Q1 2024 Fifth Third Bancorp Earnings Call

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Ellie: Good day, my name is Ellie, and I will be your conference operator for today. At this time, I'd like to welcome everyone to the Fifth Third Bancorp First Quarter 2024 Earnings Conference Call. All lines will be placed on mute to prevent any background noise.

Good day, my name Sally and I will be your conference operator for today at this time I'd like to welcome everyone to fifth third Bancorp push part of 'twenty 'twenty four for.

Speaker Change: Earnings Conference call all lines will be placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during that time, Please press star and number one.

Ellie: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star and number one on your telephone keypad. If you'd like to withdraw your question, please press star and number one again. Thank you. I'd now like to hand over the call to Matt Kuro. You may now begin the call. Good morning, everyone.

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Speaker Change: Now like to hand over the call to Matt <unk> you May now begin the conference.

Good morning, everyone and welcome to fifth third first quarter 2024 earnings call. This morning are chairman CEO and President and.

Matt Curoe: Welcome to Fifth Third's first quarter 2024 earnings call. This morning, our Chairman, CEO, and President, Tim Spence, and CFO, Bryan Preston, will provide an overview of our first quarter results and outlook. Our Chief Credit Officer, Greg Schroeck, has also joined for the Q&A portion of the call. Please review the cautionary statements in 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 GAAP results, as well as forward-looking statements about Fifth Third's performance.

Matt: And CFO, Brian Preston will provide an overview of our first quarter results and outlook are chief Credit Officer, Greg Shrek is also joining for the Q&A portion of the call.

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

Matt: Cereals contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results.

Matt: As well as forward looking statements about fifth Third's performance. These statements speak only as of April 19, 2024, and fifth third undertakes no obligation to update them.

Matt Curoe: These statements speak only as of April 19, 2024, and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Bryan, we will open up the call for questions. With that, let me turn it over to Tim. Thanks, Matt. And good morning, everyone.

Matt: Following prepared remarks by Kevin and Brian We will open up the call for questions with that let me turn it over to Tim.

Tim: Thanks, Matt and good morning, everyone.

Timothy N. Spence: At Fifth Third, we believe that great banks distinguish themselves not by how they perform in benign environments but rather by how they navigate challenges. In that sense, the uncertainty we face in the current environment provides us with an opportunity to demonstrate that our focus on stability, profitability, and growth in that order will produce consistently strong, some might even say boring, financial results. This morning, we reported earnings per share of $0.70, or $0.76 excluding the Visa Mastercard Settlement litigation charges and the additional FDIC specialist.

Tim: At fifth third we believe the great. Thanks distinguished themselves by how they perform and benign environments, rather by how they know the gate challenging ones.

Tim: That sense the uncertainty we face in the current environment provides us with an opportunity to demonstrate that our focus on stability profitability and growth in that order will produce consistently strong some might even say boring financial results.

Tim: This morning, we reported earnings per share of <unk> 70.

Tim: Or 76, excluding the visa Mastercard settlement litigation charges and the additional FDIC special assessment.

Timothy N. Spence: All major income statement captions were in line with or better than the guidance that we provided in our January earnings call. Our adjusted return on equity and return on assets are the highest of all peers who have reported thus far and the most stable when compared to results from the first quarter of 2021. The group period end deposits compared to the prior quarter and generated annualized consumer household growth of 3%, punctuated by 7% growth in our Southeast market.

Tim: A major income statement captions were in line with or better than the guidance that we provided in our January earnings call.

Tim: Our adjusted return on equity and return on assets are the highest of all peers, who have reported thus far and the most stable when compared to results from the first quarter of 2023.

Tim: We grew period end deposits compared to the prior quarter and generated annualized consumer household growth of 3% punctuated by 7% growth in our southeast markets.

Timothy N. Spence: Since 2018, we have built more than 100 de novo branches in the Southeast. As a portfolio, they are exceeding our expectations, having achieved 112% of their household growth and 132% of the deposit goals built into the business case. Florida is our top performing de novo market with deposit dollars at 195% in gold. J.D.

Tim: Since 2018, we can build more than 100 de novo branches in the southeast as a portfolio. They are exceeding our expectations, having achieved 112% of their household growth pools and 132% of the deposit growth built into the business cases.

Tim: Florida is our top performing de novo market with deposit dollars at 195% of goal.

Timothy N. Spence: Power also recently named Fifth Third number one for retail banking customer satisfaction in the Florida market. Importantly, net interest margins improved in the quarter driven by stabilizing deposits, with interest-bearing deposit costs increasing only one basis point sequentially. Consistent with our guidance last year, the fourth quarter of 2023 marked the low point for NIMH, and we believe the first quarter of 2024 will mark the low point for NII. While end-of-period loan balances were down 1% compared to the prior quarter, we saw solid middle market loan growth across our footprint, with Tennessee, the Carolinas, Kentucky, Indiana, and Texas achieving the strongest results. Our footprint continues to benefit in an outsized way from federal incentives to bolster investments in domestic manufacturing and energy infrastructure.

Tim: Power also recently named fifth third number one for retail banking customer satisfaction in the Florida market.

Tim: Importantly, net interest margins improved in the quarter driven by stabilizing deposit costs.

Tim: With interest bearing deposit costs, increasing only one basis point sequentially.

Tim: Consistent with our guidance last year, the fourth quarter of 2023, Mark the low point for NIM and we believe the first quarter of 2024 will mark the low point for NII.

Tim: While the end of period loan balances were down 1% compared to the prior quarter, we saw solid middle market loan growth across our footprint with Tennessee, The Carolinas, Kentucky, Indiana, and Texas, achieving the strongest results.

Our footprint continues to benefit in an outsized way from federal incentives to bolster investments in domestic manufacturing and energy infrastructure.

Timothy N. Spence: The Midwest and Southeast have received more investment per capita than other US regions in industries as diverse as multimodal logistics, semiconductors, batteries, and pet products. Treasury management and wealth and asset management were the strongest contributors to fee income driven by the strategic investments we have been making in both areas. Treasury management revenue grew 11% year over year, driven by our software-enabled managed services payments offerings and New Line, our embedded payments business. Over one third of the new treasury management relationships added in the quarter were payments led and had no credit extended.

The Midwest and southeast of received more investment per capita than other U S regions in industries as diverse as multimodal logistics semiconductors batteries and pet food.

Tim: Treasury management, and wealth and asset management were the strongest contributors to fee income driven by the strategic investments, we have been making in both areas.

Tim: Treasury management revenue grew 11% year over year, driven by our software enabled managed services payments offerings and new line are embedded payments business over.

Tim: For one third of the new Treasury management relationships added in the quarter were payments led and had no credit extended.

Timothy N. Spence: Wealth and Asset Management Fee revenues grew 10% year over year, highlighted by strong growth in Fifth Third Wealth Advisors. The RIA platform we launched in 2022, which recently crossed $1 billion in assets under management. Our credit performance remains stable, highlighted by continued strength in our commercial real estate portfolio. We posted another quarter of zero net charge-offs in CRE and have less than 3 million NPAs in our non-owner-occupied portfolio. While we expect that broader credit trends will continue to normalize, our emphasis on client selection and credit discipline helps to ensure that we have a well-diversified portfolio, not overly concentrated in any asset class, industry, or geography. Spences are well controlled.

Tim: Wealth and asset management fee revenues grew 10% year over year highlighted by strong growth in fifth third wealth advisors.

Tim: Platform, we launched in 2022, which recently crossed 1 billion in assets under management.

Tim: Our credit performance remained stable highlighted by continued strength in our commercial real estate portfolio.

Tim: We posted another quarter of zero net charge offs in CRE and have less than $3 million of npa's and our non owner occupied portfolio.

Tim: While we expect that broader credit trends will continue to normalize our emphasis on client selection and credit discipline helps to ensure that we have a well diversified portfolio not overly concentrated in any asset class industry or geography.

Tim: Expenses were well controlled.

Timothy N. Spence: Adjusted for discrete items highlighted in the release, Spence has declined 1% year-over-year driven by savings realized through process automation and our focus on value. Spence Discipline is what has allowed us to make the long-term investments in our business necessary to generate superior returns and operating leverage through the. Looking forward to the rest of the year, we remain cautious given the wide range of potential economic and geopolitical scenarios for good materials. Depending on how you read the most recent data, inflation is either sticky at 3%, slowly moving down to 2%, or moving back up past 4%.

Tim: Adjusted for discrete items highlighted in the release expenses declined 1% year over year, driven by savings realized through process automation and our focus on value streams.

Tim: Expense discipline is what has allowed us to make the long term investments in our business necessary to generate superior returns and operating leverage through the cycle.

Looking forward to the rest of the year, we remain cautious given the wide range of potential economic and geopolitical scenarios that could materialize.

Tim: Depending on how you read the most recent data inflation of either sticky at 3% slowly moving down to 2% are moving back up past 4%.

Timothy N. Spence: Geopolitical tensions remain elevated, and deficit spending, green energy investments, and the domestication of supply chains are all inherently inflationary in the medium term. We believe the best way to manage in uncertain times is to stay liquid, stay neutrally positioned, and stay broadly diversified while investing with the long term in mind. That is what we intend. I want to thank our employees.

Tim: No political tensions remain elevated in deficit spending green energy investments and the domestication of supply chain are all inherently inflationary in the medium term.

Tim: We believe the best way to manage in uncertain times is to stay liquid stay neutrally positioned and stay broadly diversified while investing with the long term in mind.

Tim: That is what we intend to do.

I want to thank our employees, you're hustle heart dedication or why we have been recognized thus far in 2024 as one of the world's most admired companies by Fortune one of the best brands for customer service by Forbes and one of the world's most ethical companies by Ethisphere.

Bryan Preston: Your hustle, heart, and dedication are why we've been recognized thus far in 2024 as one of the world's most admired companies by Fortune, one of the best brands for customer service by Forbes, and one of the world's most ethical companies by Ethisphere. Thank you for keeping our shareholders, customers, and communities at the center of everything we do. With that, I'll now turn it over to Bryan to provide additional details on our first quarter results and our current outlook for 2020. Thanks, Tim.

Tim: Thank you for keeping our shareholders customers and communities at the center of everything we do.

Tim: With that I'll now turn it over to Bryan to provide additional details on our first quarter results and our current outlook for 2024.

Bryan: Thanks, Tim and thank you to everyone joining us today.

Bryan Preston: And thank you to everyone who joined us. Our first quarter results were a strong start to the year, reflecting our balance sheet strength, disciplined expense and credit risk management, and diversified fee revenue stream. We saw new household growth accelerate and new quality relationships and commercial post day gain. For over a year, we have highlighted the importance of maintaining balance sheet strength and flexibility in an uncertain economic and interest rate environment. Our first quarter results evidence the strength of our current position, which should produce strong and stable returns across a wide range of economic outcomes.

Bryan: Our first quarter results were a strong start to the year, reflecting our balance sheet strength disciplined expense and credit risk management and diversified fee revenue streams.

Bryan: We saw new household growth accelerate and new quality relationships and commercial post steady gains.

Bryan: For over a year, we have highlighted the importance of maintaining balance sheet strength and flexibility in an uncertain economic and interest rate environment.

Bryan: Our first quarter results evidenced the strength of our current position, which should produce strong stable returns across a wide range of economic outcomes. This approach has served as well as rate cut expectations or pushed out.

Bryan Preston: This approach has served us well as rate cut expectations are pushed out. As Tim mentioned, our profitability remains strong as we have the highest ROA and ROE and among the best efficiency ratios of our peers that have reported to date, in a quarter in which we have outsized seasonal compensation expenses. On a year-over-year basis, we were the most stable for both ROA and ROE and among the most stable for NII and the officials.

Bryan: As Tim mentioned, our profitability remained strong as we have the highest ROA and ROE and among the best efficiency ratios of our peers that have reported to date and a quarter in which we have outsized seasonal compensation expenses.

On a year over year basis, we were the most stable for both ROA and ROE and.

Bryan: And among the most stable for NII and the efficiency ratio or.

Bryan Preston: Our consistent and strong earnings added 15 basis points to CET1 during the quarter, inclusive of absorbing 8 basis points of impact from the CECL phases. Turning to the income statement, net interest income for the quarter was $1.4 billion, and it was consistent with our expectations.

Bryan: Our consistent and strong earnings added 15 basis points to CET, one during the quarter inclusive of absorbing eight basis points impact from the seasonal phasing.

Bryan: Turning to the income statement net interest income for the quarter was $1 4 billion and consistent with our expectations.

Bryan Preston: Interest-bearing deposit costs were well managed and increased only one basis point compared to the prior quarter. The balance sheet continues to be reflective of defense and positioning with optionality to navigate the changing economic and interest rate environment. Net interest margin improved by one basis point in the quarter. Increased yields on new production of fixed-rate consumer loans and day count benefits contributed to the growth, and it was partially offset by the deposit balance migration from demand to interest-bearing. This increase in NIM is the first sequential improvement since the fourth quarter of 2022. Excluding the impacts of security gains and the visa total return swap, adjusted non-interest income decreased 1% from a year ago due to lower revenue in commercial banking, leasing, and mortgage.

Bryan: Just bearing deposit costs were well managed and increased only one basis point compared to the prior quarter.

Bryan: Our balance sheet continues to be reflective of defensive positioning with optionality to navigate the changing economic and interest rate environments.

Net interest margin improved one basis point for the quarter increased yields on new production at fixed rate consumer loans and day count benefits contribute to the growth and.

And were partially offset by the deposit balance migration from demand to interest bearing accounts.

Bryan: This increase in NIM is the first sequential improvement since the fourth quarter of 2022.

Bryan: Excluding the impact of security gains and the visa total return swap adjusted noninterest income decreased 1% from a year ago quarter due to lower revenue in commercial banking leasing and mortgage partially offset by strong growth in treasury management and wealth and asset management fees were both saw double digit revenue.

Bryan Preston: Partially offset by strong growth in treasury management and wealth and asset management, where both saw double-digit revenue growth over the prior year. The securities gains of $10 million reflected the mark to market impact of our non-qualified deferred compensation, which is more than offset by compensation. Adjusted non-interest expense decreased 1% compared to the year-ago quarter.

Growth over the prior year.

Bryan: The securities gains of $10 million reflected the mark to market impact of our nonqualified deferred compensation plan, which is more than offset in compensation expense.

Bryan: Adjusted noninterest expense decreased 1% compared to the year ago quarter due to our continued focus on expense discipline and the ongoing benefits from our process automation efforts.

Bryan Preston: Due to our continued focus on expense discipline and the ongoing benefits from our process automation efforts. While expenses are down versus the prior year, we continue to invest in opening new branches and increased marketing spend to drive household growth. Adjusted non-interest expense increased 8% sequentially, as expected, due to seasonal items associated with the timing of compensation awards and payroll taxes.

Bryan: While expenses are down versus the prior year, we continue to invest in opening new branches and increased marketing spend to drive household growth.

Bryan: Adjusted noninterest expense increased 8% sequentially as expected due to seasonal items associated with the timing of compensation awards and payroll taxes. In addition to $15 million of expense from the previously mentioned nonqualified deferred compensation plan.

Bryan: Moving to the balance sheet total average portfolio loans and leases decreased 1% sequentially.

Bryan Preston: In addition to $15 million of expense from the previously mentioned non-qualified deferred compensation. Moving to the balance sheet, total average portfolio loans and leases decreased 1% sequentially. Average commercial portfolio loans decreased 2% due to lower demand from corporate banking borrowers and the average balance impact of last year's RWA diet, which reduced both total commitments and loan balances during the second half of 2020. However, middle market loans increased during the quarter as we drive for more granularity and are winning private bank relationships.

Bryan: Average commercial portfolio loans decreased 2% due to lower demand from corporate banking borrowers and the average balance impact of last year's <unk> diet, which reduced both total commitments and loan balances during the second half of 2023.

Bryan: Middle market loans increased during the quarter as we drive for more granularity and are winning private bank relationships.

Bryan: As Tim discussed, we saw solid middle market loan growth across our footprint.

Bryan: Period end commercial revolver utilization was 36% a 1% increase from the prior quarter also driven by middle market.

Bryan: Average total consumer portfolio loans and leases were flat sequentially due to the overall slowdown in residential mortgage originations given the rate environment offset by growth from solar energy installation loans and indirect auto originations.

Bryan Preston: As Penn discussed, we saw solid middle market loan growth across our portfolio, period, and commercial revolver utilization was 36%, a 1% increase from the prior quarter, also driven by the middle market. Average total consumer portfolio loans and leases were flat sequentially due to the overall slowdown in residential mortgage originations given the rate environment.

Bryan: Average core deposits decreased 1% sequentially, driven primarily by normal seasonality within our business.

Bryan: Decreases in DDA balances and Cds were partially offset by increases in interest checking.

Bryan: By segment average consumer deposits decreased 1% sequentially, while both commercial and wealth deposits were flat.

Consumer deposits rebounded towards the end of the quarter finished slightly higher than at the start of the quarter.

Bryan Preston: Offset by growth from solar energy installation loans and indirect auto loans, average core deposits decreased 1% sequentially, driven primarily by normal seasonality within our business. Decreases in DDA balances and CDs will be partially offset by increases in interest checks. By segment, average consumer deposits decreased 1% sequentially, while both commercial and wealth deposits were flat.

Bryan: As Tim mentioned, we are very pleased with the results of our multi year southeast branch investments, which are driving both strong household growth and granular insured deposits.

Bryan: DDA as a percent of core deposits was 25% as of the end of the first quarter compared to 26% in the prior quarter.

Bryan: Migration of DDA balances continued during the first quarter and we expect that trend to carry on in 2024, but at a slower pace than in prior quarters.

Bryan Preston: Consumer Deposits rebounded towards the end of the quarter to finish slightly higher than at the start of the quarter. As Tim mentioned, we are very pleased with the results of our multi-year Southeast branch investment, which is driving both strong household growth and granular insured deposits. DDA as a percent of core deposits was 25% as of the end of the first quarter compared to 26% in the prior quarter.

Bryan: We ended the quarter with full category, one LCR compliance at 135% and our loan to core deposit ratio was 71% with.

Bryan: With strong funding profile continues to provide us with great flexibility.

Bryan: Moving to credit and asset quality trends remain well behaved and below historical averages.

Bryan: The net charge off ratio was 38 basis points, which was up six basis points sequentially and consistent with our guidance.

Bryan: The ratio of early stage loan delinquencies 30 to 89 days past due decreased two basis points sequentially to 29 bps.

Bryan Preston: Migration of DDA balances continued during the first quarter, and we expect that trend to carry on in 2024, but at a slower pace than in prior quarters. We ended the quarter with full Category 1 LCR compliance at 135%, and our loan-to-core deposit ratio was 71%. The strong funding profile continues to provide us with great flexibility. Moving to credit, asset quality trends remain well-behaved and below historical average. The net charge-off ratio was 38 basis points, which was up six basis points sequentially and consistent with our guidance. The ratio of early stage loan delinquencies 30 to 89 days past decreased two basis points sequentially to 29. The NPA ratio increased five basis points to 64 basis points.

Bryan: The NPA ratio increased five basis points to 64 basis points.

Bryan: We have maintained our credit discipline by generating and maintaining granular high quality relationships and by managing concentration risks to any asset class region or industry.

Bryan: In consumer our focus remains on lending to homeowners, which is a segment less impacted by inflationary pressures and have maintained our conservative underwriting policies.

Bryan: We continue to see the expected normalization of delinquency and credit loss trends from the historically low levels experienced over the last couple of years.

Bryan: From an overall credit risk management perspective, we assess forward looking client vulnerabilities based on firm specific and industry trends and closely monitor all exposures, where inflation and higher for longer interest rates may cause stress.

Bryan Preston: We have maintained our credit discipline by generating and maintaining granular, high-quality relationships and by managing concentration risks to any asset class, region, or industry. In Consumer, our focus remains on lending to homeowners, which is a segment less impacted by inflationary pressure, and we have maintained a conservative underwriting policy. We continue to see the expected normalization of delinquency and credit loss trends from the historically low levels experienced over the last couple of years.

Bryan: Moving to the ACO, our reserve coverage ratio remained unchanged at $2, one 2% and included a $16 million reserve release, driven by lower end of period loan balances and modest improvements in the economic scenarios.

Bryan: We continue to utilize Moody's macroeconomic scenarios when evaluating our allowance and made no changes to our scenario weightings.

Moving to capital we ended the quarter with a CET one ratio of 10, 44% and we continue to believe that 10, 5% is an appropriate near term operating level as a reminder, at the beginning of the quarter, we moved $12 $6 billion of securities to held to maturity.

Bryan Preston: From an overall credit risk management perspective, we assess forward-looking client vulnerabilities based on firm-specific and industry trends and closely monitor all exposures where inflation and higher-for-longer interest rates may cause stress. Moving to the ACL, our reserve coverage ratio remained unchanged at 2.12% and included a $16 million reserve release driven by lower end-of-period loan balances and modest improvements in the economic scenario. We continue to utilize Moody's macroeconomic scenarios when evaluating our allowance, and we have made no changes to our scenario weight.

Bryan: This represented one quarter of our <unk> portfolio and was done when the five and 10 year treasury rates were below 4%.

The move reduced LCI volatility to capital due to our investment portfolio by around 50% during the first quarter.

Bryan: Our pro forma CET, one ratio, including the OCI impact of the <unk>.

Bryan: Securities portfolio with seven 8%.

Bryan: We expect improvement in the unrealized securities losses in our portfolio given that 60% of the <unk> portfolio is in bullet or locked out securities, which provides a high degree of certainty to our principal cash flow expectations.

Bryan Preston: Moving to capital. We ended the quarter with a CET1 ratio of 10.44%, and we continue to believe that 10.5% is an appropriate near-term operating rate. As a reminder, at the beginning of the quarter, we moved $12.6 billion of securities to help the maturity. This represented one quarter of our AFS portfolio and was done when the five and ten-year treasury rates were below four percent. The move reduced AOCI volatility to capital due to our investment portfolio by around 50% during the first quarter. Our pro forma CET1 ratio, including the AOCI impact of the AFS securities portfolio, is 7.8%.

Bryan: Approximately 26% of the OCI related to securities losses will accrete back into equity by the end of 2025 and approximately 62% by the end of 2028, assuming the forward curve plays out.

Bryan: Moving to our current outlook.

Bryan: We expect full year average total loans to be down 2% compared to 2023 consistent with our prior expectations.

The decrease was primarily driven by the impact of the 2023 or <unk> die on average balances as well as lower mortgage production due to the higher interest rate environment.

Bryan: While we expect full year average total loans to decrease we expect average total loans in the fourth quarter of 2024 to be up 2% compared to the fourth quarter of 2023 with both commercial and consumer balances up low single digits by the end of 2024.

Bryan Preston: We expect improvement in the unrealized securities losses in our portfolio, given that 60% of the AFF's portfolio is in bullet or locked-out securities, which provides a high degree of certainty to our principal cash flow expectations. Approximately 26% of the ASCI related to security losses will creep back into equity by the end of 2025 and approximately 62% by the end of 2028, assuming the forward curve plays out. Moving on, to our current outlook.

Bryan: We are also assuming commercial revolver utilization remained stable.

Bryan: For the second quarter of 2024, we expect average total loan balances to be stable.

Bryan: We expect softness in commercial due to uncertainty on the interest rate and economic outlooks to be offset by consumer loan growth, which is expected to be up due to solar in auto originations.

Bryan: Our retail household growth and commercial payments growth remained robust in the first quarter and those outcomes will drive deposit growth in 2024.

Bryan: However, we are mindful of potential economic and market headwinds for monetary policy.

Bryan: Therefore, we are forecasting full year average core deposit growth of only 2% to 3% compared to a 5% growth realized in 2023.

Bryan Preston: We expect full-year average total loans to be down 2% compared to 2023, consistent with our prior expectation. The decrease is primarily driven by the impact of the 2023 RWA diet on average balance, as well as lower mortgage production due to the higher interest rate environment.

Bryan: While we expect DDA migration to continue given the high absolute level of interest rates the pace of migration has declined.

Bryan: If rates remain at current levels, we expect to see the DDA mix dip below 25% during the middle of the year.

Bryan Preston: Well, we expect full-year average total loans to decrease. We expect average total loans in the fourth quarter of 2024 to be up 2% compared to the fourth quarter of 2023, with both commercial and consumer balances up low single digits by the end of 2024. We are also assuming commercial revolver utilization remains stable. For the second quarter of 2024, we expect average total loan balances to be stable.

Bryan: Shifting to the income statement.

Bryan: Given the stabilization in our deposit costs and the benefit we're seeing from the repricing of our fixed rate loan book, we continue to expect the full year NII to decrease 2% to 4% and as Tim mentioned, we expect the NII and NIM trough is behind us.

Bryan: This outlook is consistent with the forward curve as of early April which projected three total cuts.

Bryan: However, our balance sheet as neutrally positioned so that even with zero cuts in 2024, we expect stability in our NII outlook.

Bryan: The primary risk story, and our performance would be a reacceleration of deposit competition.

Bryan Preston: We expect softness in commercial due to uncertainty about the interest rate and economic outlooks to be offset by consumer loan growth, which is expected to be up due to solar and auto origination. Our retail household growth and commercial payments growth remained robust in the first quarter, and those outcomes will drive deposit growth in 2024. However, we are mindful of potential economic and market headwinds for monetary policy.

Bryan: Our forecast also assumes our cash and other short term investments, which ended the quarter at over 25 billion remained relatively stable throughout the remainder of 2024.

Bryan: We expect NII in the second quarter to be stable to up 1% sequentially, reflecting the impact of slowing deposit cost pressures and the benefit of our fixed rate loan repricing.

Bryan: Our current outlook assumes interest bearing deposit costs, which were 291 basis points from the first quarter of 2024 would increase about six basis points sequentially. If we seen no rate cuts.

Bryan Preston: Therefore, we are forecasting full-year average core deposit growth of only two to 3% compared to our 5% growth realized in 2020. However, we expect DDA migration to continue given the high absolute level of interest rates. However, the pace of migration has declined.

Bryan: We expect adjusted noninterest income to be up 1% to 2% in 2024, consistent with our prior guidance, reflecting growth in Treasury management capital market fees and wealth and asset management revenue.

Bryan: We expect second quarter, adjusted noninterest income to be up 2% to 4% compared to the first quarter, largely reflecting higher commercial banking revenue.

Bryan Preston: If rates remain at current levels, we expect to see the DDA mix dip below 25% during the middle of the year. Shifting to the income statement. Given the stabilization in our deposit costs and the benefit we are seeing from the repricing of our fixed-rate loan book, we continue to expect the four-year NII to decrease 2 to 4%. And, as Tim mentioned, we expect the NII and MIM trough is behind us. This outlook is consistent with the forward curve as of early April, which projected three total cuts.

Bryan: Consistent with our prior guidance, we expect full year adjusted noninterest expense to be up 1% compared to 2023.

Bryan: Our expense outlook assumes continued investments in technology with tech expense growth in the mid single digits and sales force additions in middle market Treasury management and wealth.

Bryan: We will also opened 30% to 35, new branches and our higher growth markets and close a similar number of branches in 2024.

Bryan: We expect second quarter total adjusted noninterest expense to be down approximately 6% compared to the first quarter due to the seasonal compensation and benefits cost in the first quarter.

Bryan Preston: However, our balance sheet is neutrally positioned so that even with zero cuts in 2024, we expect stability in our NII Outlook. The primary risk to our NRI performance would be a re-acceleration of deposit competition. Our forecast also assumes our cash and other short-term investments, which ended the quarter at over $25 billion, remained relatively stable throughout the remainder of 2024. We expect NII in the second quarter to be stable to up 1% sequentially, reflecting the impact of slowing deposit cost pressures and the benefit of our fixed rate loan repricing.

Bryan: In total our guide implies full year adjusted revenue to be down, 1% to 2% and <unk> to decline in the 4% to 5% range.

Bryan: This outcome will result in an efficiency ratio of around 57% for the full year.

Bryan: Modest increase relative to 2023, driven by the decrease in it.

Bryan: We continue to expect positive operating leverage in the second half of 2024.

Bryan: Our outlook for 2024 net charge offs remains in the 35% to 45 basis point range as credit continues to normalize with second quarter net charge offs also in the 35 to 45 basis point range.

Bryan Preston: Our current outlook assumes interest-bearing deposit costs, which were 291 basis points in the first quarter of 2024, would increase about six basis points sequentially if we see no rate. We expect adjusted non-interest income to be up 1% to 2% in 2024, consistent with our prior guidance, reflecting growth in treasury management, capital market fees, and wealth and asset management revenue. We expect second quarter adjusted non-interest income to be up two to four percent compared to the first quarter, largely reflecting higher commercial banking revenue.

Bryan: We expect to resume provision builds in connection with loan growth assuming no change to the economic outlook.

Bryan: <unk> growth and mix is expected to drive a $75 million to $100 million billed for the full year with the second quarter build being approximately zero to $25 million.

Bryan: As we mentioned last quarter, our consistent and strong earnings provides us the flexibility to resume share repurchases of $3 to $400 million in the second half of 2024, including 1% to $200 million in the third quarter, assuming a stable economic and credit outlook and capital rules that are no worse than the current NPR.

Bryan: In summary, with our well positioned balance sheet disciplined expense and credit risk management and diversified revenue growth. We will continue to generate long term sustainable value for our shareholders customers communities and employees.

Bryan Preston: Consistent with our prior guidance, we expect full-year adjusted non-interest expense to be up 1% compared to 2020. Our expense outlook assumes continued investments in technology, with tech expense growth in the mid-single digits, and sales force additions in the middle market, treasury management, and wealth. We will also open 30 to 35 new branches in our higher growth markets and close a similar number of branches in 2020. We expect second quarter total adjusted non-interest expense to be down approximately 6% compared to the first quarter due to the seasonal compensation and benefits cost in the. In total, our guide implies full year adjusted revenue to be down 1% to 2% and PPNR to decline between 4% to 5%.

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

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

We are now opening the floor for a question and answer session. If you'd like to ask a question. Please press star and number one on your telephone keypad. Our first question comes from Mike Mayo from Wells Fargo. Your line is now open.

Hi can you hear me, we can good morning, Mike.

Matt: Hey.

Michael Lawrence Mayo: Yeah, I'm, just trying to figure out how you get away with interest bearing deposit costs going up only one basis point quarter over quarter. When the group is Mike around a pan and.

Bryan Preston: This outcome will result in an efficiency ratio of around 57% for the full year, a modest increase relative to 2023 driven by the decrease in NI. We continue to expect positive operating leverage in the second half of 2020. Our outlook for 2024 net chargeoffs remains in the 35 to 45 basis points. Credit continues to normalize, with second quarter net chargeoffs also in the 35 to 45 basis points. We expect to resume provision builds in connection with loan growth, assuming no change to the economic outlook. Longgrowth and MEX are expected to drive a $75 to $100 million build for the full year, with the second quarter bill being approximately zero to 25.

Michael Lawrence Mayo: I mean is this sustainable or is it due to your tech is it because of your southeast expansion.

You know what what's your secret here or maybe it's just waste to bite you in future quarters. Thanks.

Michael Lawrence Mayo: Thanks, Mike It's Brian Great question.

Bryan Preston: Yes, I think one of the things on this front, we very early last year made the decision to grow deposits very aggressively.

Bryan Preston: Viewed it as a very consistent theme with being focused on the long term focused on stability and quite honestly focused on returns and we view the worst case and we're going to generate some low cost wholesale funding with no prepayment penalties and the best case. It gave us an opportunity to have 12 million interactions with prospects and customers and we have a.

Bryan Preston: A lot of confidence in our ability to win relationships when we can get our team in front of our customers.

Bryan Preston: And so with that as we've moved into this more stable environment. There clearly with some costs as we brought those promo balances then.

Bryan Preston: As we mentioned last quarter, our consistent and strong earnings provide us the flexibility to resume share repurchases of $300 to $400 million in the second half of 2024, including 1 to 200 million in the third quarter, assuming a stable economic and credit outlook and capital rules that are no worse than the current NPR. In summary, with our well-positioned balance sheet, disciplined expense and credit risk management, and diversified revenue growth, we will continue to generate long-term sustainable value for our shareholders, customers, communities, and employers. With that, I will turn it over to Matt to open up the call for Q&A. Thanks, Bryan.

Bryan Preston: But it gives us an ability to actually manage and recycle interest expense, where we're able to pulse offers through different markets, where we can.

Bryan Preston: Basically harvests in savings and reintroduce that back into interest interest expense on new offers and ultimately have a lower net overall cost we.

Bryan Preston: Just feel like it's being very efficient with every dollar we're utilizing as I mentioned in the guidance. There is certainly some risk that the competition can reaccelerate, but it does feel like overall deposit competition did softened at the end of last year and that continued through the first.

Speaker Change: And just a follow up I mean, you are expanding share in the southeast you said you went from one eight to six year over year, I mean don't you need to price competitively and offer higher rates to gain that share.

Matt Curoe: Before we start Q&A, given the time we have this morning, we ask that you limit yourself to one question and one follow-up and then return to the queue if you have additional questions. Operator, please open the call for Q&A. We are now opening the floor to questions and answers. If you'd like to ask a question, please press star and number one on your telephone keypad. Our first question comes from Mike Mayo from Wells Fargo. Your line is now open. Uh, hi. Can you hear me?

Speaker Change: Definitely took advantage of the fact that we have I think I think at this point with the investments that have been made down there Mike on higher natural share.

Speaker Change: We did it.

Speaker Change: <unk> market share right. So we were able to use the southeast as a mechanism to raise deposits without.

Speaker Change: Repricing existing relationships to the same degree that we would have.

unknown: We can. Good morning, Mike. Hey, um... Yeah, I'm just trying to figure out how you get away with interest-bearing deposit costs going up only one basis point, quarter over quarter when the group is like around up 10, and, I mean, is this sustainable? Is it due to your tech?

Speaker Change: If we were using those rate offers in markets, where we had high existing shares I think though what's important is that what's driving the growth in the southeast as the household growth so and those.

unknown: Is it because of your Southeast expansion? [inaudible] You know, what's your secret here? Or maybe it's just ways to bite you in future quarters. Thanks. Thanks, Mike. It's Bryan.

Speaker Change: Relationships.

Speaker Change: Or that vast majority momentum banking relationships, which means that the core deposit product is a noninterest bearing deposit products. So the 7% growth in the southeast when you break it apart.

Bryan Preston: Great question. You know, I think one of the things on this front is that, very early last year, we made the decision to grow deposits very aggressively. We viewed it as a very consistent theme with being focused on the long-term, focused on stability, and quite honestly, focused on returns. We viewed it as the worst-case scenario.

Speaker Change: Our research triangle is like 25% year over year most of the major markets in Florida. We are in the mid to high teens, Tampa 11, or 12% Broward County in North.

Bryan Preston: We're going to generate some low-cost wholesale funding with no prepayment penalties. Best case scenario, it gives us an opportunity to have 12 million interactions with prospects and customers. And we have a lot of confidence in our ability to win relationships when we can get our team in front of our customers. And so with that, as we've moved into this more stable environment, you know, there clearly were some costs as we brought those promotional balances in.

Speaker Change: In southeast, Florida, 17, 18% year over year household growth rates.

Speaker Change: We're gaining share in a way that then allows us to make decisions about whether we want to move more of the deposit wallet, where obviously rate is part of it.

Speaker Change: Then we have the opportunity to introduce the fee based businesses on the consumer side of the equation and commercial third of the relationships that we added.

Speaker Change: In Treasury managers, we mentioned this last quarter.

Bryan Preston: But it gives us an ability to actually manage and recycle interest expense, where we're able to pulse offers through different markets where we can basically harvest some savings and reintroduce that back into interest expense on new offers, and ultimately have a lower net overall cost.

Speaker Change: Payments led so they are not driven by deposit rates or credit.

Speaker Change: That entry point.

Speaker Change: Alright, thank you.

Speaker Change: Our next question comes from Scott <unk> from Piper Sandler Your line is now open.

Scott: Good morning, Laura Thanks for taking the question.

Bryan Preston: We just feel like it's being very efficient with every dollar we're utilizing. As I mentioned in the guidance, there's certainly some risk that the competition can reaccelerate, but it does feel like, overall, the positive. And just to follow up, I mean, you're expanding your share in the Southeast. You said you went from what, eight to six year over year? I mean, don't you need to price competitively and offer higher rates to gain that share?

Scott: I was hoping you could spend a moment discussing non demand trends in more detail kind of soft for the group. So you noted some specific states that are generated stronger middle market growth and then maybe within the response. If you could also please discuss the outlook for the specialty businesses such as the dividend then provide.

Speaker Change: Yes, sure happy to I'll.

Speaker Change: Start that one and if need be Brian.

Speaker Change: Can fill in here Scott so.

Speaker Change: And.

Bryan Preston: Well, we definitely took advantage of the fact that we have, I think at this point, with the investments that have been made down there, Mike, a higher natural share than we did in the existing market, right? So we were able to use the Southeast as a mechanism to raise deposits without repricing existing relationships to the same degree that we would have if we were using those rate offers in markets where we had high existing shares.

Speaker Change: I mean listen I think in general and the commentary we've provided about what we hear from clients is more or less the same they are not pessimistic.

Speaker Change: At that current point.

Speaker Change: But they're also not leaning forward in the saddle here.

Speaker Change: Whether its capital investments or.

Speaker Change: Pushing forward on M&A opportunities are building inventories.

Speaker Change: Or otherwise.

Bryan Preston: I think, though, what's important is that what's driving the growth in the Southeast is household growth. So, those relationships are that vast majority momentum banking relationships, which means that the core deposit product is a non-interest-bearing deposit product. So the seven percent growth in the Southeast, when you break it apart, I mean, the research triangle is like twenty-five. Most of the major markets in Florida were in the mid to high teens, Tampa, 11 or 12 percent, Broward County in the north, in southeast Florida, 17-18 percent year-over-year household growth rates.

Speaker Change: Prospect Nino face with rates being higher for longer definitely will weigh on plans.

Speaker Change: And so I do expect it in general.

Speaker Change: If we're going to get growth, we have to get it principally through taking market share I mean as a byproduct of that is that the places where we are expecting to see growth in the second half of the year are the places where we've made investments to be able to do it. So middle market C&I was strong in the first quarter I gave a little bit of a breakout on the markets.

Timothy N. Spence: So we're gaining share in a way that then allows us to make decisions about whether we want to move more of the deposit wallet, where obviously rates are part of it, or where then we have the opportunity to introduce fee-based businesses on the consumer side of the equation. And in commercial, a third of the relationships that we added in treasury managers, as we mentioned this last quarter, were payments-led. So they're not driven by deposit rates or credit as the entry point. All right, thank you. Our next question comes from Scott Siefers from Piper Sandler. Your line is now open. Morning, everyone.

Speaker Change: A driver there in the Midwest and the southeast both is the benefit that you get the early benefit that you see from the federal stimulus programs on manufacturing energy transmission infrastructure and otherwise because our regions have gotten a disproportionate share of those dollars I think in addition to that we have.

Speaker Change: A much larger sales force in the southeast today, then we get three years ago and again the byproduct of that is we will continue to see.

Speaker Change: And accretion of market share attached to those investments as those RMS become fully productive Texas.

Speaker Change: Texas has been a really nice story for us we've been in Texas for a little more than a decade now we have I think it's 175 employees there roughly and it's a really nice complement to the strong commercial banking team that we built out in California, a few years back in terms of expanding the middle market footprint. So we.

unknown: Thanks for taking the question. I was hoping you could spend a moment discussing demand trends in more detail, you know, kind of thoughts for the group, though. You noted some specific states that have generated stronger middle market growth. And then maybe within the response, if you could also please discuss the outlooks for the specialty businesses such as Dividend and Provide. Yeah, sure. Happy to. I'll start that one.

Speaker Change: Expect to see growth in that area and then lastly on the industry vertical side Aerospace defense transportation and TMT are the places where the pipelines.

Timothy N. Spence: And if need be, Bryan can, can fill in here, Scott. So, I mean, listen. I think, in general, the commentary we've provided about what we hear from clients is more or less the same. They are not pessimistic at this current point, but they're also not leaning forward in the saddle here, whether it's capital investments or, you know, pushing forward on M&A opportunities or building or otherwise. The prospect we now face, with rates being higher for longer, definitely will weigh on plans. And so I do expect, in general, that if we're going to get growth, we have to get it principally through taking market share.

Speaker Change: We're seeing some pickup in the pipelines.

Speaker Change: Okay perfect. Thank you very much and then Brian was hoping you could discuss I know the numbers arent huge here, but maybe you can discuss sort of the fluctuations in kind of reserve building versus reserve releasing outlook I know it sounded like from your comments that will be.

Bryan Preston: A little reserve build in connection with loan growth, but I think you were among the few are in sort of mid quarter. When you had said maybe a little little release. So just curious sort of the puts and takes as you see that.

Timothy N. Spence: And the byproduct of that is that the places where we are expecting to see growth in the second half of the year are the places where we made investments to be able to do it. So, middle market C&I was strong in the first quarter; I gave a little bit of a breakout on the markets. A driver there in the Midwest and the Southeast is the benefit that we get the early benefit that you see from the federal stimulus programs on manufacturing, energy transition, infrastructure, and otherwise because our regions have gotten a disproportionate share of those dollars.

Speaker Change: Yeah, Yeah. Thanks, Scott I think the main thing there is two items for the for the guidance for the rest of the year that is under the assumption that there is no change to the economic outcome outlook as provided by Moody's.

Speaker Change: A big driver of the release this quarter was the economic outlook from Moody's that get better. So that was a factor. We also had in the period decrease in loans sequentially. So that was an item that drove the release as well next quarter. We did guide to stability on loans. So thats why were saying kind of zero to 25.

Timothy N. Spence: I think, in addition to that, we have a much larger sales force in the Southeast today than we did three years ago. And again, the byproduct, an accretion of market share attached to those investments as those RMs become fully productive. Texas has been a really nice story for us.

Mix could cause a little bit of build but we do expect end of period loan growth in the second half of the year and that's where you get the larger numbers.

Perfect. Okay wonderful thank you very much.

Speaker Change: Question comes from Gerard Cassidy from RBC capital. Your line is now open.

Timothy N. Spence: We've been in Texas for a little more than a decade now. We have, I think it's 175 employees there, roughly. And it's a really nice compliment to the strong commercial banking team that we built out in California a few years ago in terms of expanding the middle market footprint. So we expect to see growth in that area. And then lastly, on the industry vertical side, aerospace, defense, transportation, and TMT are the places where the pipelines have, and we're seeing some pickup in the pipeline. Thank you very much.

Gerard Sean Cassidy: Luke can you hear me we can there we are good morning, Gerard we couldn't over good morning, Tim Yes. Thank you, Brian just to pick up on your comments about Moody's in the outlook can you.

Gerard Sean Cassidy: You share with us how it's kind of evolved over the last two or three quarters and what is the current outlook for the U S economy, and 24 are they still calling for a slowdown or recession or are they actually in the camp now that were positive real GDP growth for 2024.

Gerard Sean Cassidy: Their baseline scenario has had a bit of stability.

unknown: And then Bryan, I was hoping you could discuss, I know the numbers aren't huge here, but maybe you could discuss sort of the fluctuations in kind of reserve building versus reserve releasing outlook. I know it sounded like from your comments that there would be a little reserve build in connection with loan growth, but I think you were among the fewer sort of mid quarter when you'd said maybe a little, little release.

Gerard Sean Cassidy: Certainly I don't think it is a significance no slowdown in 2024, they continue to push out their baseline expectations. They've also improved their downside scenario, that's had a little bit of a bigger impact on our reserve calculation, but overall there now in the camp.

Gerard Sean Cassidy: Economy continues to be moving.

Bryan Preston: So just curious sort of the puts and takes, as you say, Yeah, yeah. Thanks, Scott. I think the main thing there are two items.

Gerard Sean Cassidy: Moving well and I don't think that they're expecting a significant slowdown at this point in 2024.

Speaker Change: Got it. Thank you and then Tim coming back to growth, particularly on the commercial side you gave us some very strong numbers of course, particularly in Europe southeast franchise.

Bryan Preston: For the guidance for the rest of the year, that is under the assumption that there is no change to the economic outlooks as provided by Moody's. A big driver of the release this quarter was the economic outlook from Moody's did get better. So that was a factor. We also had an end-of-period decrease in loans sequentially, so that was an item that drove the release as well.

Tim: <unk> taken a little deeper or give us a little more color.

Tim: Once you bring on these clients like you mentioned about the customers that came in this quarter based on payments yes.

Bryan Preston: Next quarter, we did guide to stability on loans. So that's what we're saying, kind of zero to 25. Mixed could cause a little bit of build, but we do expect end-of-period loan growth in the second half of the year. And that's where you get the big.

Tim: Does it take to get them to a return that you find passes your hurdle rate and you're and you guys are happy with it as it a 12 month 24 month period can you walk us through that kind of waterfall on how you get there how many more products do they need in addition to payments are in addition to our loan to get them to.

Bryan Preston: Perfect. Okay, wonderful. Thank you very much.

unknown: The question comes from Gerard Cassidy from RBC Capital. Your line is now open. Lou, can you hear me?

Speaker Change: Your return levels, yes, sure so.

unknown: We can. Here we are. Good morning, Gerard.

Speaker Change: I'm going to do payments first and then we will start with the loan because payments is easy so.

Timothy N. Spence: Good morning, Tim. Yep. No, thank you. Bryan, just to pick up on your comments about Moody's and the Outlook. Can you share with us how it's kind of evolved over the last two or three quarters and what is their current outlook for the U.S. economy in 2024? Are they still calling for a slowdown or a recession, or are they actually in the camp now that we're going to have positive real GDP growth in 2024?

Speaker Change: The payments clients meet their return thresholds essentially out of the gate Gerard because you don't have credit attached which means the capital Youre holding his op risk capital.

Speaker Change: It can take as long as 30% to 45 days to board a client, but because of some investments we made at.

Speaker Change: Fortuitously for us prior to the deposit crisis last spring.

Bryan Preston: Their baseline scenario has had a bit of stability. It's certainly I don't think it is a significant difference that there is no slowdown in 2024. They continue to push out their baseline expectations. They've also improved their downside scenario.

Speaker Change: Border client provided that the client is ready to do it in six days now on average and that then allows for a very quick ramp and that's what's supporting that I think it's 11% growth in commercial payments fees year over year that current pace a high single digit pace has been the goal there for a while and.

Bryan Preston: That's had a little bit of a bigger impact on our reserve calculation. But overall, they're now in the camp, though, you know, the economy continues to be moving well, and I don't think that they're expecting a significant slowdown.

Speaker Change: It requires us to get ramped quickly every time, we add a new client.

Speaker Change: On the credit side of the equation I think the beauty of the focus that we have on granularity right. Now is when we move the middle market relationship. That's generally a single bank relationship and that means the credit comes on it will take a month or two.

unknown: And then, Tim, coming back to growth, particularly on the commercial side, you gave us some very strong numbers, of course, particularly in your Southeast franchise. Can you take it a little deeper or give us a little more color?

Speaker Change: To move payables, and receivables and otherwise to get the payments flowing but you hit the return threshold very quickly I would say generally well within a year.

Timothy N. Spence: Once you bring in these clients, like you mentioned about the customers that came in this quarter based on payment, how long does it take to get them to a return that you find, you know, passes your hurdle rate, and you guys are happy with it? A 12-month, 24-month period. Can you walk us through that kind of waterfall on how you get there?

On what we do in middle market.

Speaker Change: We are playing either at the upper end of middle market and corporate banking the return profile Kian.

Speaker Change: Develop over a longer period, because quite often then the ancillary that we're focused on is not payments since the capital markets revenues, where we lead we get the returns quickly.

Timothy N. Spence: How many more products do they need in addition to payments or in addition to a loan to get them to your... Yeah, sure. So I'm going to do payments first. And then we'll start with the loan because payments are easy. So the payments clients meet their return thresholds essentially out of the gate, Gerard, because you don't have credit attached, which means the capital you're holding is capital. And it can take as long as 30 to 45 days to board a client.

Speaker Change: We are a participant or a participant because we believe we can grow the relationship over time and then there is a strong discipline here to go back through the book every year, we do an operating review in every region with every corporate vertical and we have them show us the 25 lowest returning relationships in their portfolio and theres either a relationship land that we believe or we.

Timothy N. Spence: But because of some investments we made fortuitously for us prior to the deposit crisis last spring, we can board a client, provided that the client's ready to do so, in six days now, on average, and that then allows for a very quick ramp. And that's what's supporting the I think it's 11% growth in commercial payments fees year over year. That current pace, a high single-digit pace, has been the goal there for a while.

Speaker Change: Right.

Speaker Change: Real quick Tim just to follow up on that payments the new customers that you had referenced.

And those customers that don't have a payments product already or are you taking them from a fintech company or a competitor.

Speaker Change: Yeah.

Tim: But the.

Tim: This proportionate share of the clients that we are moving.

Tim: With the conventional payments products and managed services are moving from another bank. So it would be either they are a business that doesn't run with any leverage in that relationship moves or they make a decision to move their payables or receivables business to fifth third because we can provide a superior.

Timothy N. Spence: And it requires us to get, you know, ramped up quickly every time we add a new client. On the credit side of the equation, I think the beauty of the focus that we have on granularity right now is that when we move a middle market relationship, it's generally a single bank relationship. And that means the credit comes on, it will take a month or two to move payables and receivables and otherwise and to get the payments flowing, but you hit the return threshold very quickly, I would say generally well within a month.

Tim: <unk>, so that is a share shift.

<unk> in the case of the embedded payments businesses.

Tim: Quite often helping people to build products into their software applications that didn't necessarily exist previously or where they had a smaller bank who had agreed to provide simple all services and theyre looking for somebody who is more robust controls.

Timothy N. Spence: On what we do in the middle market, where we are playing either at the upper end of the middle market or in corporate banking, the return profile can develop over a longer period because, quite often, than the ancillary that we're focused on, markets, revenues, where we lead, we get the returns quickly; where we are a participant, we are a participant because we believe we can grow the relationship over time. And then there is a strong discipline here to go back through the book. Every year, we do an operating review in every region with every corporate vertical. Show Us the 25 Lowest Returning Relationships, oleo, and there's either a relation. Weave, or WeAccess?

Tim: The ability to support higher volumes and then in the case of the work we're doing on the technology side now a simpler process to do integration and future product development.

Speaker Change: I appreciate all the color. Thank you Ben.

Speaker Change: Absolutely.

Speaker Change: Question comes from Ebrahim <unk> from Bank of America. Your line is now open.

Ebrahim: Good morning.

Ebrahim: Good morning.

Ebrahim: I guess just one question for you Tim you've been fairly cautious on the macro outlook. The last 12 18 months.

Ebrahim: Has that changed today and the reason I'm asking is I'm trying to think that up with.

Timothy N. Spence: And real quick, Tim, just to follow up on that payment, the new customers that you have, are they customers that don't have a payments product already? Or are you taking them from a fintech company or a competitor? The disproportionate share of the clients that we are moving with the conventional payments products and managed services are moving from another bank. So it would either be a business that doesn't run with any leverage, and that relationship changes, or they make a decision to move their payables or receivables business to Fifth Third because we can provide a superior service.

Your messaging around buybacks, both in terms of the back half and third quarter seemed quite front footed. So just give us a sense of do you feel better about the economic outlook in new markets today than you did six or 12 months ago and.

Ebrahim: And just broadly as a result of that how are you thinking about capital allocation there.

Ebrahim: Should we expect this level of sort of second half buybacks continuing option growth.

Speaker Change: Accelerating next year. Thanks, yes.

Ebrahim: Ebrahim, Thank you and.

Speaker Change: As you know, we're big believers in accountability here, So actually asked Matt to go back and look through the Q&A in the scripts from prior quarters to see when we got the first the first question on higher for longer rates than you were the one that asked that.

Timothy N. Spence: So that is a share shift. In the case of the embedded payments businesses, we are quite often helping people to build products into their software applications that didn't necessarily exist previously, or where they had a smaller bank who had agreed to provide simple services, and they're looking for somebody who has more robust controls, the ability to support higher volumes. And then, in the case of the work we're doing on the technology side now, a simpler process to do integration and future products. Appreciate all the coverage. Thank you, Tim.

So in the fourth quarter of 'twenty two earnings call.

Speaker Change: What we said was we thought the market was overly optimistic on how quickly inflation will come down and I don't remember what event. It was last December.

Speaker Change: But the comment that I made then was that we thought either the bond market or the equity market were wrong. The question was just which one and then if we had to guess it was bonds. So I think for certainly know now that the bond market was the side of the trade that was wrong at the beginning of the year.

unknown: Absolutely. The question comes from Ebrahim Poonawala from Bank of America. Your line is now open. Good morning.

Timothy N. Spence: I have just one question for you, Tim. You've been fairly cautious on the macro outlook for the last 12-18 months. Has that changed today?

Speaker Change: The factors that has influenced our more cautious outlook are pretty much exactly the same today as they were the last time, we talked about it we just view the current fiscal and monetary policies to be at odds and that the physical side in particular.

unknown: And the reason I'm asking is I want to sync that up with your messaging around buybacks, both in terms of the back half and third quarter, seems quite front-footed. So just give us a sense of whether you feel better about the economic outlook in your markets today than you did six or 12 months ago? And, And just broadly, as a result of that, how are you thinking about capital allocation there?

Speaker Change: Is unsustainable.

Speaker Change: And inflationary overtime.

Speaker Change: And the longer it goes on right the more that the fed will need to remain higher for a longer which puts pressure on the long end of the curve.

unknown: So I actually asked Matt to go back and look through the Q&A and the scripts from prior quarters to see when we got the first question on higher for longer rates, and you were the one that asked it.

Speaker Change: And then I think as a knock on to that we know that longer rate stay elevated the more likely it is that youll see adverse consequences either in asset prices.

Speaker Change: Or and credit performance.

Timothy N. Spence: So we did a fourth quarter, a 22 earnings call. You know, what we said was we thought the market was overly optimistic about how quickly inflation would come down. And I don't remember what event it was last December, but the comment that I made then was that we thought either the bond market or the equity market was wrong. The question was just which one, and if we had to guess, it would be bonds.

Speaker Change: The Big question is just how long does that take rate when does that play out.

Speaker Change: And that is an area, where we have low conviction. So what we are trying to do.

And what we will always try to do on low conviction environments as <unk> and <unk>.

Speaker Change: Neutrolin be diversified.

Speaker Change: Historically, when you had to change that.

Timothy N. Spence: So I think for certain we know now that the bond market was the side of the trade that was wrong at the beginning of the year. The factors that have influenced our more cautious outlook are pretty much exactly the same today as they were the last time we talked about it. Like we just view the current fiscal and monetary policies to be at odds and that the fiscal side, in particular, is unsustainable.

Speaker Change: Things are slowly but suddenly.

Speaker Change: Slowly then suddenly sort of dynamic plays out in terms of being environmental chefs.

Speaker Change: On capital priorities.

Speaker Change: We do.

Speaker Change: We continue to expect to buyback between three and $400 million in shares in the second half of the year our level of con.

Speaker Change: Confidence and that just comes from the strength of the capital generation of the franchise as Brian and I. Both mentioned, we had the highest ROE and.

Timothy N. Spence: And inflationary over time, and the longer it goes on, right? The more that the Fed will need to remain higher for longer, which puts pressure on the long end of the curve. And then, I think, as a knock on that, we know that longer rates stay elevated. The more likely it is that you will see adverse consequences either in asset prices or in credit performance. The big question is just how long will that take? Right. When does that play out?

Speaker Change: Most stable ROE if you look at it on a year over year basis of any of our investor peers and that is the basis of the confidence yes. The environment ends up softening and we don't see the loan growth that will then create a capital opportunity because the capital needs to support organic growth won't be there.

Timothy N. Spence: And that is an area where we have low conviction. So what we are trying to do, and what we will always try to do in low conviction environments, is be liquid, be neutral, and be diversified. Because historically, when you have a change, you know, things that slowly but suddenly are slowly then suddenly, a dynamic plays out in terms of big environmental shifts on capital priorities. We do continue to expect to buy back between $300 and $400 million in shares in the second half of the year.

Speaker Change: So you do have a buffer here if we do see a turn in the environment and softening in loan growth expectations.

Speaker Change: And if not then we are and we have more than enough capital generation to do $3 million to $400 million second half of the year.

Speaker Change: That was helpful and to be clear it wasn't a planted question but.

Speaker Change: [laughter].

Speaker Change: The thing that caught my attention you mentioned, Texas and obviously you mentioned so if you think about the fifth third southeast just talk to us or remind us in terms of the strategy in Texas.

Timothy N. Spence: Our level of confidence in that just comes from the strength of the capital generation of the franchise. Bryan and I both mentioned we have the highest ROE and the most stable ROE if you look at it on a year-over-year basis of any of our investor peers. And that is the basis for that confidence.

Speaker Change: Are you opening a lot of de novo branches that and I'm, assuming there is no near term M&A, but that does open up potential opportunities that goes down the road. Thanks, Yeah, absolutely. So we got into Texas from 2012, when we formed our energy vertical and we have deeply experienced folks there.

Timothy N. Spence: If the environment ends up softening and we don't see the loan growth, that will then create a capital opportunity because the capital need to support organic growth won't be there. So you do have a buffer here if we do see a turn in the environment and a softening in loan growth expectations. And if not, then we have more than enough capital generation to do.

Speaker Change: Who have done a really excellent job and then over the course of the past several years added middle market offices in Houston and Dallas.

Speaker Change: Where we have we're able to attract very strong talent from trillion or banks.

Timothy N. Spence: That was helpful, and to be clear, it wasn't a planted question, but the other thing that caught my attention, you mentioned Texas, and obviously you mentioned, so we think about the Fifth Third, Southeast, just talk to us, remind us in terms of the strategy in Texas, are we opening a lot of de novo branches there, and I'm assuming there's no near-term M&A, but that does open up potential opportunities, I guess, down the road, thanks. Yeah, absolutely, so we got into Texas in 2012 when we formed our energy vertical, and we have deeply experienced folks there who have done a really excellent job, and then over the course of the past several years, added middle market offices in Houston and Dallas, where we were able to attract very strong talents from trillionaire banks who understand the focus we have on whole relationships, and we're able to do what I think for us is a little bit unique, which is a heavy focus on C&I, and then the delivery of the value-added services, whether they're capital markets, or Payments, as opposed to a focus on either loan-only relationships or buying participations or investor real estate or otherwise.

Speaker Change: I understand the focus we have on whole relationships and we're able to do what I think for US is a little bit unique which is a heavy focus on C&I and in the delivery of the value added services, whether they're capital markets.

Speaker Change: Or payments as opposed to a focus on either loan only relationships or.

Speaker Change: We're buying participations.

Speaker Change: Or.

Speaker Change: Investor real estate or otherwise.

Speaker Change: And that business now also has a.

Speaker Change: Specialty products, so ABL equipment leasing coverage it has coverage dedicated treasury management.

Speaker Change: Wealth and asset management support and then a nonpublic branch office, which allows us to do things on a pub fund side.

Speaker Change: And what it does not have today is any retail banking presence.

Speaker Change: Wouldn't rule that out but those are very large markets that we're talking about here. They are not markets of between $5 million and 3 million people, which has been the expansion strategy in the southeast so.

Timothy N. Spence: That business now also has specialty products, so ABL, equipment leasing, coverage. It has coverage, dedicated treasury management. It has wealth and asset management support. What it does not have today is any retail banking presence. But I wouldn't rule that out.

Speaker Change: Any effort that.

Speaker Change: We elect to make with branches in those markets will be a thing that we communicate to you in advance because we will be talking about committing 50 to 100 branches in a single city.

Speaker Change: In many cases as opposed to what we're doing in the southeast right now, which is really building 10 to 25.

unknown: But those are very large markets that we're talking about here. They're not markets of between a half a million and three million people, which has been the expansion strategy in the Southeast. So any effort that we elect to make with branches in those markets will be a thing that we communicate to you in advance, because we'll be talking about it. 50-100 branches in a single, in many cases, as opposed to what we're doing in the Southeast right now, which is really building, you know, 10 to 25 at an individual market level and getting to that top five presence that we know we need to be able to support the primary, It Thank you. The question comes from John Pancari from Evercore. Your line is now open. Good morning. This morning,

Speaker Change: At an individual market level in getting to that top five presence that we know we need to be able to support the primary banking model.

Speaker Change: That's helpful color. Thank you.

Speaker Change: Okay.

Speaker Change: Question comes from John <unk> from Evercore. Your line is now open.

John: Good morning, good morning.

John: On the on the NII outlook.

John: Down two to four.

John: He previously your last quarter your forecast those forward curves as well.

John: Or six cuts not assumption and now you're you're sticking to the forward curve so much less than.

John: Three constantly saves in the poorer curve now however, your your NII guidance has remained intact. Despite that could you maybe just talk a little bit around the around the ability to keep that outlook.

unknown: On the, on the NII Outlook of, I've done two to four. I know the previously your last quarter your forecast was forward curve as well and you had five or six cuts in that assumption and now you're you're sticking to the forward curve so much less so three cuts I'd say is in the forward curve now however your your NII guide is that has remained intact despite that can you maybe just talk a little bit around it around the ability to keep that outlook without without changing it and then what does that mean in terms of your margin forecast and I indicated that is that it bottoms as well as NII now but as you look for the through the year what type of trajectory do you see in the margin? Yeah, John, thanks for the question.

John: Without change and then what does that mean in terms of your margin forecast. Some of you indicated that it bottomed as well as NII now but.

John: As you look for the through the year what type of trajectory.

John: The margin thanks.

John: Yes, John Thanks for the question.

Speaker Change: One where the main thing that I would highlight for you is that we continue to have very strong benefits from the fixed rate asset repricing at this point.

Bryan Preston: You know, it's one where the main thing that I would highlight for you is that we continue to have very strong benefits from fixed-rate asset repricing. And you can see that, you know, for us, you can see that in our actual numbers, you know, year over year, our indirect secured consumer business, which is primarily our indirect auto business, that's up 100 basis points year over year on a $15 billion portfolio. So $150 million of annualized benefit in a year where we were actually constraining production and cars because of the RWA diet.

Speaker Change: And you can see that for US you can see that in our actual numbers year over year, our indirect secured consumer business, which is primarily our indirect auto business.

That's up 100 basis points year over year on a $15 billion portfolio. So a $150 million of annualized benefit in a year, where we were actually constraining production in auto because of the <unk> diet.

So those those businesses, we have those medium term fixed rate lending assets, whether it's the auto business RV marine whether it's solar provide generate a lot of power for us in terms of earnings capacity over the next 12 months, we will have enough fixed rate assets reprice.

Bryan Preston: So those businesses we have, those medium-term fixed-rate lending assets, whether it's the auto business, RV Marine, or whether it's solar, provide, generate a lot of power for us in terms of earnings. Over the next 12 months, we'll have enough fixed-rate assets repriced that will generate $350, $400 million plus of annualized NII benefits. So even in a higher rate environment and with the curve selling off some, that benefit is increasing for us.

Speaker Change: That will generate 350 $400 million plus of annualized NII benefit so even in a higher rate environment and with the curve selling off some of that benefit is increasing for us. So that is a good outcome for us that help support and offset some continued migration from <unk>.

Speaker Change: A perspective as.

Bryan Preston: So that is a good outcome for us that helps support and offset some continued migration from a DDA perspective, as well as some continued forecasted increases in deposit costs. We're not making any assumptions that the deposit environment and the competition and the increasing costs are over, but it is definitely moderate.

Speaker Change: As well as continued forecasted increases in deposit costs overall were not making any assumptions that the deposit environment and the competition and the increasing cost is over but it is definitely moderating from a NIM perspective, we do expect positive NIM from here as well and then we're only talking about a couple of few.

Speaker Change: Basis points, a quarter trajectory a big wildcard on the magnitude of the NIM increases just ultimately is where the cash position ends up if we continue to have really strong performance out of our deposit franchise above the 2% to 3% that we're guiding to a NIM will be a little bit lower but NII will be better as a result of that but overall, we feel really good.

Bryan Preston: From a NEM perspective, we do expect positive NEM from here as well. And while we're talking about, you know, a couple of basis points a quarter, a big wildcard on the magnitude of the NEM increase. If we continue to have really strong performance out of our deposit franchise above the two to 3% that we're guiding to, then we'll be a little bit lower, but it will be better as a result of that. But overall, we feel really good about the asset. I got it.

Speaker Change: About the absolute positioning.

Speaker Change: Yes.

Speaker Change: Got it thanks, Brian very helpful. And then separately on the credit side MPA is up a bit.

Speaker Change: This quarter.

Speaker Change: If you just give us a little bit of color on what you see in terms of.

unknown: Thanks, Bryan. Very helpful. And then separately, on the credit side, MPA is up a bit this quarter. If you could just give us a little bit of color on what you're seeing in terms of credit migration, you know, and maybe by, you know, sector, we're hearing a bit of stress on the transportation sector, aviation credit impacting some of the names as well as some banks flagging healthcare. So, if you could just give us a little bit of color there and maybe also your confidence in your 35 to 45 basis point charge off guidance. Yep, great. Thanks. A great question.

Speaker Change: Credit migration.

Speaker Change: And then maybe by sector, we're hearing a bit of stress on the transportation sector.

Speaker Change: Issue credit impacted some of the names as well as some banks flagged in healthcare.

So if you could just give us a little bit of color there and maybe also your confidence in your 35 to 45 basis point charge off guidance.

Speaker Change: Yes, great. Thanks, Great question, so the $59 million increase that we saw in <unk>. This quarter 49 of it was in commercial two names.

Speaker Change: Not in the industries that you'd indicated we've got a retail trade name of the senior living trade.

unknown: So the 59 million increase that we saw in NPAs this quarter, 49 of it was in commercial, two names, not in the industries that you've indicated; we had a retail trade name and a senior living trade name. So we are continuing to see stress on the healthcare side, specifically in senior living. That's not a huge portfolio for us, and we think we have our hands on it to review that portfolio on a consistent basis. So I am not overly concerned.

Speaker Change: So we are continuing to see stress on that health care side, specifically in the senior living.

Speaker Change: But with a huge portfolio for us.

Speaker Change: And we think we are.

Speaker Change: Our hands around it continue to review that portfolio on a consistent basis.

Speaker Change: So not overly concerned the thing that we have been consistently saying that we continue to see as we just youre not seeing trends.

Speaker Change: Dr graffiti byproduct by industry.

Our our issues that have bubbled up had been more episodic and we've been able to deal with those episodic events on a quarter by quarter basis. So I am not expecting to see a linear increase in our <unk> to your last question I still feel very good about the guidance, Brian talked about earlier, the 35 to 45.

unknown: The thing that we have been consistently saying, and we continue to see, is that just by geography, by product, by industry, our issues that have bubbled up have been more episodic. And we've been able to deal with those episodic events on a quarter by quarter basis. So I am not expecting to see a linear increase in our NPAs. To your last question, I still feel very good about the guidance Brian talked about earlier 35 for the year based on, again, Tim mentioned our commercial real estate portfolio continues to perform very, very well. The rest of our C&I borrowers continue to perform well. They've done a nice job with expense cutting. They've done a nice job passing along pricing, and they're operating about as efficiently as we've seen them.

For the year based on again, Tim mentioned on commercial real estate portfolio continues to perform very very well the rest of our C&I borrowers continued to perform well they've done a nice job with expense cutting and they've done a nice job passing along pricing.

Speaker Change: We're operating about as efficiently as we have seen them.

Speaker Change: Taking a cautious view as well not not sure where rates are going to go. So we're not seeing a lot of capex, but overall, we like the behaviors of our C&I portfolio and I think the results of our commercial real estate portfolio speak for themselves.

Speaker Change: Great. Thank you for taking my questions.

Speaker Change: Absolutely.

Speaker Change: Our next question comes from Ken <unk> from Jefferies. Your line is now open.

unknown: We're taking a cautious view as well, not sure where rates are going to go, so we're not seeing a lot of capex. But overall, we like the behavior of our C&I portfolio, and I think the results of our portfolio speak for themselves. Great. Thank you for taking my questions.

Ken: Thank you good morning.

Ken: Just wanted to follow up with Brian Brian You mentioned the annualized dollar impact from those fixed rate securities and loans. I think you said previously that was $12 billion.

Ken: I'm just wondering if you have an understanding of what you know will be also repricing in 'twenty five and.

unknown: Absolutely. Our next question comes from Ken Usdin from Jeffreys. Your line is now open. Thank you. Good morning.

I would assume that would also then be incremental to that annualized benefit you referred to earlier.

Speaker Change: That's right.

Speaker Change: We do have a similar amount that will happen in 'twenty, five and actually we've been in the range of.

unknown: Just want to follow up with Bryan. Bryan, you mentioned the annualized dollar impact from those fixed rate securities and loans. I think you said previously that was $12 billion. I'm just wondering if you have an understanding of what you know will be repricing in 2025, and I would assume that would also then be incremental to that annualized benefit you referred to earlier.

Speaker Change: $4 to $5 billion, a quarter re pricing overall in the portfolio between loans and investment portfolio investment portfolio has actually been in say a $6 million to $800 million a quarter range that number is actually going to start accelerating later this year as we start to get some maturities on the bullet lockout structures, we're expecting over $1 billion in the fourth quarter.

Speaker Change: On a pace similar to that in 2025.

Bryan Preston: We do have a similar amount that will happen in 2025. And actually, we've been in the range of $4 to $5 billion a quarter repricing overall on the portfolio between loans and investment portfolio. The investment portfolio has actually been in the $600 to $800 million a quarter range. That number is actually going to start accelerating later this year as we start to get some maturities on the bullet lockout structures. We're expecting over a billion, Ace, similar to that in 2025.

Speaker Change: So this benefit and the repricing thats going to continue and actually pick up a little bit and thats, where the higher for longer environment as long as the front end stays relatively stable because that will help keep deposit cost stable. The higher long end will actually help and contribute to higher income overtime.

Speaker Change: Okay. And then also you mentioned keeping the cash and securities at around the same level can you talk about just how you are preparing for liquidity rules and what that will mean in terms of how you think about the mix of across portfolios and amount of cash you want to keep.

Speaker Change: Yes, we are there today for whatever comes out from a liquidity rule perspective, so we will not have to make any material changes to the balance sheet.

Bryan Preston: So this benefit and the repricing is going to continue and actually pick up a little bit. And that's where the higher for longer environment comes in, as long as the front end stays relatively stable, because that will help keep deposit costs stable. The higher long end will actually help and contribute to higher income over time. Okay. And then also you mentioned keeping the cash and securities at around the same level. Can you talk about just how you're preparing for liquidity rules and what that will mean in terms of that, how you think about the mix across portfolios and the amount of cash you want to keep?

Speaker Change: Compared to what we have today, what will happen over time as the loss position on the investment portfolio Burns off.

That will actually increase the liquidity of contribution from the investment portfolio. So we can take the cash will start to take the cash position down also we will start to remix the composition of our investment portfolio to continue to ship more into level, one securities, which will also help us take the cash position down over town over time so it.

Bryan Preston: Yeah, we are there today for whatever comes out from a liquidity rule perspective. So we will not have to make any material changes to the balance sheet compared to what we have today. What will happen over time, as the loss position on the investment portfolio burns off, that will actually increase the liquidity contribution from the investment portfolio.

Speaker Change: It'll be just a natural transition where the balance sheet, we will get a little bit lighter from a cash and securities perspective.

Speaker Change: As time passes, but we're very well positioned for any pending liquidity rules.

Speaker Change: Okay. Thank you Brian.

unknown: So we can take the cash position down. Also, we will start to remix the composition of our investment portfolio to continue to shift more into level one securities, which will also help us take the cash position down over time. So it'll be just a natural transition where the balance sheet will get a little bit lighter from a cash and securities perspective as time passes, but we're very well positioned for any pending, Your line is now open. Thanks. Kim and Bryan, I have a question for you about the Southeast.

Speaker Change: Okay.

Speaker Change: Next question comes from Vivek <unk>.

Vivek: From JP Morgan Your line is now open.

Vivek: Thanks.

Vivek: Tim.

And Brian a question for you on.

Vivek: The southeast.

Tim: How much do you have in deposits than now.

Bryan Preston: What are you doing in terms of consumer side of loans, where do those stand relative to deposits.

Bryan Preston: Sure.

Speaker Change: Let me start on the consumer loan side, and then Brian will fill in on the detail on deposits so the balance sheet.

unknown: How much do you have in deposits there now? And what are you doing in terms of consumer loans? Where do those stand relative to deposits? Sure.

Speaker Change: In the southeast on the consumer side.

Timothy N. Spence: And let me start on the consumer loan side, and then Brian will fill in on the detail on deposits. So the balance sheet in the southeast on the consumer side for the core banking relationships is a net funding provider for us, Vivek. The sort of general development of a customer relationship is to acquire the primary DDA via direct marketing and the work that we do around the new branches as we build them. Payments products are an important part of primacy.

Speaker Change: For the core banking relationships as a net funding provider for us of access.

Bryan Preston: Sort of general development of a customer relationship is acquire that primary DDA.

Bryan Preston: Direct marketing and the work that we do around the new branches as we build them.

Bryan Preston: The payments products are an important part of primacy so credit card would come after that.

Timothy N. Spence: So the credit card would come after that. And then from there, you have the episodic opportunities, whether that's home equity, because there's some improvement going on, or mortgage, although there obviously hasn't been in the environment over the course of the past few years, and the auto business, the dividend solar finance bill business, in particular, do have strong production in Florida, just because of the size of the population relative to the other places where we do business, but they're really unconnected to deposits Bryan, you want to talk about it? Absolutely.

Then from there you have episodic opportunities, whether that's home equity because there is some improvement going on or mortgage although they're obviously it hasnt been a lot of that.

Bryan Preston: In that environment over the course of the past.

Bryan Preston: A few years.

The auto business the dividend solar finance Bill business in particular do you have that strong production in Florida, just because of the size of the population relative to other states.

Speaker Change: Where we do business, but theyre really unconnected to deposits, Brian you want to talk about the individual markets and deposit balances, yes, absolutely. We've got about overall about $31 billion in deposits in the southeast now.

Bryan Preston: We've got overall about $31 billion in deposits in the southeast now, about over half of that relates to the consumer franchise. So we're doing very well. And, as Tim mentioned, we are a net provider of funding. We only have about $18, and I would imagine most of those are on the commercial side, as Tim said, at this point.

Bryan Preston: Over half of that relates to the consumer franchise. So we're doing very strong and consumer on that front and as Tim mentioned, we are it is a net provider of funding we only have about $18 billion worth of loans in south east.

Bryan Preston: And I would imagine most of those are on the commercial side as Tim said of this yet yes, yes, absolutely.

unknown: Yes. A separate question. Solar, I noticed your growth has slowed, as you've been indicating. Any update on what you're thinking in terms of originations, long growth, as well as credit? Yep, well, I'll start. We'll get Greg to answer on credit. I, we are still number two, right?

Bryan Preston: Separate question solar.

Bryan Preston: I noticed your growth has slowed as you've been indicating any update on what youre thinking in terms of originations loan growth as well as credit.

Speaker Change: Yes, well I'll start and will get Greg to answer on credit.

Speaker Change: We are still number two right. We are the number two largest financer in the residential solar market and the byproduct of that is our growth opportunity has as much to do with the market size is it does anything else at this stage and right now with rates being high and with <unk>.

Timothy N. Spence: We are the second-largest financer in the residential solar market, and the byproduct of that is, our growth opportunity has as much to do with market size as it does anything else at this stage. And right now, with rates being high, and with net metering having been rolled back in a couple of places, you just have an affordability issue where the cost of purchasing energy off the grid is cheaper than it would be to finance solar installations.

Speaker Change: During having been rolled back in a couple of places you just have an affordability.

Speaker Change: Issue, where the cost of purchasing energy off the grid is cheaper than it would be debt finance.

Speaker Change: Solar installations I think the other dynamic is that as rates rise and this is I think ironically.

Timothy N. Spence: I think the other dynamic is that as rates rise, and this is, I think ironically, it's the same phenomenon in auto, is that as rates rise, the mix of leased to financed installations shifts toward leases, which means as a lender, the solar is going to be down. I think the estimate from the industry is like 13, 14% this year, Vivek, you're going to see a more significant decline in the financing volumes. So we built our plan around being down 30% year over year.

Speaker Change: Ironically, it's the same phenomenon in auto is as rates rise the mix of leased Stephanie.

Speaker Change: Installation shifts toward leases, which means as a lender with solar is going to be down I think the estimate from the industries like 13%, 14%. This year because of that in terms of total installations youre going to see a more significant decline.

Speaker Change: In the financing volumes, so we built our plan around being down 30% year over year.

Timothy N. Spence: And, you know, I think in a higher for longer environment, that's probably right. If it's any softer than that, it's just going to be a byproduct of this continued dynamic on the lease. Does it make sense to offset energy costs on a zero basis with the cost of the equipment?

Speaker Change: And I think in higher for longer environment, that's probably right. If it's any softer than that it's just going to be a byproduct of this continued dynamic on the lease versus financing.

It doesn't make sense.

Speaker Change: Can you offset energy costs.

Speaker Change: Zero basis, what the cost of the equipment that's being installed.

Greg Schroeck: Great, and on the credit side, the Solar Dividend credit losses are performing right as we modeled right around 1.3%. We actually think we'll run a little bit better for the remainder of this year because early volume within the portfolio of seasoning.

Speaker Change: Great and then on the credit side, the solar dividend credit losses are performing right as we model right around one.

<unk> percent, we actually think we'll run a little bit better for the remainder of this year early volume within the portfolio is seasoning. So we saw a little bit of that seasonality this quarter, but we feel good about what we're seeing.

Greg Schroeck: So we saw a little bit of that seasonality this quarter, but we feel good about what we're seeing. And we certainly have more optimistic views. And then, just on the volume front for originations for solar, and I know this question came up earlier as well. We're probably talking, you know, closer to a billion seven to 2 billion, just given that I'd. Next question comes from Manan Gosalia from Morgan Stanley. Your line is now open. Hey, good morning.

Speaker Change: And we certainly have more optimistic view for the rest of this year.

And then just on the volume front for originations for solar I know this question came up earlier as well.

Speaker Change: We're probably talking closer to $1 72 billion of originations. This year, just given the dynamics that Tom mentioned earlier.

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: Yeah.

Speaker Change: Next question comes from Manav Vishal.

Manan Gosalia: Morgan Stanley Your line is now open.

Manan Gosalia: Hey, good morning.

unknown: I wanted to touch on deposit competition. You compete with several of the money center banks in several markets. How are you thinking about deposit competition as QT continues, as RRP balances continue to decline, and the focus shifts back to bank deposits? How do you think deposit competition will trend in that environment? Well, we think that is certainly a big question for us and for the industry. And it's one of the reasons why we highlighted that RNI guidance at this point is less rate environment dependent and more dependent on just the overall level of deposit.

Manan Gosalia: I wanted to touch on that.

Manan Gosalia: Posit competition.

Manan Gosalia: You compete with several of the money center banks in several markets.

Speaker Change: How are you thinking about deposit competition is Qt continue as soon as our ERP balances continue to decline.

Speaker Change: Our focus shifts back to bank deposits, how do you think deposit competition will trend in that environment.

Well, we think that is certainly a big question for us and for the industry and it's one of the items why we highlighted that our NII guidance at this point is less rate and by our independent rate environment dependent.

Speaker Change: More dependent on just the overall level of deposit competition.

unknown: As you mentioned, we do compete against the money center banks, as well as a lot of regionals across our different markets. In the Midwest, we compete against J.P. Morgan, primarily, they're the number one bank, and most of our markets were the number two bank in those, So we see them and face off against them, and obviously, in the South.

Speaker Change: As you mentioned, we do compete against the money center banks as well as a lot of regionals across our different markets in the Midwest we compete against.

Speaker Change: J P. Morgan primarily they are the number one bank in most of our markets, where the number two bank in those markets.

Speaker Change: So we see them in face off against them and obviously in the southeast we deal with Bank of America Wells and tourists so very significant competition.

unknown: Bank of America, Wells, and Truist, so very significant competition. In general, it does feel like the broader liquidity environment has stabilized versus what we saw mid-year last year. So, even with a little bit of weakness from an overall industry deposit perspective, at this point, unless something really breaks in the liquidity system, we're not expecting the significant food fight for cash that happened last year as people were just scrambling to show that they were making money.

Speaker Change: In general it does feel like the broader liquidity environment has stabilized versus what we saw mid year last year, so even with a little bit of weakness from an overall industry deposit perspective at this point unless something really breaks in the liquidity system.

Speaker Change: Not expecting significant food fight for cash that happened last year as people were just scrambling to show that they had a stable balance sheet.

unknown: But it does mean that over time, you're likely to see just a potential increase in competition. The big counterweight for this is really going to be whether or not long growth shows up or not. If there's no long-term growth for the industry, there's not going to be a need for significant competition. So, broadly speaking, we think competition probably stays lighter than what we saw last year, especially in a stable environment. The bottoming of the RRP and potential decreases in bank reserves could create some pressure. I got it.

Speaker Change: But it does mean that over time that youre likely to see just.

Speaker Change: The potential increase in competition the big counter for this is really going to be whether or not loan growth shows up or not if there is no loan growth for the industry. There is not going to be a need.

Speaker Change: First significant competition for deposits and so broadly speaking, we think competition probably stays lighter than what we saw last year, especially in a stable environment also at a time, where we think the whole industry is going to be focused on maintaining profitability.

Speaker Change: So we do think that will moderate some of the pressures but the.

Speaker Change: The bottoming of the RFP and potential decreases in bank reserves as Q T continues certainly could create some pressure in the meetings.

unknown: And then maybe a bigger picture question. Tim, in your annual letter, you talked about rationalizing the business model in response to the tougher regulatory environment. You used the RWA diet as an example.

Speaker Change: Got it and then maybe a bigger picture question Tim in your annual letter you talked about.

Speaker Change: Rationalizing the business model in response to the tougher regulatory environment.

You use the <unk> as an example.

Timothy N. Spence: Bigger picture, what do you think the evolution of the model for Fifth Third and other banks of your size will look like going forward? You know, maybe there'll be more partnerships with private credit, or there'll be a pivot to more fee-based businesses, but in what ways will Fifth Third look different in, you know, five or seven years from now versus today? Yeah. Yeah. So a few things just on the industry in general and Fifth Third on that front.

Speaker Change: <unk>.

Speaker Change: Bigger picture, what do you think the evolution of the model for.

Speaker Change: The banks of your size will look like going forward, maybe theres more partnerships with private credit or there's a pivot to more fee based businesses, but.

Speaker Change: And what ways will look different.

Speaker Change: Five or seven years from now versus today yeah.

Speaker Change: So a few things just on the industry.

In general in fifth third and on that front.

Timothy N. Spence: One, we've got to find a way to reignite growth in labor productivity, right? I think that's true of the economy in general, but you'd see the same thing if you looked at the banking sector. For example, despite all the investments that have been made in technology over the course of the past 10-15 years, aside from branch rationalizations, you can't really point to a lot of examples where there were big productivity lifts

Speaker Change: One.

Speaker Change: We've got to find a way to reignite growth in labor productivity right I think that's true of the economy in total, but you'd see the same thing if you look at the banking sector.

Speaker Change: Despite all the investments that have been made in technology over the course of the past 10 15 years.

Speaker Change: Aside from branch Rationalizations, you can't really point to a lot of examples where there were big productivity lifts.

Timothy N. Spence: So whether it's the cloud platforms we're putting in where we should be able to drive more or the use of AI or otherwise, overheads have to come down. That is, you know, going to be an important point of focus for us through the value streams and through the tech modernization work that we're doing. I think secondarily, there are going to be businesses that regional banks or community banks just don't compete in in the future if there isn't a rationalization of the way that the non-credit wallet and large public companies would be a good examples of that space, right?

Speaker Change: It's the cloud platforms, we're putting in where we should be able to drive more straight through processing.

Speaker Change: What are the use of AI or otherwise overheads have to come down that is going to be at an important point of focus for us.

Speaker Change: The value streams and through the attack modernization work that we're doing I think secondarily.

There are going to be businesses that regional banks or.

Speaker Change: Or community banks, just don't compete in the future if there isn't a rationalization of the way that the noncredit wallet is shared and large public companies would be a good example of that space right. We did our diet last year, we walked away from companies, where we were in an important lender, but we werent getting a fee.

Timothy N. Spence: We did our diet last year; we walked away from companies where, you know, we were an important lender, but we weren't getting a fair share of the ancillaries because they were being consumed by the. That's either going to require the money centers to make larger individual commitments in order to justify the ancillary, or it's going to require that the treasurers of those companies reallocate the wallet proportionally. And my own view is that, at least initially, you're going to see a shift there.

Speaker Change: Our share of the ancillary is because they were being consumed by the money center banks and that's either going to require the money centers can make larger individual commitments.

Speaker Change: Yes in order to justify the ancillary or it's going to require that.

Speaker Change: Treasurers that those companies.

Speaker Change: Reallocate.

Speaker Change: Wallet proportionately.

Speaker Change: So.

Speaker Change: One view is at least initially youre going to see a shift there I think private credit is going to be an interesting one to watch like there isn't a great track record historically for people growing as fastest private credit is growing and completely avoiding mistakes I also have a hard time.

Timothy N. Spence: I think private credit is going to be an interesting one to watch. There isn't a great track record historically for people growing as fast as private credit is growing and completely avoiding mistakes. I also have a hard time figuring out what the comparative advantages there are that are defensible if the model works.

Speaker Change: Figuring out what the comparative advantages there that's defensible.

Speaker Change: If the model works and I would prefer always since we are a good deposit gathering institution that we be able if theres good money to be made in the evaluations that are being placed on these credit fund providers certainly suggest there is.

Timothy N. Spence: And I would always prefer, since we are a good deposit gathering institution, that we be able, if there's good money to be made and the valuations that are being made, Credit Fund Providers certainly suggest there is, that we be holding those assets on balance sheets. So that has not been an immediate point of focus for us.

Speaker Change: We'll be holding those assets on balance sheet. So that has not been an immediate point of focus.

Timothy N. Spence: And then lastly, as you know, we've talked about in the past, it's hard to imagine that whether it's, you know, 1000 or 2000 or 3000, it's hard to imagine that there are going to be, And you're just going to have to see some consolidation and people retreating to places where they have density, you know, and focusing on markets where they can neutralize the scale advantages that the large banks, you know, have, because you're the same size in the area where you compete, versus being, you know, 7, 8, 9, 10 ranked, you know, in every market across the US, which is just fundamentally less different. Very helpful.

Speaker Change: For us.

Speaker Change: And then lastly, as we've talked about in the past that it's hard to imagine that whether it's 1000 or 2000 or 3000, and it's hard to imagine that they are going to be 4000 banks and.

Speaker Change: And you're just going to have to see some consolidation and people retreating to places where they have density.

Speaker Change: And focusing on markets, where they can neutralize the scale advantages.

That the large banks.

Speaker Change: Half.

Speaker Change: You are the same size.

Speaker Change: The area, where you compete versus being 789 10 rank.

Speaker Change: In every market across the U S, which is just fundamentally.

Speaker Change: <unk>, Italy, less defensible business strategy.

Speaker Change: All right helpful. Thank you.

Timothy N. Spence: The next question comes from Christopher Marinac on behalf of Jamie. Your line is now open. Hey, thanks. Good morning. I just wanted to ask about possible changes to risk grades and in criticizing classifieds. I know it might be premature to see anything upgraded, but just curious about the path of those that you saw and how that may evolve this year.

Speaker Change: Next question comes from Christopher Martin from Jamie Your line is now open hi.

Christopher William Marinac: Hey, Thanks, Good morning, just wanted to ask about possible changes on risk.

Christopher William Marinac: Risk grades and criticized and classifieds I know it might be premature to see anything upgraded but just curious on the path of those that you saw and how that may evolve this year.

unknown: Yeah, it's a great question. So again, probably not going to be linear, it's going to be lumpy. It has been for us in the past, given the current previous comments I made about,...

Speaker Change: Yes, great question.

Speaker Change: So again, probably not going to be linear it's going to be lumpy and has been for us in the past given.

Speaker Change: Previous comments, you made about episodic more episodic events and the fact that we're just not seeing trending by industry by geography.

unknown: And so, I would expect it to continue to be lumpy. But as I said earlier, you know, we're still liking the way our C&I portfolio is behaving. We like our commercial real estate track record an awful lot.

Speaker Change: And so I would expected to continue to be lumpy, but as I said earlier.

Speaker Change: We're still liking the way our.

Portfolio is behaving like our commercial real estate.

Speaker Change: Track record, an awful lot, but with higher for longer maybe higher forever interest rates were going to continue to see stress and we're going to continue to proactively manage the portfolio as we have.

unknown: But with higher for longer, maybe higher forever interest rates, we're going to continue to see stress, and we're going to continue to proactively manage the portfolio as we have. So, we're taking a look at maturities, and we're stressing by 100 basis points the forward curve on what that loan looks like at maturity. And so, if we see weakness there, you know, we could see an increase in criticized assets. But 99% of our accruing criticized assets are current, right? And if you include our non-accruals, we're still 93%, 94% current within that portfolio. So, we'll see an episodic kind of lumpiness for the remainder of the year.

Speaker Change: We're not doing deep dives because on an ongoing basis, we are stressed in the C&I portfolio by 200 basis points, we're getting out of getting out ahead of any potential issues that could lead to.

Speaker Change: Some criticized assets are special mentioned, we're doing the same thing do something on the commercial real estate site exit exit stress testing. So we're taking a look at maturities and we're stressing by 100 basis points forward curve on what that what it looks like at maturity and so if we see weakness there we could see an elevation.

Speaker Change: <unk> and criticized assets, but 99% of our cooling criticized assets. Our current alright, and if you include all non accrual were sub 90, 394% currently.

unknown: Great, thank you for that. And just a quick follow up. I mean, the lost content ultimately is reflected in the reserve. So that would have to change a lot for you to kind of change your guide to the reserve overall.

Speaker Change: In that portfolio.

Speaker Change: We will see episodic kind of lumpiness for the remainder of the year.

Speaker Change: Great. Thank you for that and just a quick follow up I mean, the loss content. Ultimately is reflected in the reserve. So that would have to change a lot for you to kind of change your guide on the preserve overall exactly.

unknown: Exactly. All right. Thanks for that, Chris. I think we don't have any other questions in the queue, but we'd be remiss if we didn't say congratulations to Erika and her family since she wasn't able to join us today before we wrapped up our call. Thanks, Jim. And thanks, Ellie, and thanks, everyone, for joining us because of your interest in Fifth Third. Please contact the Investor Relations Department if you have any other follow-up questions. Ellie, you may now disconnect the call. Thank you to everyone who attended the call today. We all hope you have a wonderful day. Stay safe.

Speaker Change: Exactly.

Speaker Change: Okay.

Speaker Change: For that Chris I think we don't have any other questions in the queue, but we'd be remiss. If we didn't say congratulations to Erika and her family since she wasn't able to join US today before we wrap up our call.

Erika: Thanks, Tim.

Speaker Change: And thanks, Lee and thanks, everyone for joining your interest for your interest in fifth third please contact the Investor Relations Department. If you have any other follow up questions Ali you may now disconnect the call.

Speaker Change: Thank you for everyone attending the call today.

Hope you have a wonderful day stay safe.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change:

Speaker Change: