Fifth Third Bancorp

Ladies and gentlemen, thank you for standing by and welcome to the Fifth Third Bancorp Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to Chris Dahl, Director of Investor Relations. Please go ahead.

Thank you, Denise. Good morning and thank you for joining us. Today we'll be discussing our financial results for the second quarter of 2020. 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 Thirds 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 Tazun, Chief Risk Officer Jamie Leonard, and Chief Credit Officer Richard Stein. Following prepared remarks by Greg and Typhoon, we will open the call 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. I'll focus most of my comments on the actions we have taken to navigate this challenging environment and provide some highlights on our strong financial performance this quarter. Typhoon will then provide more details related to the quarterly financial results and his remarks. In light of the ongoing challenges brought on by the pandemic and the heightened civil unrest resulting from the inequities in our country, we continue to prioritize our actions to support our customers, our communities, and our employees. We proactively made over 3 million calls to our customers since the onset of the pandemic to assess their financial situation. In total, we have processed over 150,000 loan deferral and forbearance requests, since the rollout of our COVID hardship programs, or approximately 6% of total loans. More than 35% of those in our consumer deferral or forbearance programs have made one or more payments. Consumer hardship relief requests, including mortgage, declined approximately 85% from the mid-April peak to the last week of June, beginning July 1st, We started methodically transitioning our customers from the COVID hardship programs to a combination of short and long-term options if the customer required further assistance depending on the product type and borrower circumstances. This approach is consistent with our pre-COVID hardship programs. As of the end of last week, more than 50% of the consumer loan deferrals have transitioned off the COVID programs, of which only 12% have requested additional hardship assistance. In total, consumers who have exited COVID programs and requested additional relief represent less than 0.5% of total consumer loans. The declining request, the high percentage of customers who have made a payment, and the small number of customers requesting additional assistance give us confidence in the strength of the underlying credit quality of our consumer portfolio. In addition to providing hardship relief, we continue to support our customers through the Paycheck Protection Program. Due to the tremendous efforts by hundreds of Fifth Third employees, we have successfully originated $5.5 billion of loans, benefiting 38,000 small and mid-sized businesses, which in turn helps approximately 500,000 employees of our PPP customers. Looking ahead to client forgiveness requests, While we are awaiting further clarity from the SBA, we have developed an automated solution which should help simplify the forgiveness process. Ultimately, we estimate nearly 90% of PPP clients will request and qualify for forgiveness. Our top priority remains the health and safety of our customers and employees. While we have kept approximately 99% of our branches open throughout the pandemic, To serve our customers, we continue to monitor developments in select geographies given the recent increase in COVID cases, and we will continue to follow the state and CDC guidelines to protect the safety of our employees and customers. We continue to encourage customers to utilize our digital tools during the pandemic. As a result, we are seeing increased adoption rates with about 75% of all transactions now occurring through our digital channels. Now moving on to financial results. Our second quarter performance was strong. Once again, our results highlight the strength of our franchise and our ability to navigate the dynamic environment and mitigate the impact of lower rates through well-diversified fee revenues and continued expense discipline. We have now generated year-over-year just a positive operating leverage in seven out of the past eight quarters and grew tangible book value per share for five consecutive quarters. We grew common equity Tier 1 capital this quarter despite adding to our reserves and paying nearly $200 million in common dividends. Our CET1 ratio improved 35 basis points to 9.7%. Additionally, our loan-to-core deposit ratio reached a historically low level of 72%, excluding PPP loans. Our strong capital liquidity ratios are indicative of our balance sheet strength which will serve us well as we navigate this challenging environment. With respect to capital, we recently announced our indicative stress capital buffer requirement from the 2020 CCAR exercise of 2.5%, which is the floor under the regulatory capital rules. Without the floor, we estimate our buffer would have been approximately 2.1%. We also announced our intention to maintain our current common dividend per share and continue the suspension of share repurchases through at least year-end. We will continue to provide our Board with the necessary information to make forward-looking and data-driven decisions about the sustainability of the dividend. In terms of credit quality, the net charge-off ratio of 44 basis points this quarter was better than the low end of our previous guidance range, reflecting improvement in consumer and relative stability in commercial. While we do not have perfect foresight with respect to the duration or severity of this downturn, we have consistently communicated our through-the-cycle principles of disciplined client selection, conservative underwriting, and an overall balance sheet management approach focused on long-term performance. While economic visibility remains low, our unwavering adherence to these principles and our balance sheet strength gives us confidence as we navigate this environment. From a commercial client standpoint, we continue to focus on generating relationships with clients who have more diversified and resilient balance sheets, as well as multiple sources of repayment. We've been very successful keeping our client relationships, and as a result, have generated record capital markets revenue in three out of the last four quarters. We believe this composition towards larger relationships will serve us well as our clients navigate the pandemic. In fact, corporate banking clients representing approximately 20% of our exposures successfully accessed the debt and equity capital markets since the onset of the pandemic to bolster their liquidity, including 20% in the COVID high-impact industries. We continue to believe we are well-positioned relative to peers in commercial real estate, an area where we have been deliberately underweight. We have focused predominantly on top-tier developers with a track record of resilience and significantly lower LTVs compared to the last downturn. Our portfolio is well diversified by geography and property type, including virtually no land loans. And as we have discussed before, we continue to be at the low end of peers as a percentage of total capital. It is worth noting that across both of our portfolios in consumer and commercial, we have focused on maintaining geographical diversification through several national businesses, including indirect auto and residential mortgage, in addition to CNI and CRE. Our credit risk is well diversified beyond our retail footprint through these national lending businesses, which will be instrumental in delivering a differentiated credit performance, given the likelihood of an uneven economic recovery. In addition to our deliberate positioning with respect to credit risk exposures, We have also spent many years preparing for a turn in the economic cycle by improving and diversifying both our fee revenues and our loan portfolios, which was evident in the second quarter results. Our PPNR increased 10% from a year ago quarter despite the continued headwinds from lower rates. This reflects a record quarter in capital markets, strong mortgage origination revenue, proactive liability management, and continued expense discipline. Our four key strategic priorities, leveraging technology to accelerate our digital transformation, driving organic growth and profitability, expanding market share and key geographies, and maintaining a disciplined approach on expenses and client selection remain intact. Clearly, in this type of environment, we are putting the appropriate level of focus and prioritization on the initiatives within those four priorities which have the highest probability of driving long-term financial success. Before I turn over to Typhoon to discuss our financial results and outlook in more detail, I would like to once again thank our employees. I am very proud of the way you have responded in extraordinary ways to support our customers, our communities, and each other during these unprecedented times. With that, I'll turn over to Typhoon to discuss our second quarter results and our current outlook.