock and the other way to look at it is the burn down is you know 25% accretion and tangible book value per share in the next two years. Just give them that current outlook on rates, which is a pretty unique buying opportunity, the other way to look at it. Yeah, I agree.

I think several of your peers that have similar CET one ratios.

Speaker 6: and similar AOCI marks are still talking about dieting.

OCI marks are still talking about dieting.

Scott Safer: All right.

Speaker 6: So give this a sense of, first of all, if you could confirm what the AOCI was in basis points, Jamie, and second, Tim, how are you balancing on one hand the market one-

Could you give us a sense.

First of all.

If you could confirm what the OCI.

And basis points, Jamie and second.

Tim how are you balancing on one hand, the market wants you to continue to build capital as we approach that transitional date on CET, one and on the other you.

Speaker 6: build capital as we approach that that transitional date on CT1 and on the other you know we're still hearing low demand from

Still hearing low demand from from corporate finance.

Yeah.

Speaker 2: There's a lot in there. But that's the right question, Erica. So a few things here. One, I think.

So theres a lot in there but.

Alright.

That's correct Greg.

But thats the right.

Tim Spence: That's perfect. So Tim and Jeremy, thank you both.

Question Erika.

A few things here one.

Eric Najarian: And your next question comes from the line of Eric and Nigerian from UBS. Your line is open. Hi, good morning. Hey, Erica. Hey, Jamie, this first one is for you. Not to believe we're the earlier point, but you know all the PPR metrics and balance sheet metrics look great and so did the forward look. And I guess, you know, if you could just explain what happened in the quarter, I think given that your portfolio, your security portfolio is 61% CNBS.

I think.

Speaker 2: We have tried to be consistent in how we confront change or a need for change in how we operate the company.

We have tried to be consistent in how we.

Confront change or a need for change and how we operate the company.

Speaker 2: And the underlying principle here is that if you have to make a change, it's better to do it quickly.

And.

The underlying principle here is that if you have to make a change it's better to do it quickly.

Speaker 2: so that you can get it behind you and return to normal mode of operation. So we have been aggressive at building liquidity. Then we talked about the fact that we were Cat1, LCR compliant in both August and September this year.

So that you can get it behind you in return.

Normal mode of operation. So we have been aggressive in building liquidity, Jamie talked about the fact that we are cat one.

Our compliant in both August and September this year, and I think equivalently, we have tried to be very proactive about how we manage through diet. So we have one additional quarter to go of dieting to hit.

Eric Najarian: I think, you know, investors that know you well expected, you know, not as much negative convexity. Was there something unique that happened in this quarter in the portfolio that where you know the AOC I was that much one.

Speaker 2: And I think equivalently we have tried to be very proactive about how we manage through the RWA diet. So we have one additional quarter to go of dieting to hit our RWA target, which is about a 2% reduction, if you just look at what we're expecting in the fourth quarter. And from there, we'll achieve what we think we need to achieve in order to be able to refocus on growing the balance sheet.

James Leonard: No, not really. It was a pretty vanilla quarter for us where we had cash flows in the quarter of about 500 million. We put about 700 million to work with the excess cash in short duration level one's treasury floaters. When you look at the AOCI walk that happened in the quarter, the security portfolio, because everything is in AFS, worsened. It's about a billion, too. And if you look at how the five year moved, increased about 45 basis points, the 10 year moved about 75 and then spreads Whiten, five steps on the CNB AFS and about 15 and mortgage.

<unk> target, which is about a 2% reduction if you just look at what we're expecting in the fourth quarter and from there. We'll have achieved what we think we need to achieve in order to be able to refocus on growing the balance sheet prudently I should say growing the loan portfolio prudently.

Speaker 2: I should say growing alone portfolio, prudently, sequentially over the course of the next.

Essentially over the course of the next year.

Speaker 2: year. We have the benefit of a very high level of profitability right now. Right? We obviously don't have all of the peer reports at this point, but if you look at the core profitability measures here, they're excellent. We're generating, you know, a 30 plus basis points of CET-1-4, which is quite helpful as it relates to being able to both build capital and fund loan growth. And then while the MAM is tepid,

The benefit of a very high level of profitability right now right. We obviously.

We don't have all of the peer reports at this point, but if you look at the core profitability measures here. They are excellent we're generating.

30, plus basis points of CET, one a quarter, which is quite helpful. As it relates to being able to both build capital in fund loan growth and then while demand is tepid across the sector. We have some idiosyncratic benefits here.

Speaker 2: across the sector, we have some idiosyncratic benefits here.

James Leonard: So we added a lot with the DVO one of about 25 million that gets you to the AOCI movement for the quarter on the investment portfolio. And so it was in line at least with our expectations with how rates were moving during the quarter. Got it.

Speaker 2: that probably have been a little bit lost behind the diet. The form of both dividend and provide, which continue to perform very well and generate growth.

We have been a little bit loss behind the diet in the form of both dividend and provide which continue to perform very well and generate growth and this sustained multiyear investment we've made in expanding our middle market coverage in the southeast markets.

Speaker 2: and the sustained multi-year investment we've made in expanding our middle market coverage in the southeast markets. The middle market relationships are, in terms of the new relationships we've added to the company here today, are 25% ahead of our all-time record pace.

Tim Spence: And my follow up question was for you, Tim. I think it was a very powerful statement you said in the beginning, the call in terms of confidence that you could return to loan growth next year. I think several of your peers that have similar CT1 ratios and similar AOCI marks are still talking about dieting.

Middle market relationships.

In terms of the new relationships, we've added to the company year to date are 25% ahead of our all time record pace and we still have bankers, who are seasoning in in terms of building their portfolios that we have.

Speaker 2: And we still have bankers who are seasoning in in terms of building their portfolios that we have been fortunate to hire over the course of the past few years.

I've been fortunate to hire over the course of the past few years. So that those are the things that really provide the catalyst in an environment where demand in aggregate.

Tim Spence: Could you give this a sense of first of all, if you could confirm what the AOCI is. That was in basis points, Jamie. And second, you know, Tim, how are you balancing on one hand, the market wants you to continue to build capital as we approach that that transitional date on CT1 and on the other, you know, we're still hearing low demand from from corporates for financing. Okay. So there's a lot in there.

Speaker 2: That those are the things that really provide the catalyst in an environment where demand in aggregate is a little bit more tested. And then the raw capacity in the form of capital generation.

There's a little bit more cabinets and then the raw capacity in the form of capital generation.

Speaker 2: to be able to support that statement that we can return to growth.

To be able to support that.

That statement that we can return to growth next year and then Erika on your other components of the question.

Speaker 3: And then Erica and your other components of the question, you see T1 for us, finish the quarter at 9.8%, excluding the investment portfolio, ASCI, that number would be 6.3%, and then the RWA.

<unk> hundred one for US finished the quarter at nine 8%, excluding the investment portfolio.

That number would be six 3% and then the <unk>.

Tim Spence: But that's the right question, Erica. So a few things here. One, I think we have tried to be consistent in how we confront change or a need for change in how we operate the company. And the underlying principle here is that if you have to make a change, it's better to do it quickly so that you can get it behind you and return to normal mode of operation. So we have been aggressive at building liquidity.

Speaker 3: bloat from the pending rules would be about 2 to 3% of RWA, which is about 20 basis points. So we would look to be at a 6-1 level.

Below from the pending rules would be about 2% to 3% of <unk>, which was about 20 basis points. So we would look to be at a six one level.

Speaker 3: But as we talked about, then the earnings power of the company is very strong. We continue to defer the buybacks. We'll continue to accrete capital and with the passage of time given the structure in the investment portfolio. The burn down of that AOCI will be 65% or so. By the time we reach the fully-fazed end level. So we feel that this is a very manageable timeline for the company. In fact, have a lot of cushions. We should raise even to go high.

But as we talked about then the earnings power of the company is very strong we continued to defer the buybacks will continue to accrete capital and with the passage of time, given the structure and the investment portfolio. The burn down of that <unk> will be 65% or so by the time, we reach the fully phased in levels. So.

Tim Spence: Jamie talked about the fact that we work at one LCR compliant in both August and September this year. And I think equivalently we have tried to be very proactive about how we manage through the RWA diet. So we have one additional quarter to go of dieting to hit our RWA target, which is about a 2% reduction if you just look at what we're expecting in the fourth quarter. And from there, we'll have achieved what we think we need to achieve in order to be able to refocus on growing the balance sheets.

Feel that this is a very manageable timeline for the company in fact.

We have a lot of cushion should rates even go higher.

And your next question comes from the line of Gerard Cassidy from RBC. Your line is open.

Speaker 7: And your next question comes from a line of Gerard Cassidy from RBC. Your line is open. Hey Gerard, I tend to hang you any hurries, guys. You're good?

Hi, Tim.

Tim Hey, Jamie how are you guys very good.

Tim.

Speaker 7: Tim, coming back to your opening comment about your corporate and commercial customers being cautious, and you yourself, you know, seeing some of the economic crosswinds or crosscurrents being cautious. I noticed yesterday that the real GDP number that the Atlanta Fed puts out.

Coming back to your opening comments about your corporate and commercial customers being cautious.

You yourself seeing some of the economic Crosswinds are cross currents being cautious I noticed yesterday that the real GDP number that the Atlanta fed puts out for the third quarter is calling for 5.4% real GDP growth in the third quarter, it's probably too high but the point is there are a lot of cross currents can you share with us when you.

Tim Spence: Prudently, I should say growing the loan portfolio prudently, sequentially over the course of the next year. We have the benefit of a very high level of profitability right now, right? We obviously don't have all of the peer reports at this point. But if you look at the core profitability measures here, they're excellent. We're generating 30 plus basis points of CET-1 quarter, which is quite helpful as it relates to being able to both build capital and fund loan growth.

Speaker 7: For the third quarter is calling for 5.4% real GDP growth in the third quarter. It's probably too high, but the point is there are a lot of cross-currents. Can you share with us when you talk to your customers?

Talk to your customers.

Speaker 7: What do you think is going to take them to become more optimistic?

What do you think it's going to take them to become more optimistic than.

Speaker 7: And those caution is it a fed halting in rate and increasing short term interest rates? Is it better inflation numbers? What do you think they're waiting for before they really start committing to borrowing more money and growing their businesses? Yeah.

Most cautious.

Paul thing.

Tim Spence: And then while the MAM is tepid across the sector, we have some idiosyncratic benefits here that probably have been a little bit lost behind the diet. But the form of both dividend and provide, which continue to perform very well and generate growth. And this sustained multi-year investment we've made in expanding our middle market coverage in the Southeast markets. The middle market relationships are in terms of the new relationships that we've added to the company here today are 25% ahead of our all-time record pace.

Increasing short term interest rates is it better inflation numbers, what do you think theyre waiting for before they really start committing to borrowing more money and growing their businesses.

Speaker 2: That's a great question, Tor. I think, honestly, it's less uncertainty, right? So to your point, so you have a lot of variables underway here. You have the Fed and rates, as you mentioned, you have an immense amount of government spending right now, which is propping up economic growth in certain sectors of the economy that otherwise wouldn't be there. You have, you know,

That's a great question Gerard.

Honestly, it's less uncertainty right. So to your point. So you have a lot of variables underway here you have that and rates. As you mentioned you have an immense amount of government spending right now which is propping up.

Economic growth in certain sectors of the economy that otherwise wouldn't be there.

Tim Spence: And we still have bankers who are seasoning in in terms of building their portfolios that we have been fortunate to hire over the course of the past few years. So those are the things that really provide the catalyst in an environment where demand in aggregate is a little bit more tepid. And then the raw capacity in the form of capital generation to be able to support that statement that we can return to growth, next year.

You have.

Speaker 2: sort of unusual pines in the housing market where we have both high rates and you know still stable or even in some markets, slightly growing home prices, even the home affordability is at all time low and it's it just I think more than anything else we need to see some of those variables get fixed right in terms of what happens. So if the Fed stops raising rates and then introduces a cut

Sort of unusual times and the housing market, where we have both high rates in.

Still stable or even in some markets slightly growing home prices, even though home affordability.

Is that at all time low.

And it just I think more than anything else.

We need to see some of those variables.

Saks right in terms of what happens so if the fed.

Tim Spence: And then, Erika, and your other components of the question, CET-1 for us finished the quarter at 9.8%, excluding the investment portfolio, ASEI, that number would be 6.3%, and then the RWA bloat from the pending rules would be about 2 to 3% of RWA, which is about 20 basis points. So we would look to be at a 6.1 level. But as we talked about, then, the earned power of the company is very strong.

And stops raising rates and then introduces a cut I think that would be helpful. I think that we have to see the last of the stimulus dollars come out of consumer accounts and see what the floor looks like in terms of consumer spending.

Speaker 2: I think that would be helpful. I think that we have to see the last of the stimulus dollars come out of consumer accounts and see what the floor looks like in terms of consumer spending.

Speaker 2: And then I think we have to have a better sense for what the underlying economic activity looks like and areas where the government spending, you know, that

And then I think we have to have.

Better sense for.

What the underlying economic activity looks like in areas, where the government spending.

Speaker 2: 2 trillion dollars that are coming out of the various government programs.

Two trillion dollars that are coming out of the various government programs.

Speaker 2: you know are not driving a lot of the economic activity for people to get a little bit more focused. Again, what I hear and I went out of the opportunity to get feedback from about three dozen clients but shortly before the call here.

Tim Spence: We continue to defer the buybacks. We'll continue to accrete capital, and with the passage of time, given the structure in the investment portfolio, the burn down of that ASEI will be 65% or so by the time we reach the fully-fazed end level. So we feel that this is a very manageable timeline for the company. In fact, have a lot of cushions, should race even go higher.

Are not driving a lot of that economic activity for people to get a little bit more focus because again, what I hear and I.

We went out and the opportunity to get feedback from them about three dozen clients.

Shortly before the call here is they're seeing a gradual slowdown.

Speaker 2: is they're seeing the gradual slowdown, that is essentially disposable income. They're seeing disparities on the consumer side between either the businesses or take hotels. Hotel properties that either cater to retired people or to high end consumers in high end destinations continue to do well, whereas the mass market properties are starting to soften.

That is essentially disposable income they are seeing disparities on the consumer side between.

Either businesses or take hotels hotel properties that either cater to retired.

Gerard Cassidy: And your next question comes from a line of Gerard Cassidy from RBC. Your line is open. Hey, Gerard. Hi, Tim. Hi, Jamie. How are you guys? Very good. Tim, coming back to your opening comments about your corporate and commercial customers being cautious, and you yourself, you know, seeing some of the economic crosswinds or crosscurrents being cautious. I noticed yesterday that the real GDP number that the Atlanta said puts out for the third quarter is calling for 5.4% real GDP growth in the third quarter. It's probably too high, but the point is there are a lot of crosscurrents.

People or the high end.

Consumers in high end destinations continued to do well, whereas the mass market properties are starting to soften.

Speaker 2: You know, we hear them on the B2B side being much more guarded as it relates to liquidity and monitoring cash and adjusting staffing levels and just delaying the larger CAPEX investments here. And I think-

We hear them on the <unk> side being much more guarded as it relates to liquidity and monitoring cash and adjusting staffing levels and just delaying the larger capex.

Investments here.

Yes.

Speaker 2: Interesting data points. I had the chance to spend a little bit of time with the head of economic development for one of the large states in our footprint. And I was asking about the new project pipeline. So yeah, pipeline still robust. There's a lot of discussion going on, but the time to decision from when they're initially contacted.

And an interesting data point as I had the chance to spend a little bit of time with the head of economic development for one of the large states in our footprint and I was asking about the new project pipeline. So yes. The pipeline is still robust theres a lot of discussion going on but the timing decision from linear initially contacted.

Tim Spence: Can you share with us when you talk to your customers, what do you think is going to take them to become more optimistic and less cautious? Is it a fed halting and increasing short-term interest rates? Is it better inflation numbers? What do you think they're waiting for before they really start committing to borrowing more money and growing their businesses? Yeah. That's a great question. Gerard, I think, honestly, it's less uncertainty to your point.

Speaker 2: about a potential opportunity for either a new plan or a headquarter meeting location or otherwise to award in a given state has moved from 200 days as recently as 18 months ago to over 500 days.

A potential opportunity for either any plans or our headquarter relocation or otherwise to.

Award in a given state has moved from 200 days as recently as 18 months ago to over 500 days. So you can just see the grind down here of economic activity as people sit on the sidelines and wait to get a better sense for what direction. We are headed.

Speaker 2: So you can just see the grind down here of economic activity as people sit on the sidelines and wait to get a better sense for what direction we're headed in the economy.

Tim Spence: So you have a lot of variables underway here. You have the fed and rates, as you mentioned. You have an immense amount of government spending right now, which is propping up economic growth in certain sectors of the economy that otherwise wouldn't be there. You have, you know, sort of an unusual pines in the housing market where we have both higher rates and, you know, still stable or even in some markets, slightly growing home prices, even the home affordability, is at all-time low.

On the economy.

Speaker 7: thank you to very insightful and then uncredited tying it into maybe the economic comments that you just made and I don't know if this is sort of Greg and Jamie but um... can you share with us a Jamie you showed some you know very strong credit numbers in your prepared remarks and can you tell us you know is it better underwriting you know if you look back to the financial crisis you know through the cycle near charge or free sure I guess it's quite a bit higher than what you're thinking today um...

Thank you Tim very insightful and then on credit tying into maybe the economic comments you just made and I don't know if this is for Greg and Jamie but.

Can you share with us.

Amy you showed some very strong credit numbers in your prepared remarks.

Can you tell us is it better underwriting.

If you look back to the financial crisis through the cycle net charge off ratio I guess quite a bit higher than what you're thinking today.

Tim Spence: And it's just, I think, more than anything else, we need to see some of those variables get fixed, right, in terms of what happens. So if the fed stops raising rates and then introduces a cut, I think that would be helpful. I think that we have to see the last of the stimulus dollars come out of consumer accounts and see what the floor looks like in terms of consumer spending. And then I think we have to have a better sense for what the underlying economic activity looks like in areas where the government spending, you know, the two trillion dollars that are coming out of the various government programs, you know, are not driving a lot of the economic activity for people to get a little bit more focused.

Speaker 7: And second, is it also your customers because of the pandemic and what they went through? I think it's just better managed today from a balance sheet perspective than was the case, you know, pre-financial crisis.

And then second is it also your customers because of the pandemic and what they went through.

Better manage today from a balance sheet perspective than was the case pre financial crisis.

Yes, it's Greg Great question I think it's all of the above I think we have been very disciplined very fundamental about our through the cycle underwriting for the past several years, we've been very disciplined around our concentration limits the geographically or by product, but so we have a very well diversified.

Speaker 8: Yes, it's Greg. It's a great question. I think it's all of the above, right? I think we have been very disciplined, very fundamental about our through the cycle underwriting for the past couple of years. We've been very disciplined around our concentration and its geographically or byproduct. So we have a very well diversified portfolio.

Joe.

Speaker 8: as a result, we're not seeing and trending one way or the other. So we've just been disciplined around that. We've been disciplined around ongoing portfolio management, right? So we are proactive. We're getting out ahead of issues when they arise. We are stress testing 200 basis points.

As a result, we're not seeing we're not seeing trending.

One way or the other so we've been disciplined around that we've been disciplined around ongoing portfolio management. So we're proactive we're getting out ahead of issues when they arise we are stress testing 200 basis points.

Speaker 8: ahead of the yield curve forward looking yield curve and we've seen through other cycles to the extent we get out ahead of this and we identify issues earlier we minimize we minimize we also have the ability then to bring solutions to our client

Tim Spence: Because again, what I hear and I went out of the opportunity to get feedback from about three dozen clients shortly before the call here is they're seeing the gradual slowdown that is essentially disposable income. They're seeing disparities on the consumer side between either businesses or take hotels. Hotel properties that either cater to retired people or to high end consumers in high end destinations continue to do well whereas the mass market properties are starting to soften.

Head of the yield curve for a forward looking yield curve.

And we've seen through other cycles to the extent, we get out ahead of us and we identify issues earlier, we minimized. We minimize we also have the ability then to bring solutions to our clients to help them through.

Speaker 8: like to help them through some of these cycles. And so we're seeing all of that across the board, be it in a commercial real estate portfolio, very diverse, we weren't as aggressive in that portfolio as some other banks were when rates were 550 basis points lower and the same thing through our RCA and I book. So it's fundamental, it's taking those fundamental, staying disciplined both on the front end, underwriting, client selection, and then staying on top of the portfolio.

Some of these cycles and so we're seeing all of that across the board in our commercial real estate portfolio very diverse we weren't as aggressive in that portfolio with some other banks word when rates were 550 basis points lower than the same thing through our C&I book. So it's fundamental sticking to those fundamentals staying disciplined both on the front end underwriting client.

Tim Spence: We hear them on the B2B side being much more guarded as it relates to liquidity and monitoring cache and adjusting staffing levels and just delaying the larger CAPEX investments here. And I think an interesting data point as I had the chance to spend a little bit of time with the head of economic development for one of the large states in our footprint. And I was asking about the new project pipeline. So yeah, pipeline still robust.

Selection and then staying on top of the portfolio.

Very good thank you.

Speaker 1: Your next question comes from Alina, Vibrahim Poonawala from Bank of America. Your line is open.

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

Hey, good morning, I guess, maybe just following up on.

Speaker 9: Hey, good morning. I guess maybe just following up on your last question and on the macro and credit, then just if you can add to your comments, there's still some concern that we could hit a recession first half of next year, could drive significant deterioration and credit quality. One.

Question on the macro and credit.

Jim just if you can add to your comments, there's still some concern that we could hit a recession first half of next year.

Tim Spence: There's a lot of discussion. There's a lot of discussion going on, but the time to decision from when they're initially contacted about a potential opportunity for either a new plan for a headquarter relocation or otherwise to the award in a given state has moved from 200 days as recently as 18 months ago to over 500 days. So you can just see the grind down here of economic activity as people sit on the sidelines and wait to get a better sense for what direction we're headed in the economy.

Gerard Cassidy: Thank you to very insightful.

Drive significant deterioration in credit quality one.

Speaker 9: How much of a visibility do you have into credit chains over the next few quarters where you can safely say that's unlikely and maybe Jamie just talk to us about the ability of the Cecil model to capture that kind of deterioration ahead of time.

How much visibility do have into that.

Ken's over the next few quarters, where you can safely say, that's unlikely and maybe Jamie just talk to us about the ability of the <unk> model to capture that kind of deterioration ahead of time.

Yes, so good morning Ebrahim.

Speaker 2: Yeah, so good morning, you brunette. It's good to chat. I think a couple of comments. So near

Good to chat.

James Leonard: And then uncredited tying it into maybe the economic comments that you just made and I don't know if this is Greg and Jamie, but can you share with us, Jamie, you showed some very strong credit numbers in your prepared remarks. And can you tell us, you know, is it better underwriting? If you look back to the financial crisis, you know, through the cycle near charge of ratio, I guess it's quite a bit higher than what you think in today.

I think a couple of comments so narrowly to your point.

Speaker 2: I think we have a fairly good visibility into what the first half of the year is going to look like. And we're not seeing anything at the moment that would suggest.

I think we have fairly good visibility into what the first half of the year is going to look like and we're not seeing anything at the moment that would suggest that we're headed toward.

Speaker 2: that were headed toward credit deterioration in the first half, right? We talked about it in the script, delinquency formation, at delinquency rates are actually down on the early stage basis and PAs.

Credit deterioration in the first half right and we talked about it in the script delinquency formation like delinquency rates are actually down on the early stage basis Npa's.

Speaker 2: are down sequentially. We have a roll forward for you in the appendix. The slides which would indicate that that trend is likely to continue through the fourth quarter.

Down sequentially, we have a roll forward for you in the appendix slides, which would indicate that that trend is likely to continue.

James Leonard: And second, is it also your customers because of the pandemic and what they went through, they just better manage today from a balance sheet perspective than was the case, you know, a pre-financial crisis? Yes, it's correct. It's a great question. I think it's all of the above, right? I think we have been very disciplined, very fundamental about our through the cycle underwriting for the past couple of years. We've been very disciplined around our concentration in geographically or byproduct.

Through the fourth quarter and.

Speaker 2: You know, on the consumer side just as an example, the nice thing about the way that we manage the link one sees is it's like an assembly line. You can see in the zero to 29 and then the 30 plus buckets, what you're gonna be dealing with are early next year and there just isn't anything in there to be worried about. With that said, that

On the consumer side, just as an example, the nice thing about the way that we manage delinquencies is it's like an assembly line you can see in the zero to 2009, and then the 30 plus buckets, what youre going to be dealing with our early next year and there just isn't anything in there to be worried about with that said.

Ed.

Base case, we're using as we think about the management of the company strategic investments, how we manage expenses and otherwise continues to assume that maybe the market is a little bit too bullish on the idea of a soft landing here I mean again.

Speaker 2: In case we're using, as we think about the management of the company, strategic investments, how we manage expenses and otherwise, continues to assume that maybe the market is a little bit too bullish on the idea of a soft landing here. I mean, again, you just look at the payroll numbers.

James Leonard: So we have a very well diversified portfolio as a result, we're not seeing, we're not seeing trending one way or the other. So we've just been disciplined around that. We've been disciplined around ongoing portfolio management, right? So we are proactive. We're getting out ahead of issues when they arise. We are stress testing 200 basis points ahead of the yield curve forward looking yield curve. And we've seen through other cycles, to the extent we get out ahead of this and we identify issues earlier, we minimize, we minimize.

Just look at the payroll numbers so.

Speaker 2: So, and apply a human lens to it. So, jobs are up, but job participation is flat, labor force participation is flat. And average hours work are down and unemployment save. What that means is you have more people working to jobs.

And apply a human lens to it so jobs are up but job participation.

Is flat labor force participation.

<unk> an average hours worked are down and unemployment, but what that means is you have more people working two jobs.

James Leonard: We also have the ability then to bring solutions to our clients, like to help them through some of these cycles. And so we're seeing all of that across the board be it in a commercial real estate portfolio, very diverse. We weren't as aggressive in that portfolio as some other banks were when rates were 550 basis points lower and the same thing through our C&I book. So it's fundamental, speaking to those fundamental stand disappoint both on the front end, underwriting, client selection and then stand on top of the portfolio. Very good.

Speaker 2: because they're not getting enough hours or earning enough money at the job that they were working the base job that they were working and uh... you know to be able to cover their expenses when you then look at the planning real income

Because they're not getting enough hours, earning enough money if the job that they were working the base job that they were working.

James Leonard: Thank you.

To be able to cover their expenses. When you then look at declining real incomes.

Speaker 2: The only thing that really would be standing between somebody who is having to work two jobs and is still suffering from a declining real income. And credit delinquency is the fact that there was this stimulus buffer that built up because people had forbearance on loan portfolios and stimulus dollars. Well, the student loans are back now. Housing inflation is still very high. At 7.2% I think in the most recent.

The only thing that really would be standing between somebody who is having to work two jobs and is still suffering from a declining real income and credit delinquency is the fact that there was the stimulus buffer that delta because people have forbearance on loan portfolios and stimulus dollars well the student loans are back now housing.

Ebrahim Poonawala: Your next question comes from a line of Ibrahim Punewala from Bank of America. Your line is open. Hey, good morning. I guess maybe just falling up on your last question and on the macro and credit. If you can add to your comments, there's still some concern that we could hit a recession for a half of next year, could drive significant deterioration and credit quality. How much of a visibility do you have into credit chains over the next few quarters where you can safely say that's unlikely?

Inflation is still very high.

Seven 2% I think.

In the most recent prints.

Speaker 2: And those are just early indicators that there are people across the country that are struggling a lot more than the headline numbers.

And those are just early indicators there are people across the country that are struggling a lot more than the headline numbers would suggest so.

Speaker 2: you know what suggest so uh... i feel good because the two areas with what we i would say that the market's most worried about right now or subprime consumers and renters where we have very little in the way of exposure on that virtually no subprime

I feel good because the two areas I would say the market's most worried about right now our subprime consumers and renters, where we have very little in the way of exposure that virtually no sub prime I think the lowest level there of any of our peers, who provide information on that front.

Speaker 2: I think the lowest level there of any of our peers who provide information on that front, and 85% of the consumer exposure is to homeowners. And then in commercial real estate, where again, in our exposure relative to total capital is lower than anybody else's. And because we weren't trying to grow that portfolio materially, we were able to be much more selective, which is reflected in superior credit metrics right now. When we look at our commercial real estate book relative to others, so it's both smaller and better.

85% of the consumer exposure is to homeowners and then in commercial real estate.

Ebrahim Poonawala: And maybe Jamie just talked to us about the ability of the Cecil model to capture that kind of deterioration ahead of time. Yeah, so good morning Ebrahim. It's good to chat. I think a couple of comments. So narrowly to your point. I think we have fairly good visibility. What the first half of the year is going to look like. And we're not seeing anything at the moment that would suggest that we're headed toward credit deterioration in the first half, right?

We're again in <unk>.

Our exposure relative to total capital is lower than anybody else's and because we werent trying to grow that portfolio materially we're able to be much more selective which is reflected and superior credit metrics right. Now when you look at our commercial real estate book relative to others. So it's both smaller and better performing.

Speaker 3: And in terms of, you know, how the consumer is doing and what we see in our data, the average consumer balance is still deposit balance is still 15% above pre-COVID levels. But to Tim's point, renters are back to pre-COVID levels and sub-660 fight goes are actually below pre-COVID levels. So...

Yeah and in terms of how the consumer is doing and what we see in our data the average consumer balances still deposit balances still 15% above pre COVID-19 levels, but to Tim's point renters are back to pre COVID-19 levels, and sub 660, FICO or actually below pre COVID-19 levels.

Ebrahim Poonawala: We talked about it in the script, delinquency formation, delinquency rates are actually down on the early stage basis and PAs are down sequentially. We have a role forward for you in the index. The slides which would indicate that that trend is likely to continue through the fourth quarter. And, you know, on the consumer side just as an example, the nice thing about the way that we manage delinquencies is it's like an assembly line.

So.

Speaker 3: The averages can be a little bit misleading in terms of what credit outcomes may bring in 2024, but it's temps said we're certainly well positioned from a credit perspective on our balance sheet.

The averages can be a little bit misleading.

In terms of what credit outcomes may bring in 2024, but as Tim said, we're certainly well positioned from a credit perspective on our balance sheet and from an ACL perspective on the second part of your question.

Ebrahim Poonawala: You can see in the zero to 29 and then the 30 plus buckets, what you're going to be dealing with early next year, and there just isn't anything in there to be worried about with that said that the base case we're using as we think about the management of the company strategic investments, how we manage it. And, you know, we have a lot of expenses and otherwise continues to assume that maybe the market is a little bit too bullish on the idea of a soft landing here.

Speaker 3: And from an ACL perspective on the second part of your question.

The scenarios, we use from Moody's have GDP contracting almost near zero.

Speaker 3: The scenarios we use from Moody's have GDP contracting almost mirrors zero. So.

So.

The modeling certainly picks up erosion.

Speaker 3: The modeling certainly picks up erosion.

In the forecast and this quarter you had a slight erosion.

Speaker 3: in the forecast in this quarter you uh... had a slight erosion uh... both in gdp and unemployment as well as with corporate profits and

Ebrahim Poonawala: I mean, again, you just look at the payroll numbers. So, and apply a human lens to it. So jobs are up, but job participation is flat labor force participation is flat. An average hours work are down and unemployment say what that means is that you have more people working to jobs because they're not getting enough hours earning enough money at the job that they were working the base job that they were working in, you know, to be able to cover their expenses.

Both in GDP and unemployment as well as with corporate profits and.

Speaker 3: That was part of the reason, one of the primary reason, why our ACL coverage increased from 208 basis points to 211 basis points. It was just we had the benefits of the loan balance reduction and the unused commitment reductions from the RWA optimization efforts that offset.

That was <unk>.

Part of the reason or the primary reason why our ACL coverage increased.

From 208 basis points to 211 basis points is just we had the benefits of the loan balance reduction and the unused commitment.

Ebrahim Poonawala: And when you then look at declining real incomes, the only thing that really would be standing between somebody who is having to work two jobs and is still suffering from a declining real income and credit delinquency is the fact that there was this stimulus offer that built up because people had forbearance on loan portfolios and stimulus dollars. Well, the student loans are back now housing inflation is still very high at 7.2% I think in the most recent prints.

Reductions from our <unk> optimization efforts that offset that.

Got it Thats helpful and just as a second question.

Speaker 9: That's helpful and just a separate question. In terms of deposit pricing, as we look through next year and if rates don't get cut in a higher for longer.

In terms of deposit pricing.

As we look to next year and if they don't get caught into higher for longer.

Speaker 9: Are you observing any differences within your geographies, Midwest versus Southeast? Clearly you're opening a lot of branches in the Southeast. So you have a different strategy there. I assume relative to the home market, just give us a sense of pricing competition, any differences. And in your view, is the deposit pricing now essentially national in nature, or is it still localized where certain markets could meaningfully outperform a lag on the reprisal side?

Are you observing any differences within geographies Midwest and southeast.

Clearly you're opening a lot of branches in the southeast. So you have a different strategy there I assume relative to the whole market just give us a sense of pricing competition any differences.

In your view is deposit pricing now essentially national in nature or is it still localized markets could meaningfully outperformed the lag.

Ebrahim Poonawala: And those are just early indicators that there are people across the country that are struggling a lot more than the headline numbers, you know, would suggest. So I feel good because the two areas, I would say the market's most worried about right now are subprime consumers and renters where we have very little in the way of exposure that virtually no subprime. I think the lowest level there of any of our peers who provide information on that front and 85% of the consumer exposure is to homeowners.

The repricing side.

Speaker 3: Yeah, excellent question. I'll start and then turn it over to Brian in terms of total deposit costs and deposit tracing. The quarter played out as expected with our beta ticking up.

Yes excellent question I'll start and then turn it over to Brian in terms of total deposit cost and deposit pricing in the quarter played out as expected with our beta ticking up.

From a.

Total deposits, excluding brokered to 50%, we expect that to hit the 53% beta we talked about a quarter or two ago. So the pricing is playing out.

Speaker 3: Total deposits excluding broker to 50%. We expect that to hit the 53% beta. We talked about a quarter or two ago. So the pricing is playing out.

Speaker 3: as we have expected and I think most of the banks, data guides are coming up to where we've been at this higher for one.

As we have expected and I think most of the banks data guys are coming up to where.

Ebrahim Poonawala: And then in commercial real estate, where again, that in our exposure relative to total capital is lower than anybody else's and because we weren't trying to grow that portfolio materially, we were able to be much more selective, which is reflected in superior credit metrics right now when you look at our commercial real estate book relative to others. In terms of, you know, how the consumer is doing and what we see in our data, the average consumer balance is still, deposit balance is still 15% above pre-COVID levels, but to Tim's point, renters are back to pre-COVID levels and sub-665 goes are actually below pre-COVID levels.

We've been at those higher for longer scenario, but in terms of each geography, Brian touch.

Speaker 7: Yeah, absolutely, thanks, Jamie. In general, I think what we're seeing is that it's a combination of it is local and a national impact right now. And what you're seeing is that you may have periods of time where the dominant players or the bigger players in specific markets may just have a lower liquidity need. And so that gives you a little bit of an opportunity to be a little bit more aggressive and do well from a share perspective. But what we've seen since March is that tends to rotate around a little bit.

Yeah, absolutely thanks, Jamie.

General I think what we're seeing is that it's a combination of it is.

Local and a national impact right now and what Youre seeing is that you may have periods of time, where the dominant players or the bigger players in specific markets may just have a lower liquidity need and so that gives you a little bit of an opportunity.

To be a little bit more aggressive and do well from a share perspective, but what we've seen since March is that tends to rotate around a little bit and ultimately as people start to realize as deposit competition is moving in the market. You are just seeing people and start to react you.

Speaker 7: That tends to rotate around a little bit and ultimately as people start to realize as deposit competition is moving in the market, you're just seeing people in start to react.

Ebrahim Poonawala: So the averages can be a little bit misleading in terms of what credit outcomes may bring in 2024, but it's still more certainly well positioned from a credit perspective on our balance sheet. And from an ACL perspective on the second part of your question, the scenarios we use from Moody's have GDP contracting almost near zero. So the modeling certainly picks up erosion in the forecast in this quarter. You had a slight erosion both in GDP and unemployment as well as with corporate profits.

Speaker 7: Your most rate-pensive customers are absolutely focused on the national markets. They tend to be the ones that are most willing to use an on-traditional provider, and so you definitely see some of that. But in general, you still tend to have some opportunity to take advantage of some geographic differences, but those geographic differences can rotate over time.

Your most rate sensitive customers are absolutely focused.

On the national markets, they tend to be the ones that are most willing to use the non traditional provider and so you definitely see some of that but in general it tends. The you still tend to have some opportunity to take advantage of some geographic differences, but those geographic differences can rotate overtime.

Thank you.

Speaker 1: And your next question comes from a line of, can ooze in from Jeffries. The line of the-

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

Speaker 10: Hey, thanks. Good morning guys. I think you guys set up in the conference season that the fourth quarter would likely be the bottom for NIM and the first quarter of next year would be the bottom for NII dollars. Just wondering, you know, given the guy you gave today, if that still fits to that and anything we should be thinking about in terms of like getting to that NII bottoming.

Hey, Thanks, good morning, guys.

Ebrahim Poonawala: And that was part of the reason or the primary reason why our ACL coverage increased from 208 basis points to 211 basis points. It was just we had the benefits of the loan balance reduction and the unused commitment reductions from the RWA optimization efforts that offset that. Got it, that's helpful. And just in a separate question, in terms of deposit pricing as we look to next year and if they don't get cut in a higher for longer, are you observing any differences within your geographies Midwest versus Southeast?

I think you guys had in.

And the conference season that the fourth quarter would likely be the bottom for NIM in the first quarter of next year would be the bottom for NII dollars. Just wondering given the guide you gave today if that still fits to that.

Anything we should be thinking about.

Terms of by getting to that NII bottoming.

Speaker 3: Yeah, the first quarter of the day count is what will drive that NII trough the NIM, whether it's the fourth quarter or the first quarter is going to be driven solely by how much XFUS cash we have from the strong deposit performance. So we'll see, but it's going to be one of those two.

Yes, the first quarter. The day count is what will drive that NII trough the NIM.

Whether it's the fourth quarter or the first quarter is going to be driven solely by how much excess cash we have from the strong deposit performance. So we'll see but it is going to be one of those two quarters.

Ebrahim Poonawala: Clearly you're opening a lot of branches in the Southeast, so you have a different strategy there and assume relative to the home market. Just give us a sense of pricing competition any differences. And in your view, is deposit pricing now essentially national in nature or is it still localized where certain markets could meaningfully outperform a lag in on the reprisal side? Yeah, excellent question. I'll start and then turn it over to Brian.

Speaker 10: Okay, got it. And then, you know, as you think forward, how do we understand the benefit that you'll get, once rates get to a peak about fixed rate, loan reprising, I think it's clear to understand how the securities book moves, but on the loan side, can you walk us through just how much benefit you might be able to see as we get into it next year, from that side being able to offset any lagging deposit pricing.

Okay got it and then as you think forward.

How do we understand the benefit that youll get once rates get to a peak.

Fixed rate loan repricing I think it's clear to understand how the securities book moves, but on the loan side can you walk us through just how much benefit you might be able to see as we get into next year from from that side being able to offset any lagging deposit pricing.

Speaker 3: Yeah, the consumer book in particular is where most of the fix rate repricing benefit resides. If you look at

Yes.

Ebrahim Poonawala: In terms of total deposit costs and deposit pricing, the quarter played out as expected with our beta ticking up from a total deposits excluding broker to 50%. We expect that to hit the 53% beta we talked about a quarter or two ago. So the pricing is playing out as we have expected and I think most of the banks beta guides are coming up to where we've been at the higher for longer scenario.

Consumer book in particular is where most of the fixed rate repricing benefit.

<unk>. If you look at 2024, we'll have about $8 billion of consumer loan payoffs was how we model it.

Speaker 3: We'll have about $8 billion of consumer loan payoffs is how we model it. And...

Speaker 3: Front book rates are two to 300 basis points higher than back book rates. And so if you take that coupled with, we call it four billion in security, maturities and cash flows.

Front book rates are two to 300 basis points higher than back book rates and so if you take that coupled with the call. It 4 billion in security maturities and cash flows.

Speaker 3: End up with about $300 million tailwind.

End up with about 300 million dollar tailwind on an annualized basis, obviously that'll happen during the course of 2024, so take half of that.

Speaker 3: on an annualized base, which obviously that will happen during the course of 2024, so take half of that for the in-year effect. But you're looking at 300...

Ebrahim Poonawala: But in terms of each geography, Brian, touch on that? Yeah, absolutely. Thanks, Jamie. In general, I think what we're seeing is that it's a combination of it is local and a national impact right now and what you're seeing is that you may have periods of time where the dominant players or the bigger players in specific markets may just have a lower liquidity need and so that gives you a little bit of an opportunity to be a little bit more aggressive and do well from a share perspective.

For the in year effect, but youre looking at three.

<unk> $300 million type of run rate benefit just from one year's repricing.

Speaker 3: type of runway benefit just from one year's reprace.

Speaker 10: Got it. Okay. If I guess that's one last one, the swaps fly to have just talked about the 25 2025 versus 23 update. Is there anything different or any any thought process different about some other banks have been adding You know securities based swaps to protect capital and add a little Variable rate juice that I have you done anything like that incrementally or is that slide looks pretty intact in terms of how you're approaching Swap portfolios of both ones and securities

Got it okay. If I could just ask one last one.

The swap slide you have just talks about the 25 2025 versus 23 update is there anything different.

Any thought process different about some other banks have been adding securities based swaps to protect capital and add a little variable rate juice have you done anything like that incrementally or is that slide looks pretty intact in terms of how youre approaching swap.

Ebrahim Poonawala: But what we've seen since March is that tends to rotate around a little bit and ultimately as people start to realize as deposit competition is moving in the market, you're just seeing people and start to react. Your most rate sensitive customers are absolutely focused on the national markets. They tend to be the ones that are most willing to use a non-traditional provider and so you definitely see some of that. But in general, you still tend to have some opportunity to take advantage of some geographic differences, but those geographic differences can rotate over time.

Swap portfolios of both loans and securities Yes.

Speaker 7: Yeah, we've done nothing incremental at this point. You know, obviously we're paying attention to the market and evaluating opportunities. I think more than anything, as Jamie mentioned, the bullet locked out structure of our portfolio ultimately is our hedge to higher rates right now because we now have those defined the charities that are going to come in and we think that keeps us relatively well positioned. But we're constantly keeping an eye on the market and figuring out if there are opportunities for us to continue to improve our positioning. Thank you.

Yes, we've done we've done nothing incremental at this point, obviously, we're paying attention to the market in and evaluating opportunities I think more than anything.

As Jamie mentioned the bowl of lockout structure of our portfolio ultimately is our hedged at higher rates right now because we now have those defined maturities that are going to come in and we think that keeps us relatively well positioned but we're constantly keeping an eye on the market and figuring out if there are opportunities for us to continue to improve our positioning.

Ebrahim Poonawala: And your next question comes from a line of Ken Usin from Jeffries, from Lineson. Hey, thanks. Good morning, guys. I think you guys said in the conference season that the fourth quarter would likely be the bottom for Nim and the first quarter of next year will be the bottom for NII dollars. Just wondering, you know, given the guy you gave today, if that still fits to that and anything we should be thinking about in terms of like getting to that NII bottoming.

Great understood. Thank you.

Your next question comes from the line of Mike Mayo from Wells Fargo Securities. Your line is open.

Speaker 1: Your next question comes from the line of Mike Mail from Wells Fargo Securities. Your line is open.

Ebrahim Poonawala: Yeah, the first quarter of the day count is what will drive that NII trough the MIM, whether it's the fourth quarter or the first quarter is going to be driven solely by how much XFUS cash we have from the strong deposit performance. So we'll see, but it's going to be one of those two quarters. Okay, got it. And then, you know, as you think forward, you know, how do we understand the benefit that you'll get once rates get to a peak about fixed rate loan repricing?

Hi.

Speaker 11: I guess this goes in the category of no good deed goes on punish your efficient key ratio of 55%. Do you think that can improve next year, which is another way of saying, is there any shot is getting positive of opting leverage? And when I give the positive the negatives, and correct me, looks like some of the negatives, you know, the RWA diet, you know, certainly helps capital, but has a cost to an NII. And I think you mentioned NII, not bottoming maybe until. So.

I guess this goes in the category of no. Good deed goes unpunished your efficiency ratio of 55%.

Do you think that can improve next year, which is another way of saying is there any shot at getting positive operating leverage.

Given the positive and negative and correct me it looks like from the negative.

<unk> diet, certainly helps capital, but has a cost to NII and I think you mentioned NII not.

Not bottoming maybe until.

Speaker 11: for a second quarter. You have the cumulative data going up to 53%. It's in mind, but still going higher. You're opening 35 new branches a year. On the other hand, your RWA diet will end, and maybe you can lean into the balance sheet more. You mentioned the deposits, the smallest DDA increase since March, the excess cash, which you could choose to put to work.

For our second quarter.

<unk> cumulative beta going up to 53% in line, but still going higher and you are opening 35, new branches a year on the other hand.

<unk> will add and then maybe you can lean into the balance sheet more you mentioned the deposit the deposit the smallest DDA increase since March the excess cash, which you could choose to put to work.

Ebrahim Poonawala: I think it's clear to understand how the securities book moves, but on the loan side, can you walk us through just how much benefit you might be able to see as we get into it, you know, next year from from that side being able to offset any lagging deposit pricing. Yeah, the consumer book in particular is where most of the fixed rate repricing benefit resides. If you look at 2024, we'll have about $8 billion of consumer loan payoffs is how we model it.

Speaker 11: So really part of the tailwind is you know the acetate relative to deposit beta so

So really part of the tailwind.

Asset beta relative to the deposit beta so.

Speaker 11: Does your efficiency improve next year? Can you get positive, operating leverage? That's too much of a stretch. How do you think about that?

Does your efficiency improve next year can you get positive operating leverage is that too much of a stretch how do you think about that.

Yes, I think it will be environment dependent which I'm sure is not be.

Yes.

But I think you hit on all the right points, Mike, which is the <unk> diet makes.

It makes positive operating leverage difficult in 2024 with that said, we will do everything in our power to deliver.

Ebrahim Poonawala: And front book rates are two to 300 basis points higher than back book rates. And so if you take that coupled with call it four billion in security, maturities and cash flows, you end up with about $300 million tailwind on an annualized base with obviously that'll happen during the course of 2024. So take half of that for the end year effect. But you're looking at, you know, 300 million type of run rate benefit just from one year's repricing.

They're as good a result, as we as we can but I think it'll be a challenge again in 'twenty four.

Yeah.

Speaker 2: and field-faying is Cincinnati invented Hossel. My, I'm here, going to work as hard as we possibly can on that.

And the old saying is Cincinnati invented hospital.

So we're going to work as hard as we possibly can on that front.

And just clarification on the credit side did I hear you correctly, you have zero Apis delinquency zero Oppenness charge offs commercial you have the lowest employers to NPA is <unk> 22, a year.

Speaker 11: And just clarification on the credit side, did I hear you correctly? You have zero opposite linkancies, zero opposite charge off.

Speaker 11: Commercial, you have the lowest inflow to NPA since 2Q22.

Ebrahim Poonawala: Got it. Okay. If I guess that's one last one, the swaps fly to have just talked about the 25 2025 versus 23 update. Is there anything different or any any thought process different about some other banks have been adding security space swaps to protect capital and add a little variable rate juice. Have you done anything like that incrementally or is that slide looks pretty intact in terms of how you're approaching swap portfolios of both loans and securities.

Speaker 11: You reiterated 35 to 45 days points through the cycle. Is that correct? And I know it's been asked already, but you say the economy's grinding lower, it doesn't look good. So you just say you're credit is economically insensitive at this point. I mean, don't you think you could maybe be wrong? Things don't go.

You reiterated 35% to 45 basis points through the cycle.

Is that correct.

I know its been asked already but you're saying that the economies grinding lower doesn't look good. So you can say your your credits economically insensitive at this point.

Don't you think you could may be the wrong thing.

Don't go.

Well until.

Speaker 3: Until you got to the last part there, I was going to say in a word yes. But you made some question a little more complicated. You want to? Yeah, all of those facts are correct. And we feel very good about all of the work we've done on the credit portfolio over the last 15 years.

Until you got to the last part there I was going to say in a word yes, but no.

Ebrahim Poonawala: Yeah, we've done, we've done nothing incremental at this point. You know, obviously we're paying attention to the market and in evaluating opportunities. I think more than anything, the, as Jamie mentioned, the bullet locked out structure of our portfolio ultimately is our edge to higher rates right now. Because we now have those defined the securities that are going to come in and we think that keeps us relatively well positioned, but we're constantly keeping an eye on the market and figuring out if there are opportunities for us to continue to improve our positioning. Great. Understood. Thank you.

Question, a little more complicated.

All of those facts are correct and we feel very good about all of the work we've done on the credit portfolio over the last 15 years.

Speaker 3: In terms of it being economically insensitive, no, but within any industry, there are going to be winners and losers and that's where it comes down to that client selection, the great reference. We just believe we are very well positioned and we've been very diligent. And part of the benefit that we're getting right now is the fact that we were not stretching for long growth.

In terms of it being.

Economically insensitive no, but within any industry there are going to be.

Winners and losers and Thats, where it comes down to that client selection that Greg referenced we just believe we're very well positioned and we've been very diligent in.

Part of the benefit that we're getting right now is the fact that we were not stretching for loan growth over the past several years and they probably have the lowest loan growth guides.

Tim Spence: Your next question comes in line of Mike male from Wells Fargo securities. Your line is open. Hi, I guess this goes in the category of no good deed goes on punish your efficient key ratio of 55%. Do you think that can improve next year, which is another way of saying is there any shot is getting positive opting leverage and when I give the positives and negatives and correct me. It looks like some of the negatives, you know, the RWA diet, you know, certainly helps capital, but has a cost to an eye and I think you mentioned an eye not bottoming maybe until.

Speaker 3: past several years and they probably had to low as low growth guides over the past several years running. And so back to our priorities of stability and profitability ahead of growth.

Over the past several years running and so.

Back to our priorities of stability and profitability ahead of growth.

Great. Thank you.

Speaker 1: Your next question comes from the line of John Perry from Evercore, I-S-I. Your line is open. Hey John .

Your next question comes from the line.

From Evercore ISI your line is open hey.

Hey, John .

Good morning, guys.

Speaker 12: Just on the credit side, I know you mentioned that the new MPA implodes are below us since the second quarter of 22, excluding the large charged off items, I guess. Can you even talk about?

Just on the credit side I know you mentioned that the new MPA them close are the lowest since the second quarter 22, excluding.

Tim Spence: Per Second Quarter. You have the cumulative data going up to 53%. It's in mind, but still going higher. You're opening 35 new branches a year. On the other hand, your RWA diet will end, and maybe you can lean into the balance sheet more. You mentioned the deposits, the smallest DDA increase since March, the excess cash, which you could choose to put to work. So really part of the tailwind is, you know, the asset data relative to deposit data. So, does your efficiency improve next year? Can you get positive operating leverage? Is that too much of a stretch?

The large charge charged off items I guess.

Could you maybe talk about.

Speaker 12: on the sustainability that what are you seeing in terms of risk migration and some of your internal risk ratings and earning that you know do you think the inflows are likely to remain that low at this point and what's the what's the driver of the of the pressures that the the areas everybody suspects in terms of CRE or is it more on the

The sustainability of that what are you seeing in terms of risk migration and some of your own internal risk ratings and everything.

Do you think the inflows are likely to remain that low at this point and what's the what's the driver of the of the pressures that the areas everybody suspects in terms of CRE or is it more on the C&I side not on the CRE side, great question not on the CRE side, we're not without team doesn't mean, we're out of the woods yet.

Speaker 8: Not on the CRE, great question. Not on the CRE side, we're not seeing. Does anyone wear out of the woods yet? We're watching that portfolio clearly. There's stress in that portfolio, but we have so little of it. That's not driving. And as I said earlier, we don't have any geographic or product trends. There's not an industry that's driving our NPA numbers as we sit here today.

Tim Spence: How do you think about that? Yeah, I think it'll be environment dependent, which I'm sure is not. But I think you hit on all the right points, Mike, which is the RWA diet, makes positive operating leverage difficult in 2024. With that said, we will do everything in our power to deliver. You know, there's good results.

Our portfolio clearly the stress in our portfolio, but we have so little of it.

Not driving and as I said earlier, we don't have any geographic or product trends. There is not an industry, that's driving our NPA numbers as we sit here today.

Speaker 8: We have very little from a delinquency standpoint. And so, again, it gets back to how the worst the portfolio is.

We have very little from a delinquency standpoint, and so then it gets back to how diverse the portfolio is.

James Leonard: As well as we can, but I think it'll be a challenge in 2024. The, the old saying is Cincinnati invented fossil. We're going to work as hard as we possibly can on that front. And just clarification on the credit side, did I hear you correctly? You have zero office to link with these zero office charge offs commercial. You have the lowest inflows to NPA since two, two, two. You reiterated 35 to 45 base points through the cycle.

Speaker 8: Yes, I felt like we've got some pressure on the 550 basis point.

Yes, I still think we've got some pressure on the 550 basis points.

Speaker 8: rate increase that will flow through to our clients, but we're on top of the portfolio. It's why we're stressing 200 basis points ahead of the yield curve. So we get out ahead of that stuff. And so could it go up a little bit given all the cross-currence? Sure. But I think we're in a great, great spot. Our client selection has been outstanding. Our through the cycle, very disciplined, fundamental underwriting. I think gets us through this cycle.

The rate increase that will flow through to our clients, but we're on top of the portfolio. It's why we're stressing 200 basis points.

Ahead of the yield curve. So we get out ahead of that stuff and so could it go up a little bit given all the all the cross currents sure, but I think we're in a great spot.

Our client selection has been outstanding our through the cycle very disciplined fundamental underwriting.

I think gets us through this cycle and so I feel I feel good about where we are today and even if it goes up a little bit it's very controllable.

James Leonard: Is that correct? And I know it's been asked already, but you say the economy's grinding lower doesn't look good. So you just say your credits economically insensitive at this point. I mean, it's like tell you think you could maybe be wrong. Things don't go so well until you got to the last part there. I was going to say in a word. Yes, but you may question a little more complicated. Yeah, all of those facts are correct.

Speaker 8: And so I feel good about where we are today and even if it goes up a little bit, it's very controlled.

Speaker 12: Okay, great. Thank you. And then secondly, kind of a two-parter, do you have, and then you mentioned the criticized loans are down in total. This quarter versus last, you have the magnitude of that decline. And then on the shared national credit side, the portfolio of 29% alone to think over the past year, that maybe it's down a touch. I mean, do you expect you're gonna...

Okay, great. Thanks, and then secondly, kind of a two parter do you have.

You mentioned the criticized loans are down in total.

This quarter versus last year.

The magnitude of that decline and then.

On the shared national credit side of the portfolio of 29% of loans I think over the past year that maybe it's down a touch.

James Leonard: And we feel very good about all of the work we've done on the credit portfolio over the last 15 years. In terms of it being economically insensitive, no, but within any industry, there are going to be winners and losers. And that's where it comes down to that client selection, the great reference. We just believe we are very well positioned and we've been very diligent. And part of the benefit that we're getting right now is the fact that we were not stretching for long growth over the past several years and have probably had the lowest long growth guides over the past several years running.

Or do you expect that youre going to.

Speaker 12: I reduced the size of the shared national credit book and also what is the criticize ratio for that portfolio? Thanks.

Reduce the size of the shared national credit book.

And also what does the criticized ratio for that portfolio.

Speaker 8: Yeah, so we reduced the, it is about 29% right. We reduced that portfolio by about 7% year to date, given the dieting that Jamie talked about earlier, I would expect that number to probably continue to decline between now and year end.

Yes, so we've reduced it is about 29% you're right, we reduced the portfolio by about 7% year to date.

The diving that Jamie talked about earlier I would expect that number to probably continue into the third.

Decline between now and.

And year end.

Speaker 8: Our portfolio, that snake portfolio, performs better than on every metric than the rest of the portfolio. So it's under 6% from a criticized assets standpoint.

Our portfolios that snick portfolio performs better than on every metric than the rest of the portfolio. So this is under 6% from our criticized asset standpoint.

James Leonard: And so back to our priorities of stability and profitability ahead of growth.

James Leonard: Great.

Speaker 8: The Lincoln seats are last thing we see and the rest of the book, MPAs are last. So it is some of our strongest performing of the commercial portfolio.

John Perry: Thank you.

Delinquencies are less than we'll see in the rest of the book NPA or less so it is.

John Perry: Your next question comes from the line of John Perry from Evercore ISI your line is open. Hey, John. Morning, guys. Just on the credit side and that you mentioned that the new MPA employees are the lowest into second quarter, 22 excluding the large charged charged off items, I guess. Can you even talk about the sustainability that what are you seeing in terms of risk migration and some of your internal risk ratings and anything that, you know, do you think the inflows are likely to remain that low at this point and what's the what's the driver of the of the pressures that the areas everybody suspects in terms of CRE or is it more on the CMI?

Some of our strongest performing.

The portfolio the commercial portfolio.

Speaker 3: And John it's Jamie the crit office loans were what I referenced that declined 180 basis points Chris overall were up just a little bit

John It's Jamie.

Office loans, what I referenced that declined 180 basis points, Chris overall, we're up just a little bit.

Yeah.

Got it alright, thanks, Tim.

And your next question comes from the line of Manhattan.

Speaker 1: And your next question comes from Lina, Menanga Southayah, I'm Morgan Stanley . Your line is open.

Morgan Stanley Your line is open.

Hey, good morning.

Speaker 13: I wanted to follow up on the RWA diet and the trajectory of rates.

I wanted to follow up.

<unk> died and.

The trajectory of rates.

Speaker 13: I guess it does move in the tenure and back how you manage that. So from here we get the tenure moving up 1% or down 1%, does that impact how you will manage loans? And as we look in the next year, what would cause you to maybe lean into low growth and what would cause you to peel back? Is it just the outlook on credit, what you're seeing there? Could the rate outlook impact that as well?

I guess it does it move into that area in fact, how you manage that so.

John Perry: Not on the CRE side, great question. Not on the CRE side, we're not seeing. Doesn't mean we're out of the woods yet. We're watching that portfolio clearly. There's stress in that portfolio, but we have so little of it. That's not driving. And as I said earlier, we don't have any geographic or product trends. There's not an industry that's driving our NPA numbers as we sit here today. We have very little from a delinquency standpoint.

We get at the idea of moving up 1% or down 1% does that impact how you will manage loans and as we look into next year or what would cause you to maybe lead into loan growth and what would cause you to feel bad because it is it just the outlook on credit what are you seeing now good the rate outlook back that as well.

Yes. This is Brian .

Speaker 8: Yeah, but in Kitsprion, I would tell you that the outlook on race has a modest impact on how we think of loans, but it's more about just composition and more in consumer where we may see some additional opportunity or in relative asset classes, you might feel a little bit better about.

John Perry: And so then it gets back to how diverse the portfolio is. Yes, I still think we've got some pressure on the 550 basis point rate increase that will flow through to our clients, but we're on top of the portfolio. It's why we're stressing 200 basis points ahead of the yield curve. So we get out ahead of that stuff. And so could it go up a little bit given all the all the cross curves?

I'd tell you that.

Outlook on rates has a modest impact on how we think of loans, but it's more about just composition.

More in consumer where we may see some additional opportunity.

And relative asset classes, you might feel a little bit better about some of the spreads in auto you're going to see almost no mortgage production and a higher rate environment, obviously, and that's probably the biggest implication just given that our commercial portfolio is primarily floating rate doesn't really have a big impact from a floating rate portfolio perspective.

Speaker 7: Some of the spread and auto, you're going to see almost no mortgage production in a higher rate fireman obviously. And that's probably the biggest implication. Just given that our commercial portfolio is primarily floating rate, it doesn't really have a big impact from a floating rate portfolio perspective. And it really, for us, comes down to overall macro, how we feel about what the credit outlook is going to be, and whether or not we're earning adequate returns on the capital we're deploying.

John Perry: Sure. But I think we're in a great, great spot. Our client selection has been outstanding. Our through the cycle, very disciplined fundamental underwriting. I think it gets us through this cycle. And so I feel good about where we are today. And even if it goes up a little bit, it's very controllable.

And it really for us comes down to overall macro how we feel about the credit outlook is going to be and whether or not we're earning adequate returns on the capital we're deploying.

Got it.

Speaker 13: got it. And then just from a cash perspective, it seems like the build was a little bit more than you guided to before. I think you're set about 15 billion or so on cash is what you were targeting before. I think your target is now moved to 20 billion. What's driving the change? Is it the volatility in rates? Is it just preparation for LTR or?

Then just from a cash perspective.

James Leonard: Okay, great. Thank you. And then secondly, kind of a two-parter. Do you have, and then you mentioned the criticized loans are down in total. This quarter versus last, you have, you know, the magnitude of that decline. And then on the shared national credit side of the portfolio at 29%. It's been a loan to think over the past year that maybe it's down a touch. I mean, you expect you're going to reduce the size of the shared national credit book and, and also what is the criticize ratio for that portfolio.

Seems like the build was.

A little bit more than you guided to before I think you had said about $15 billion or so in cash is what you were targeting before I think target has now moved to $20 billion.

What's driving the change is it is it the volatility in rates is it.

Preparation for LCR.

Speaker 13: Is it also just that you can get 5.5% on cash and makes more sense to hold cash over security?

Is it also just so you can get five 5% on cash it makes more sense to hold cash over securities.

Speaker 3: It was mostly the fact that deposit growth, outpaced expectations, and in this environment, we want to hold excess cash as opposed to doing anything adding it to the investment portfolio. We certainly do cash as an asset allocation of these rates as you wrote.

It was mostly the fact that deposit growth outpaced expectations and in this environment, we want to hold excess cash as opposed to doing anything adding it to the investment portfolio, we certainly view cash.

James Leonard: Thanks. Yeah. So we've reduced the, it is about 29% right. We reduced that portfolio by about 7% year to date, given the dieting that Jamie talked about earlier. I would expect that number to probably continue to, to decline between now and, and year end. I would portfolio that's Nick portfolio performs better than an every metric than the rest of the portfolio. So it's under 6% from a criticized assets standpoint. The link when seats are last thing we see in the rest of the book, MPAs are last so it is some of our strongest performing of the portfolio, the commercial portfolio. John, it's Jamie. The quit office loans were what I referenced that declined 180 basis points. Chris overall were up just a little bit. Got it. All right. Thanks, Jim.

As our asset allocation at these rates as you referenced.

Speaker 13: So it sounds like at some point you'd be able to bring that 20 billion down, you know, it might not be the next six months or so, but as rate volatility improves, you might be able to bring that down.

So it sounds like at some point you'd be able to break that 20 billion down it might not be in the next.

Six months or so but.

As rate volatility improve as you might be able to bring that down.

Speaker 3: Yeah, I would say that our balance sheet is elevated due to a couple of reasons. One, the unrealized losses, whether you have an AFS or HDM, you do have to fund those losses in your liquidity buffers. And so should those losses come down, that certainly frees up cash to shrink the sheet or

Yes, I would say that our balance sheet is elevated due to a couple of reasons one the unrealized losses, whether you have an NFS or HTM you do have to fund those losses in your <unk>.

Liquidity buffers, and so should those losses come down that certainly frees up cash.

To shrink the sheep or.

Brian Preston: And your next question comes from a line of men and girls. I'm Morgan Stanley. Your line is open. Hi, good morning. I wanted to follow up on the RWA diet and the trajectory of rates. I guess it doesn't move in the tenure and back how you manage that. So, you know, from here we get the tenure moving up 1% or down 1%. Does that impact how you will manage loans? And as we look in the next year, you know, what would cause you to maybe lean into loan growth and what would cause you to peel back?

Speaker 3: over time as our non-HQLA allocation maturers, we will reinvest that in shorter duration level ones and also allow us to maintain an LCR above 100% while also shrinking the sheet. It's just, both of those things are going to be measured more years than in quarters in terms of the cash coming.

Over time as our non HQ olay allocation matures, we will reinvest that in shorter duration level ones and also allow us to maintain an LCR above 100%. While also shrink in the sheet. It's just both of those things are going to be measured more years than in quarters in terms of.

The cash coming down.

Speaker 13: Please, just a clarification then, does that make you more active-tensive of all things equal now versus say last year?

Okay.

Just as a clarification and then does that.

It makes you more asset sensitive all things equal now versus.

Oh versus say last year.

Brian Preston: Is it just the outlook on on credit, what you're seeing there? Could the rate outlook impact that as well? Yeah, thanks, Brian. You know, I would tell you that the outlook on rates has a modest impact on how we think of loans, but it's more about just composition and more in consumer where we may see some additional opportunity or in relative asset classes. You might feel a little bit better about some of the spread and auto.

We're pretty neutral right now how that lines up versus last year, probably a little asset sensitive a year ago, whereas today, we are neutral due at least in the disclosure showing.

Speaker 3: We're pretty neutral right now. How that lines up versus last year, probably a little as sensitive a year ago, whereas today we're neutral, at least in the disclosure showing liability sensitive.

<unk> ability sensitive.

Got it thank you.

Speaker 1: And your last question comes from the line of Christopher Maranac from Jannie Montgomery, Scott. Your line is open.

And your last question comes from the line of Christopher <unk> from Janney Montgomery Scott Your line is open.

Brian Preston: You're going to see almost no mortgage production and a higher rate fireman, obviously. And that's probably the biggest implication just given that our commercial portfolio is primarily floating rate. It doesn't really have a big impact from a floating rate portfolio perspective. And it really, for us, comes down to overall macro, how we feel about what the credit outlook is going to be and whether or not we're earning adequate returns on the capital we're deploying.

Speaker 4: Hey, thanks. Good morning. I know you mentioned a little bit about credit and previous questions, but generally speaking, is the criticizing cross-up I members going to be within a certain band in the next several quarters? Or do you see them rising more than that?

Hey, Thanks, Good morning, I know you mentioned, a little bit about credit in previous questions, but generally speaking as the criticized and classified numbers, it's going to be within a certain band in the next several quarters or do you see them rising more than that.

Speaker 8: Yeah, I would say steady because based on what we're seeing now from the delinquency at NPA, you know, all the above, and ongoing portfolio, in the last 12 months, we have re-rated 95 plus percent of the portfolio. So based on all of that, underwriting or re-underwriting, if you will, I'm expecting steady.

Yes, I would say steady.

Just on what we're seeing now from the delinquency of NPA all of the above.

But an ongoing portfolio in.

Brian Preston: Got it. And then just from a cash perspective, it seems like the build was a little bit more than you guided to before. I think you're set about 15 billion or so on cash is what you were targeting before. I think your target is now moved to 20 billion. And what's driving the change? Is it is it the volatility in rates? Is it just preparation for LCR? Or is it also just that you can get five and a half percent on cash that makes more sense to hold cash over securities?

In the last 12 months.

Re rated 95 plus percent of the portfolio. So based on all of that.

The re underwriting if you will.

Im expecting study.

Speaker 4: And if it went higher than you think that would obviously drive more provisions and obviously more reserve bill next year, just all things being equal. Is that fair? Sure. Thanks for all the background and information.

And if it was higher than you think that would obviously drive more provision and obviously more reserve build next year, just all things being equal Okay sure yes sure.

Great. Thanks for all the background information. This morning, we appreciate it.

Brian Preston: It was mostly the fact that deposit growth outpaced expectations and in this environment, we want to hold excess cash as opposed to doing anything adding it to the investment portfolio. We certainly do cash as an allocation at these rates as you referenced. So it sounds like at some point, you'd be able to bring that 20 billion down. You know, it might not be the next six months or so, but as rate volatility improves, you might be able to bring that down.

Thank you. Thank you.

And we have reached the end of our question and answer session. I will now turn the call back over to Christophe for some final closing remarks.

Speaker 1: And we have reached the end of our question and answer session. I will now turn the call back over to Chris Dahl for some final closing remarks.

Speaker 4: Thanks Rob and thanks everyone else for your interest and fifth third, please contact the IR department if you have any follow-up questions. Rob, you may come out.

Thanks, Rob and thanks, everyone else for your interest in fifth third please contact the IR Department. If you have any follow up questions. Rob you may come out you can now disconnect the line.

Speaker 1: This concludes today's conference call. Thank you for your participation. You may now disconnect. Connect.

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

Okay.

Conference call. Thank you for your participation.

Brian Preston: Yeah, I would say that our balance sheet is elevated due to a couple of reasons. One, the unrealized losses, whether you have an AFS or HDM, you do have to fund those losses in your liquidity buffers. And so should those losses come down, that certainly frees up cash to shrink the sheet or over time, as our non-HQLA allocation matures, we will reinvest that in shorter duration level ones and also allow us to maintain an LCR above 100% while also shrinking the sheet.

Brian Preston: It's just both of those things are going to be measured more in years than in quarters in terms of the cash coming down. So just as a clarification, then, does that make you more asset-tensitive, all things equal now versus say last year? Yeah, we're pretty neutral right now. How that lines up versus last year, probably a little asset-tensitive a year ago, whereas today we're neutral due, at least in the disclosure showing liability sensitive. Got it. Thank you.

Christopher Marinac: And your last question comes from the line of Christopher Maranak from Janie Montgomery Scott. Your line is open. Hey, thanks.

James Leonard: Good morning. I know you mentioned a little bit about credit and pretty good questions, but generally speaking, if the criticizing classified members is going to be within a certain band in the next several quarters, or do you see them rising more than that? Yeah, I would say steady is based on what we're seeing now from a delinquency at NPA, you know, all the above, and ongoing portfolio. In the last 12 months, we have re-rated 95 plus percent of the portfolio.

James Leonard: So based on all of that, underwriting or re-underwriting, if you will, I'm expecting steady. And if it went higher than you think, that would obviously drive more provisions, and obviously more reserved, next year, just all things being equal, is that fair?

James Leonard: Sure, yeah. Great, thanks for all the background and information this morning. We appreciate it. Thank you, thank you.

Chris Doll: And we have reached the end of our question and answer session. I will now turn the call back over to Chris Doll for some final closing remarks. Thanks, Rob, and thanks everyone else for your interest in fifth third. Please contact me. I heard appropriate if you have any follow-up questions. Rob, you may come out. You can now disconnect the line.

Rob: This concludes today's conference call. Thank you for your participation. You may now disconnect. Conference call, thank you for your participation.