Fifth Third Bancorp

Good morning. My name is Rex, and I will be your conference operator today. At this time, I would like to welcome everyone to the 5th Third Bancorp's second quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Chris Dahl, Director of Investor Relations. You may begin your conference.

Good morning, everyone. Welcome to Fifth Third's Second Quarter 2022 Earnings Call. This morning, our President and CEO, Tim Spence, and CFO, Jamie Leonard, will provide an overview of our second quarter results and outlook. Our Chief Credit Officer, Richard Stein, and Treasurer, Brian Preston, have also joined for the Q&A portion of the call. Please review the cautionary statements on our materials, which can be found in our earnings release and presentations. These materials contain information regarding to the use of non-GAAP measures and reconciliations to the GAAP results, as well as forward-looking statements about Fifth Third's performance. These statements speak only as of July 21st, 2022, and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Jamie, we will open the call up for questions. With that, let me turn it over to Tim.

Thanks, Chris, and thank you all for joining us. With this being my first earnings call as CEO, I'd like to say what an honor it is to follow a great leader like Greg Carmichael. Let's jump right in. Earlier today, we reported a solid second quarter reflecting our focus on profitability, organic growth, and through the cycle returns. We generated record adjusted revenue and maintained our expense discipline, producing adjusted PPNR growth of 11% compared to last year. We extended our track record for strong organic growth, adding new quality relationships in commercial and new households in consumer. And both our recent acquisitions, dividend finance and provide, achieved better originations. Charge-offs remained low. NPAs and early-stage delinquencies approved sequentially. And we saw no decline in the liquidity buffers that our consumer households built during the pandemic. With that said, there is no question in my mind that the economic outlook is blurrier today than it was at the start of the year. Due to the potential forward economic challenges, we are maintaining a prudently cautious view on credit as reflected in our reserve coverage. Turning to the balance sheet, loan growth was solid and diversified across our franchise. Average commercial loan growth was driven by CNI, which included a 1% increase in utilization on revolving lines of credit. We generated robust loan growth in nearly all our corporate banking verticals, and our Chicago, Cincinnati, North and South Carolina, and Florida regions led the way in middle market lending. Average consumer loans grew in almost all categories. Our results include a small benefit from our mid-May closing of dividend finance. We're very excited about dividend as rising energy costs and the trend of homeowners improving their existing homes versus trading up only enhances our market opportunities. Switching to deposits, our second quarter results were in line with our prior commentary, with average balances intentionally down $6 billion sequentially and stable from the prior year, as we focused on margins over volume given our overall liquidity position. We have a very strong deposit base, with a higher allocation to consumer deposits in the stable retail category than any institution that reports as part of the LCR rule. Consumer transaction deposits grew 1% sequentially and increased 7% on a year-over-year basis, driven by continued growth in momentum banking and double-digit deposit balance growth in our Southeast markets. Commercial transaction deposits were down sequentially, partially reflecting the anticipated movement of excess balances to higher-yielding alternatives, combined with some seasonal impacts. As of yesterday, total deposit balances have remained stable since mid-May, despite the Fed rate hikes that occurred late in the second quarter. As a result of our loan growth and deposit pricing discipline, net interest income increased 12% sequentially, or 15%, excluding the impacts of PPP, Jenny May, and the securities prepayment penalty income. As we indicated in the investor conference last month, fees were softer for the quarter, reflecting the impact of market conditions, on debt capital markets, mortgage, and wealth management. I am, however, quite pleased with the strength and diversification of our underlying fee growth engines. In payments, our gross treasury management revenue increased 7%, and credit card spend grew 10%, both compared to a year ago quarter. In capital markets, financial risk management revenue increased 18%, and M&A advisory revenue grew 30%, the majority of which was sourced from existing middle market relationships. In wealth management, despite the market volatility, personal asset management revenue was up 3% year-to-date, and we generated our fourth consecutive quarter of positive net AUM flows. We continue to manage expenses very diligently throughout the bank, reflecting our multi-year continuous improvement discipline, which has funded a significant portion of our organic growth and tech modernization strategies. Looking forward, our proactive actions over the past several years with respect to our minimum wage and other employee retention strategies should provide us a buffer against inflation relative to peers. With respect to capital, we recently announced our 2.5% stress capital buffer requirement from the Fed's stress test exercise, the minimum under the regulatory capital rules. Our top priorities for capital employment remain funding organic growth and paying a strong dividend. We recently announced our ability to increase the quarterly dividend by up to $0.03 in September, subject to board approval and economic conditions. Given our robust loan growth and our desire to run the bank slightly above our capital targets in the current environment, we do not anticipate executing share repurchases for the remainder of the year at this time. While credit quality remains benign, we remain cautious of the impact that the Fed's continued aggressive monetary policy and geopolitical dynamics could have on the economy. Over the past several years, we have built Fifth Third to be resilient and to produce strong results under any market environment. We have been consistent in our strategic priorities and have had the discipline to fund investments in geographic expansion, product innovation, and technology through continuous improvement and pruning non-core businesses. We have continually improved the granularity and diversification of our loan portfolio with a focus on high-quality commercial relationships, and on homeowners, which are 85% of our consumer portfolio. We maintain the lowest overall portfolio concentrations in commercial real estate and in non-prime borrowers among our peers, and 93% of the mortgages on our balance sheet are fixed rate. We have protected NII through a series of actions, including our securities portfolio positioning, adding cash flow hedges to protect the down rate scenario for the next decade, and by maintaining a strong deposit franchise with a focus on primary relationships. Through the dividend and provide acquisitions, we added fixed rate loan origination platforms that will be especially powerful in a lower rate environment. Our allowance for credit losses provides greater loss absorbency than virtually any of our peers. Under my leadership, you should expect us to continue to make decisions with the long term in mind, to hold ourselves accountable to what we say we are going to do, and to invest in product and service innovations that generate sustainable long-term value for customers and shareholders alike. In closing, on behalf of the entire leadership team, I'd like to say thank you to our employees who are listening today. As you know, banks inhabit a special place in the communities where they operate, and with that comes a special responsibility to be a proponent for positive change. You work hard every day to live our purpose, including delivering 8 million meals to fight hunger across our footprint as part of Fit Third Day, as well as positioning us to achieve our new $100 billion environmental and social finance commitment. I also want to thank you for the myriad of small things you do every day to improve our customers' lives. With that, I'll turn it over to Jamie to provide additional detail on our second quarter financial results and our current outlook.