Fifth Third Bancorp (FITB) Earnings Call Transcript & Summary

Good morning, everyone. Next up, on the Friday is Fifth Third Bancorp. Fifth Third Bancorp is a diversified financial services company headquarted in Cincinnati, assets $208 billion. They operate 1,100 full-service banking centers, 2,300 Fifth Third branded ATMs in 11 Midwest and Southeast states, within the Southeast Fifth Third is targeting approximately 25 new branch openings per year through 2025, is on pace to hire 25 middle-market lenders within that region this year. Earlier in the year, the company rolled out Momentum Banking and in June, I believe, acquired Provide, a fintech company serving health care nationally. With us today from Fifth Third on my left, Tim Spence, President, where he leads all the bank's business lines and regions as well as the strategy. Before being named President in 2020, Tim held several roles with Fifth Third's senior leadership. He joined Fifth Third in 2015 as Chief Strategy Officer. 2018, he was named Head of Consumer Bank, Payments and Strategy, responsible for key strategic growth areas such as digital, marketing strategy and fintech partnerships. And Tim was integral in developing Project North Star, and he played a key role in the bank's merger with MB Financial. And then on my far left, Jamie Leonard, served as EVP and CFO, Fifth Third. He is responsible for Finance, Treasury, Business Planning and Analysis, Corporate Tax, Investor Relations and Accounting. Before that, Jamie served as the Chief Risk Officer. And before that, he was Fifth Third's Treasurer. And Jamie joined Fifth Third back in 1999. So thank you both for being with us this morning. I'll kick things off with a couple of questions and then open it up to the audience.

So Tim, I know you spent a lot of time out in the regions seeing customers. Just generally speak to your macro expectations across the different markets and what regions of your franchise do you think today are showing the best growth and strongest growth?

Sure. Happy to do that, Terry. And thank you for hosting us here today in Boston. It's nice to be back in person with so many of our treasured investors. I will tell you, I was a little bit let down when they said it was a fireside chat in New England. I figured there'd be a wood stove up here. But yes, it's behind us here, and I just don't get to see it. So I have spent a lot of time out in the markets this year. I think we're big believers that in times of crisis or uncertainty, people need to see their leaders. So by the end of the year, I think I will have been out for 40 different market visits and I'll have the opportunity to see nearly every region almost every quarter, which has been great. One of the things that's been really valuable about those trips is you get to hear directly from clients and from teams about what's working and what's not working. So this year has been a really strong year for Fifth Third in terms of its core production and new relationship growth. Greg shared in our earnings call we had generated more new commercial and middle-market relationships through the first 9 months of this year than we had in any 1 calendar year prior to that. And if you look at the commitment growth, the third quarter, in particular, was very strong. We've added $5 billion to commitments this year, $3.5 billion of which came in the third quarter alone, complementing what's been a multiyear story on consumer household growth and taking share in the market. If you look at the places where we're seeing the best strength, I think our core Midwest markets have held up really well that we -- the economy recovered more quickly in the Midwest than it did in other parts of the country. Unemployment rates picked back up a little bit faster and the strength we have in industrial and warehousing logistics and otherwise has helped the Midwest economy. The Southeast markets obviously have really robust demographic growth. We're benefiting down there from share gains in places like North Carolina and Tennessee, and North Florida, which have been particular points of strength for the company. And then I think the other real bright spot, I was actually there 2 days ago has been the combined Fifth Third franchise in Chicago, where if you look at the bank plus MB Financial, we're on pace for -- we had a record quarter this past quarter and are on pace for the best year that the combined entity has had at least 5 or 6 years back. So that would predate the merger itself. And the household growth in Chicago has run at 4% to 5% on the consumer side. And while there are a lot of good things about the Chicago economy, I will tell you now that market is not growing its population by 4% or 5% in this environment. So we feel really good about the strength we're seeing there.

And then maybe from a product standpoint, what types of products are showing the strongest growth right now?

Yes. So Jamie is fond of reminding us that you look at the balance sheet, we are a C&I bank. We have a nice balance right now, about a 60-40 between consumer and commercial. But C&I lending very clearly has been a historical strength of Fifth Third. We were I think have been encouraged by both the production and the progress that we're making in growing balances. So we're expecting ex PPP, C&I lending to be up 4% to 5% in the fourth quarter this year. So it's been nice to see some momentum there. The other areas then really have been on the digitally enabled products, Momentum on the consumer side and the Managed services and treasury management. I really do believe that Momentum is the best checking account offering that you can get from a real bank in the U.S. I think we've provided a lot of good disclosure around the future functionality of that product and some benchmarking, but you can go out and validate it. But just a handful of statistics. So since we launched Momentum, we've opened up almost 600,000 Momentum accounts. Through the end of September, we had deposited over $2.8 billion of paychecks early, so people got their pay up to 2 days -- 1 to 2 days early. And our customers have avoided $7 million in overdraft fees just associated with the feature that allows you to bring your account back up to a positive balance before midnight, the next business day. And when you look at the primacy rates, the satisfaction scores of customers, the retention rates who are in the Momentum product, you can just see a structural shift in terms of their relying on Fifth Third as a primary bank. I think we kicked off a little bit of a trend in reporting household growth numbers because we do believe that's an important measure. The challenge is everybody looks at households a little bit differently. So I think a couple of things that are useful to look at as you try to triangulate the growth rates you hear from folks publicly are the amount of direct deposits they process into checking accounts. That's an ACH credit received and match a technical terminology. And there, Fifth Third, depending on the sort of specific period you use to measure it, is either the eighth or ninth largest U.S Bank and the second fastest growing of our peer group. On the other side of the equation, you can look at the debit spend because the money coming into the account then gets spent on the debit cards. And there, again, I think we're the eighth largest debit bank in the U.S. and of all the banks, the fastest growing outside of the folks that are aggregating the fintech volume. And even there, all the folks that come through the fintech partners still don't have the share that we do. So there's been really good momentum in that product and then excellent momentum in the managed services, which we talked about at the Barclays Conference a few months back.

Maybe a question for Jamie, since we're halfway through the quarter. Any thoughts on fourth quarter trends relative to your expectations earlier in the quarter?

Sure. Thanks for the question. The -- it's only a few weeks since earnings, but we have been very busy. The quarter is shaping up to be a strong finish to a record year for Fifth Third. We reaffirm our guidance in terms of the fee growth, the expense discipline, NII. And then loans, as Tim mentioned, production has been really good. What we haven't seen is really an uptick in line utilization, and it's actually moved the other way as we sit here today. So it's -- for us, it was 31.1% at the end of the quarter, it's a dip to 30.7%. We still expect a seasonal uptick at the end of the quarter. But while we're not seeing the drawdowns occur just yet, as Tim mentioned, the growth in the unused commitments and the ability to gather new customers and ability to deliver on the production, we actually finished October a little bit ahead of our forecast. And so we're making up for the lack of line utilization through better new customer acquisition and production. So the quarter is shaping up to be a very solid finish to the year. A few of the things that we have done since earnings, we did execute the buybacks, $316 million, a week or so ago. We did issue the first Category 4 bank to issue a green bond. So we issued $500 million of debt in an ESG-friendly format. And then we did put on about $4 billion of forward starting 3-year received fixed swaps ahead of the Fed meeting just to hedge the risk to a more dovish Fed. And as we sit here today, it looks to be a smarter trade but those start in the first quarter of '22 and will run out for 3 years, so a little bit of downside protection there. And then 2 days ago, we did announce spot bonus for our frontline employees as support and a thank you for a really strong year. It's been interesting just being at this conference the first time we've been in person and the energy that's in the room during and after hours and the excitement last night. That sentiment and mood we've actually been experiencing inside of Fifth Third since April and May, and it's been a key part of what we think has been our success this year is the ability to have all of our people back in the office since May and really push the collaboration and energy around serving our customers. And so as a thank you for our frontline employees, we did announce a $1,250 spot bonus, and that will be a $10 million impact on expenses for the quarter, not concerned about it. It's well deserved and well-earned and we think -- and I was actually visiting some branches on Wednesday afternoon, the day we announced it and the excitement is palpable. So very similar to the mood here.

Maybe 1 more question before I open it up to the audience. Just given the Fed tapering steeper yield curve, what are your thoughts on Fifth Third's excess liquidity and what that could do to the margin?

So we do have a lot of dry powder, and we are very fortunate to be in the position we're in. So for us, we continue to be patient. Obviously, the jobs numbers today are reinforcing our decision that patience is a virtue. We are sitting on -- I think last night, it was $33 billion of excess cash. We continue to earmark 1/3, 1/3, 1/3 across the spectrum of investments, loans and perhaps some deposit runoff over time. But for us, we'll continue to be patient. We would look to see 2% or better entry points before we put the money to work. That's obviously outlook dependent. I reserve the right to change that. I think we've done a little bit in terms of reinvesting the cash flows. And I know from the earnings call, we've gotten a few questions on the investment portfolio yield. And when we look out over the next year, we would expect that yield, the core coupon in that book is high 270s to let's call it, 280 from a rounding perspective. We think just from a cash flow perspective, that yield is going to grind a little bit lower 10 to 15 basis points over the next year. And when you look back over the last 5 quarters, our portfolio cash flows were 17% of the balances. The peer average, if you go back over the last 5 quarters, is 52%. So in 5 quarters, the peer portfolios of cash flow is 52%. Over the next 5 years, our portfolio will cash flow about 50%. So that's how well positioned we are for this environment. And so while it's inevitable that the yield will come down given the rate environment, ultimately, that has afforded us a luxury to really create differentiation relative to peers over the next 5 years with that strong position. So we'll be patient and make sure that we get good entry points going forward.

Any questions in the audience?

Jamie, I just want to clarify in terms of both the loan and the expense guidance. Loans, it sounds like you're obviously starting -- because of lower line utilization, could be weaker than your guidance, but then you kind of said it ramped up. I just want to make sure you're reaffirming your guidance for loans?

Yes. Loans will be as expected. Average loan growth up 2%, commercial and total should be up 3%, consumer up 1%. But the point is, from a line utilization perspective, I know everyone is hyper-focused on line utilization. For us, we've not seen an uptick. But again, as we've joked around when you are measuring line utilization and decimals, you know you're desperate for a green shoot here. So we were 31.3%, then we were 31.4%, and then we were 31.1%, now we're 30.7%. It moves every day, obviously. But we feel very good about our ability to hit our loan guide given the strong production that we're seeing. And as we talked a little bit on the earnings call, the middle market is moving from a line utilization perspective a little bit up. And you're starting to see more investment from the middle market companies, it's the large corporate, corporate banking portfolio that continues to have the capital markets opportunity and capital market exits, and that's where we're seeing line utilization continue to be stubborn. But overall, the balance sheet is shaping up for a very nice finish to the year.

Yes. I think we -- 1 of the things that is a little bit unique about our guidance is it's been pretty consistent since the beginning of the year. If you look at where we were at in terms of January and where we'll finish up, I think we have been less optimistic than others, that we would see a big rebound in line utilization. And the byproduct of that is we have been very, very focused on getting home through production. And that, I think, shows up in the strength of the numbers. But it also is going to serve as a little bit of a coiled spring because when utilization does return, it's going to be on a broader base in terms of our C&I portfolio.

Similar question on expense. Is the $10 million frontline bonus included in your stable...

The $10 million was not included. But within our guide of stable to up 1, there's probably room in there to absorb that. Maybe it will be a little bit higher than that. But overall, we felt it was the right thing to do to reward the frontline employees.

We were informed at the tail end of the summer that 1 of the not-large sort of best recognized national customer satisfaction groups have gone out to do a survey of individuals and small businesses and to ask them who they felt best supported them through the COVID pandemic and Fifth Third finished #1 of the top 25 banks. And that is entirely a testament to the frontline folks who -- for whom their return to office was the first day after the lockdown and who were responsible for us keeping the branches open -- 99% of the branches open throughout the entire pandemic and who had to adapt to prevent any sort of disruption as we lost access to some of our offshore resources in the second quarter of last year and otherwise. And it just felt appropriate in a year where we're going to have record earnings for the bank to make sure that we were making that benefit available to everybody that everybody would benefit from.

I had a question about interest rate sensitivity. Your comments about keeping some dry powder, and like would like to put it to work as rates move above 2%. We've heard that from bank after bank after bank. And I'm just curious in your ALCO Committee, is there a healthy debate about -- it seems like the accepted consensus is rates have to rise, curve is going to steepen. Is there any healthy debate that gives a contrary opinion? And if so, what would be the logic behind that?

So it is a great question, and it is a very interesting topic. It is heavily debated. And I think what people don't appreciate is the fact that we're not moving is probably the biggest decision we've made as a company in the past couple of years. Had we moved back in the third or fourth quarter of last year, we could have put $10 billion to work and we would have lost about $1 billion of value. So our patience has paid off. The contrarian view would be that rates are going to be range bound for an extended period of time. And if you're targeting 5 to 8 years on duration and where you're putting money to work, if you think rates are going to be range bound between 150 and 160, you might as well just put the money to work now. So that's the contrarian view. Our view would be that GDP growth is going to continue, inflation will be elevated but manageable within the environment. And therefore, with the Fed tapering, the curve should steepen. The news this week from the Bank of England was not helpful because now you have a little bit more buying power from overseas coming in. And that's why we toggled a little bit on would we like to see the 10-year at 2% or entry points at 2%? We have been a little bit fluid there. But we still think there is more momentum for the curve to steepen than there is for it to remain stubborn and range bound in the 150 to 160 range. And that's why we'll be patient. If our view changes, we'll put the money to work and generate the appropriate returns. But until then, we still think it's 1 with the luxury of the investment portfolio of how it's positioned. And then 2, the fact that a little bit of movement in rates can have a significant impact on value creation and it's better to wait.

The rationale is that you think the economy is going to strengthen and inflation is going to remain elevated. Because on the other side of that equation are sort of the supply-demand mechanics of treasuries. And if you've got a smaller deficit, [ a Fed ] that's still tapering and you got a banking system with trillions of dollars waiting to put to work. Isn't there a cap on rates?

We've debated that in terms of would the -- even the government put a cap on rates like they did decades ago. Our view is that the Fed could get to a 2% level on the front end over a period of years, but probably not much higher than that. And that's 1 of the reasons why we target 2% as an entry point.

Jamie, on the loan growth commentary. I hear you that larger corporate is still seeing more of the paydowns. I got to believe that you also expected a fair amount of paydowns still to be going into the capital markets or refinancing in the capital markets. Is there anything else behind what you're seeing on the corporate side? Are you seeing any impact from pullback in CapEx plans given supply chain concerns or inflation concerns? Is that -- are you seeing any erosion in demand tied to that at all?

Thanks, John. The interesting part within the large corporate book has been vertical by vertical because each industry is going through this pandemic and coming out of it in a little bit different perspective. Obviously, everyone's seeing the challenges with dealer floor plan and some of these other industries that there's just no line utilization whatsoever. On the flip side, within our CMT vertical and infrastructure projects, we are seeing a lot of activity and a lot of growth, and that's been 1 of our strengths. The health care sector let alone the Provide acquisition that we closed on in August, production there continues to be very strong. So it's really more industry dependent in terms of the activity than I've seen in my career as opposed to the rising tide lifting all boats. This is more what is your area of specialty and are you seeing that? And so a lot of times, leasing can be the bellwether for CapEx. Our leasing business has done well, but it's not at record levels like we would hope to see in an economic rebound. But things from a balance sheet perspective are going very well in a challenging environment. And for us, we believe we've reached that inflection point in the third quarter, and we've turned the corner on loan growth. And from here, we'll be able to grow loans ex PPP, at least in the fourth quarter, at 2% level, and we'll see what next year holds for us.

I'd tell you, the shift in tone we're hearing -- I'm hearing when I go out and meet with clients has been sort of interesting over the course of the past handful of months because I think there was a belief that as enhanced unemployment went away that you would see a return of the labor force and that the supply chain issues would be transitory and we would get ramped back up. And our states between the Midwest and the Southeast moved out of enhanced unemployment much earlier than the rest of the country and the labor force didn't really return, right? And we've all waited patiently for the F-150s that are parked in the NASCAR track down by Sparta, Kentucky to go away. My understanding is there are animals living in them now because there still aren't microchips that are available, right? And I think what's happening is our customers hate losing sales because they either don't have the capacity in the labor force or the components to be able to get them. And I'm now hearing people start to talk about how do I invest in technology that allows me to make do with less labor, right? So can I put more robotics into my warehouse. Can I look at the way that I tool my assembly line a little bit more differently, right? Can I think about what portions of my supply chain that I internalize and build on my own or how I can help invest to develop domestic supply lines as opposed to needing to rely on overseas? And that will be a catalyst. It requires more planning obviously than just allowing your inventory levels to come back up. But we just have come to believe that there are going to be more people exiting the workforce in the next 10 years than there are going to be people coming in out of school. That's the demographic reality we're facing. And all of our clients are going to have to figure out how to navigate that, and that will require investment.

Fifth Third is unique in going from 90% on-premise to 90% off-premise over the next 5 years. What happened that caused you to have this revelation? I mean, is it advances in technology or review of your own internal businesses? And what could happen that 5 years from now, you say, "Whoops, we made the wrong move"?

Yes. So when people start with Fifth Third is unique, that's normally not the thing they follow with, Mike, but I think you're right on that particular point. We're unique in another way. We're the only bank who's Chairman and CEO was a Chief Technology Officer at 1 point in his career, right, and who drove -- personally drove the transition away from mainframe computing and on to more distributed models than otherwise. And it absolutely is developments in technology. It's developments in the vendor community. It's your ability to project your cyber perimeter, right, consistently across both on and off-prem environments. And it is a byproduct of basically a ground-up rearchitecting of the way that we run our data and our network. So it gives us a lot of flexibility, a lot of scalability. It enables us to pool scale with other folks who are making use of those centers, and it doesn't come with any sacrifice in our ability to project our cyber perimeter. So it just made sense to us, and I think we have the benefit of Greg's vision and leadership and experience in navigating these sorts of transitions along with a really good technology team.

So as a follow-up, how many fintech or big tech partners do you have? How many do you think you'll have in the future? And how do you select those? And why do they select you? Yesterday, we had a bank present, they want to be the fintech partner of choice. How do you become that [ versus that ] firm?

Yes. That's a moving target. I had somebody remind me that at 1 point, the stagecoach counted as technology in financial services, right? I mean, if you look at the fintech partners and you include everybody who is a core platform provider, it's a really large number because we obviously have a long-standing relationship dating back to the Midwest Payments and then Fifth Third processing with folks like FIS. We have had a great relationship with folks like Paycor who provide payroll services, folks like Bottom Line Technologies who've helped to power some of the things we do in ePayments and otherwise. But if you think about the fintech partnerships as really being limited to either distribution channels, so places where we are doing business with people to distribute our products and services or products, which I think is probably a more relevant measure. It would be about a dozen that I would say we count as being really strong deep partnerships. This is a strategy we've been working on since 2015. So Greg has often talked publicly about the philosophy being by partner build, which is an actual orientation toward where there's something that's available off the shelf, we just want to go out and buy it. And it's been supported by what I think is a little bit unique in that the bank has had a multiyear exclusive relationship with QED Investors, who I believe are still the most active fintech venture capital firm in the U.S. in terms of deal count. And they have been instrumental in helping us to gain access to the ecosystem of fintech companies and to get an early look at them as they're growing. That ironically is how we found Provide. So we were a Series A investor in Provide in a round that I believe QED-led in 2018, we were able to then watch Provide grow and develop. We're able to pilot the concept that what Provide was doing could become a relationship business. And having about a year's worth of data that 2/3 of customers who originated the loan also became deposits or payments clients or both. We made the decision to bring Provide in-house and to acquire the business outright. So it is a critical part of our strategy. With that said, I think we are very deliberate about making sure that the things that are core to our business are things that we're proficient at building and managing in a differentiated way on our own.

You guys have consistently said that as far as usages of capital, that traditional bank deals are a lower priority. And we've obviously watched this year as a lot of your peers have done acquisitions. And just wanted to ask you to kind of talk through just capital priorities. You've told us about getting to 9.5% by midyear next year. But just like why or why not are bank deals such a low priority for you guys versus other peers? And how are you seeing better uses of capital, if not?

Yes. In terms of the first part, with -- what we've been doing with capital, I think this year, it's been an active year with the buybacks and pulling down our capital levels, including execution last week. We had the dividend increase as well. And then we spent some of our capital on the Provide acquisition. So it's a little bit of something for everyone in terms of buyback dividend and fintech investment. And so we think those -- that lineup and really using capital for organic growth and Tim has talked about the coiled spring within the unused commitments and line utilization, when that goes, that will be a nice use of capital. We monitor our RWA, and I'm always a little surprised we don't get more questions on the earnings call around that because you can see in the risk-weighted assets that unused commitment growth, it's there, it's real. It's $3.5 billion in the third quarter alone. So that would be my #1 priority for the use of capital's organic growth. But then -- and I do think we'll see nice loan growth here in the fourth quarter. And then from there, the buybacks, the dividends, the bolt-on investments, whether it's fee business or loan origination platforms, and that has worked out well for us in the capital markets space and the health care M&A advisory as well as the loan origination platform. From there, then you have bank M&A and turn it over to Tim for his thoughts.

Yes. I think we don't see consolidation as a strategy in and of itself. We see bank M&A as a means to achieve an end, right? So we've been pretty clear strategically about what we think we need to accomplish. We want to continue to rebalance our footprint so that we have a heavier share of our business coming from our Southeast markets. We want to continue to invest in differentiated product offerings and really drive the transformation of our product offerings in the digital environment. And by that, I mean more than just enabling people to do things themselves on our mobile app or making e-commerce a viable channel, truly transforming the product value proposition like we have with Momentum or our expert in AR and AP offerings. And then we talk about the modernization of the core. And you have to view M&A opportunities through that lens, do they enable me to achieve those objectives in a mechanism that is superior to my ability to invest in them organically. And I think when you look at the opportunities that have been out there, that would be out there for a Fifth Third, we just don't see anything that does a better job of what we can do today on an organic basis. So that's the reason that we're as focused as we are on organic growth and on bolt-ons to continue to accelerate 1 of those 3 priorities.

And maybe a question on looking out into 2022, are there expense opportunities out there? Should rates stay where they are, utilization rates stay low? Or has most of the low-hanging fruit been picked?

Yes. And that was 1 of the updates we wanted to make sure we got across in the October earnings call, which is we're highly confident in our ability to deliver $125 million of savings from the lean process automation, the branch consolidations, vendor negotiations, you bundle it all together, $125 million. We're highly confident. And then the wildcard continues to be what is the environment that we will be operating in in 2022 to determine how much of those savings do we reinvest into the business. Obviously, technology and digital expansion of products has been a big focus for us. That will continue, and that's been at a low single-digit growth rate, that will continue next year. That will utilize some of the savings. And then from there, we've been very successful in sales force expansion both in the Western markets as well as in the Southeast. So with the backdrop that we talked about from a rates perspective, we do expect 2022 to be a nice recovery year within the U.S. and good GDP growth, that would make sense that we continue on that sales force expansion play and take advantage of the opportunities ahead of us. We do want to improve our locational share in the Southeast, opening 25 de novos a year. So when you add it all up, there are some good opportunities to reinvest those savings. And so we'll wait and give the guide on expenses on the January earnings call. But those are the things we're factoring in order to determine how much of those savings do we reinvest.

I think if there's 1 thing that we've been consistent about, it has been the discipline we've had around managing expenses. And when we say we're committed to positive operating leverage, we are committed to positive operating leverage. And I think we're 1 of a very limited number of banks who have been able to deliver that this year. And we recognize as a team that it's not prudent to allow your expense growth to float up in an environment where revenue margins have been coming down. So I think we feel very pleased with the way we have been able to toggle how much we choose to invest, where we choose to invest it and to be creative about finding things that become less important as other things become more important to enable us to hold the line on expenses while continuing to invest in the business on an ongoing basis.

Follow-up, you seem very positive about the outlook for loan growth. Can you unpack that a little bit in terms of expected inventory build? I mean, when do you expect the supply chain disruptions to end capital expenditures and maybe private versus public companies?

Yes. I mean, I think the point that Jamie made earlier, Mike, is the right one, which is it really is sector dependent, right? I was with 1 of our clients who is an electronics manufacturer, and they're having an inventory problem. I said, "Oh, it's chips," and he said, "No, it's not springs," right? So that company feels fairly confident they're going to be able to get springs in or at least substitute some other form of buffer, and will be able to build inventory. In other places, we have an outstanding long-term client in Columbus that's in the home maintenance and repair business, where it's going to be a lease line, that's the catalyst for them to start to borrow. As Jamie mentioned, many of our clients who woke up in an environment that's inherently more digital than it was in the past are continuing to make investments in the infrastructure and the logistics network required to support the business. So I don't know that it's any 1 thing. What I'll tell you is what I continue to hear from folks is they're now looking for more structural solutions to the labor issues and in terms of diversifying their supply chain. So whether it's that or some pent-up demand for M&A among private companies, or the sort of conventional rundown of excess liquidity and a heavier reliance on lending to drive your working capital, I don't know that we're going to see any 1 particular catalyst here.

Just looking for structural solutions...

How do you substitute technology for manual labor? How do you internalize component supply? So you are actually building things [ otherwise ]. I think 1 of the trends in manufacturing over the course of the past 30 or 40 years has been to try to run the business as asset light as possible in an effort to boost ROEs. And there are a lot of privately owned businesses who are looking at that model and saying, I'd rather have more control over my destiny and the ability to ensure that I have the supply to service existing customers when I need it, even if it means I need to carry more assets on the balance sheet and make use of bank debt as a mechanism for funding.

That provides an opportunity.

Absolutely. Yes. Yes, absolutely.

And that's part of what we've seen in the third quarter, where the middle market, if there is 1 green shoot from a lending perspective, it has been that middle market reaching the inflection point on line utilization and then the production levels continuing to grow in above pre-pandemic levels. So that part of the business has performed well to date, and we expect that momentum to continue.

And then just -- sorry, 1 quick follow-up on the tech side. What made you decide to go -- to update the core system? I know you have -- some of your midsize competitors have elected to stay with the legacy systems and core systems to rely on Middleware to advance, but you made the decision to update the system. Just what drove that decision versus others?

We're fighting over who's going to take that question, John. So I'll give -- from a finance perspective, the ability to drive out costs long term, obviously, not short term, is more expensive in the short run, is important to us and the speed to market at which we make product changes and the ability to get products to market faster is very important. And then ultimately, the ability to link the data across the systems, across the platforms and come up with better solutions and you look at -- we really didn't touch on it yet today, has been the rollout of MyDay across all of our branches, right? And so we're taking a lot of data. We're feeding it into 200 different algorithms, and then we're lining up for our branch personnel, who are the customers they should be calling in order to help them with our assessment of what their next financial need is. And so when you update your deposit platforms, you're going to get the ability to service your clients better. And so we're just at the tip of the iceberg when it comes to our customer recommendation engine in MyDay, and that's 1 of the many benefits. Obviously, there are others.

I think 1 of the interesting things about our sector is if you look at tech investment as a percentage of revenues, it's remarkably consistent across banks. So the objective in that environment is to be able to spend more on front-end application development and less on back-end maintenance and compliance updates for -- to incorporate reg changes and otherwise. And as Jamie said, not only are we going to get a benefit here of eliminating manual processes, which improves quality and consistency, better links the data and otherwise, but we're going to be able to spend more of the roughly $700 million that we spend in technology on front-end application development modernizing products and services, keeping pace as we see new innovations in the market.

With that, we're out of time. I apologize. Thank you very much, Fifth Third. Next up is Wells Fargo.

Thanks, Terry.