Fifth Third Bancorp

Good day. My name is Jay, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the fifth, third, Bancorp second quarter 2019 earnings conference call. All lines have been placed and need to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. And if you would like to withdraw a question, press the pound key. Thank you. It is now my pleasure to turn to this program over to Mr. Chris Dahl, Director of Investors Relations.

Sir, the floor is yours. Thank you, Jay. Good morning and thank you all for joining us. Today we'll be discussing our financial results for the second quarter of 2019. Please review the cautionary statements in our materials, which can be found in our earnings release and presentation. These materials contain reconciliations to non-GAAP measures, along with information pertaining to the use of non-GAAP measures. as well as forward-looking statements about Fifth Third's performance. We undertake no obligation to, and would not expect to, update any such forward-looking statements after the date of this call. This morning, I'm joined by our President and CEO, Greg Carmichael, CFO Typhoon Tuzun, Chief Operating Officer Lars Anderson, Chief Risk Officer Frank Forrest, and Treasurer Jamie Leonard. Following prepared remarks by Greg and Typhoon, we will open the call off for questions. Let me turn the call over now to Greg for his comments.

Thanks, Chris, and thank all of you for joining us this morning. Earlier today, we reported a second quarter 2019 net income available to common shareholders of $427 million, or $0.57 per share. Our reported EPS included a negative $0.14 impact from the items shown on page two of our release, mostly due to merger-related expenses associated with MB Financial. Excluding these items, our adjusted second quarter earnings were $0.71 per share. Our financial results were very strong, exceeded our previous guidance, and reflect the progress we are making on our four strategic priorities to leverage technology to accelerate digital transformation, invest to drive organic growth and profitability, expand market share in key geographies, and maintain credit, expense, and capital discipline. The strong performance also reflects our continued focus on driving profitable revenue growth, currently managing our expenses, and the improved profitability resulting from MB Financial. During the quarter, we completed the MB financial customer convergence, which represents a significant milestone. We remain very optimistic about our post-acquisition growth prospects, both in our retail and commercial franchises. Additionally, net interest income, fee income, and expenses all performed better than our April expectations. As a result, our adjusted efficiency ratio improved more than 250 basis points from a year-ago quarter to 58.5%. Our net district margin, which includes the expected positive impact from MB Financial, expanded nine basis points and was in line with our previous guidance despite the challenging interest rate environment. Net charge offset 29 basis points improved sequentially in year over year, reflecting the ongoing benign credit environment in previous balance sheet actions. Our adjusted ROTCE, excluding the impact of AOCI due to the significant unrealized investment portfolio and cash flow hedge gains, was 15.8% in the second quarter. Before providing an update on the progress related to MB Financial and our key strategic priorities, I'd like to make a few observations about the macroeconomic environment. As I mentioned at a recent investor conference, we continue to see a generally healthy economic backdrop. Consumers continue to benefit from a combination of a strong labor market and limited inflationary pressures resulting in strong wage growth. In commercial, clients are being more cautious and have expressed concerns about both current and potentially more punitive future tariffs affecting their growth plans. Due to the higher end-of-quarter paydowns, our loan origination volume was somewhat tempered relative to our previous expectations. However, we continue to have a robust pipeline, particularly in middle market lending, which positions us well for the second half of the year. However, we will not chase long growth for the sake of growing. We are remaining disciplined in our approach to client selection by focusing on the balance between credit quality and profitability. For instance, we continue to reduce our exposure to non-relationship commercial leases and are maintaining a cautious approach to commercial real estate lending at this point in the cycle. Our balance sheet management philosophy of focusing on improved performance through the full economic cycle positions us well for the future. For the rest of 2019, continue to expect generally stable credit quality with potentially quarter fluctuations given the current low absolute levels of charge-offs. Now an update on NB financial acquisition. In early May, we completed the NB customer conversion. We successfully converted the majority of systems less than two months after closing the merger. As with any conversion, we continue to follow up with customers and employees to ensure a smooth transition. We have already completed 46 of the Chicago area branch closures, which consisted of a mix of 5th, 3rd, and MB locations. We will close the last branch related to the transaction by the end of this month. Our best of breed approach throughout the acquisition has been the key to the successful outcomes we have achieved so far. As a result, we have experienced no material employee attrition, 91% of the legacy MB employees who were offered a position with Fifth Third are still here today. We have also not experienced any material customer or client attrition. In fact, the commercial client attrition rate since the conversion has been lower than the MB legacy attrition rate during the past 24 months leading up to the acquisition and has continued to improve over the past two months. During the second quarter, we generated end-of-period loan growth in the Chicago region of more than $100 million and deposit growth of more than $200 million, both increasing approximately 1% from the prior quarter. We continue to receive positive overall feedback from our new MB retail customers. They now have access to near 200 branches, the third largest network in the Chicago area, in addition to advanced digital capabilities, sophisticated wealth, client solutions, and access to our expanded network of over 50,000 fee-free ATMs. We are focused on maintaining the positive momentum in the Chicago market, We recently unveiled a new Chicago marketing campaign that pays homage to both Envy's legacy and our dedication to serving our commercial clients and has been very well received. In addition, we have begun utilizing our next generation branch design in select Chicago locations. We believe we can offer greater convenience and even better customer experience that is more efficient and more automated. We remain very pleased with our progress we have made and are confident in our ability to deliver the financial synergies as previously communicated. We continue to expect to realize the $255 million in annual expense synergies by the end of the first quarter of 2020 and have already completed many of the key expense actions. We will achieve approximately 80% of the runway savings by year-end. We also continue to expect to generate meaningful revenue synergies from the acquisition. We have been pleased with the initial success, generating additional revenue opportunities since the customer conversion. In our national asset-based lending business, we have already generated a robust pipeline of new client relationships to accelerate future growth. Furthermore, we have seen early signs of success leveraging MB's leasing capabilities to provide value-added client solutions across our markets. We continue to expect revenue synergies to generate approximately $60 to $75 million in annual pre-tax income net of expenses by 2022. In addition to the combined power of our enhanced ABL leasing capabilities, we also expect synergies to come from the complementary focus on middle market lending and from deploying Fifth Third's capital markets, digital banking, and treasure management solutions capabilities. We believe that Fifth Third Chicago is now in a significant position of strength that will allow us to generate stronger deposit, household, and revenue growth going forward. But we have devoted a significant amount of energy on the MB acquisition to deliver for our clients, employees, and shareholders, we will also remain focused on executing on our key strategic priorities to produce strong financial results. First, we continue to leverage technology such as our data analytics capabilities to accelerate our digital transformation while continuing to modernize our systems and infrastructure. We are prioritizing investments that improve the customer experience, grow households, and drive further operational efficiencies. We've also made considerable investments over the past several years to modernize, simplify, and rationalize our infrastructure. This allows for faster and more data-driven insights. We're also investing in advanced fraud and cybersecurity technologies. As a top area of concern, our investments include providing alerts and real-time monitoring to detect and respond to threats quickly. These investments have resulted in a year-over-year decline in fraud losses. Second, We continue to invest in our business to drive profitable organic growth. We have made several recent investments in technology and talent to support our growth plans, including key additions to our sales teams and strategic areas of the company. For instance, in middle market banking, we have added key talent in our new geographies, including California and Texas. Also in our corporate banking, we have added positive outcomes from our ongoing investments in both our sales force and technology industries. and expect significant growth in our commercial fee-based businesses going forward. In wealth and asset management, we are focused on leveraging partnerships across other lines of business, as well as in-market RIA and talent acquisitions to maximize revenue opportunities. We have been very successful generating new business and have experienced positive AUM inflows for six consecutive quarters. And in retail, we are successfully leveraging our targeted marketing campaigns and our preferred banking program, to grow households in the massive food segment. As a result of our strategic investments across our retail franchise, we have generated total customer deposit growth of more than 6% over the past year, excluding the benefits from MB, which is significantly greater than almost all of our peers. We leverage our one bank operating model to collaborate across all of our businesses in order to provide holistic client solutions. We will continue to invest in our businesses to diversify revenue and accelerate growth. Our third priority is to expand our market share in key existing markets. Now that we have the necessary scale in the Chicago market, we are continuing to optimize our branch network and our legacy footprint in order to support our faster-growing Southeast markets. By the end of this year, we will have completed approximately two-thirds of the planned 100 legacy branch consolidations and opened 25% of the 100 planned openings in the Southeast markets. Lastly, we are focused on maintaining our disciplined approach to credit, expense, and capital management throughout the company. As I mentioned earlier, credit discipline remains as important now as ever. We are focused on maximizing through the cycle returns rather than generating lower quality loan growth. We have demonstrated our ability to diligently manage our expenses while investing in areas of strategic importance. We remain focused on continuing to generate positive operating leverage. We also continue to allocate and manage our capital prudently. We deploy capital based on what we believe will generate the highest long-term return for our shareholders. I think we'll share more details regarding our current capital return expectations. Our clearly defined set of strategic priorities are designed to enhance revenue growth as well as generate expense efficiencies in order to meet our financial and strategic objectives. I'd like to once again thank all of our employees for their hard work, dedication, and for always keeping the customer at the center. It's because of our employees that we were honored to be named Best Regional Bank by Kiplinger for the second year in a row. They also recognize our next-generation branch design, knowing that it creates a more modern and friendly atmosphere. I was pleased that we were again able to deliver strong financial results. We remain very confident in our ability to outperform through the cycle and create significant value for our shareholders. With that, I'll turn it over to Typhoon to discuss our second quarter results in more detail and our current outlook.