Fifth Third Bancorp (FITB) Earnings Call Transcript & Summary

We're very pleased to have with us kicking off this morning. Fifth Third. And to my immediate left is Jamie Leonard, who many of you, of course, know Executive Vice President and Chief Financial Officer. Jamie has been with the bank since 1999 and has held various roles over the years in treasury and Chief Risk before he assumed his current role as Chief Financial Officer. To his left is Bryan Preston, Executive Vice President and Treasurer; Brian has been with the bank since 2003, and he's been Treasurer -- or in the treasury department since 2013. What I'll do is I'll hand it over to Jamie for some opening remarks, and then we'll follow that up with a fireside chat. Jamie?

Thanks, Gerard, and good morning, everyone. I hope you're all doing well. I've always enjoyed coming to BAABs since it gives us an opportunity to dive a little deeper into selected topics. And so we'll quickly get through a few prepared remarks, a couple of slides to highlight a few things that we found most interesting given the environment. We believe great banks distinguish themselves not by how they perform in benign environments but rather by how they navigate challenging ones. This belief informs our priorities of stability, profitability and then growth. which is evident in our results this year and our balance sheet strength. We have spent the past decade positioning our balance sheet to deliver strong through-the-cycle results. Moving to Slide 4. Great deposit franchises don't happen overnight. They are the result of consistent strategic investments, product innovation and years of hard work to deliver meaningful relationship growth. As we highlighted on our third quarter earnings call, we generated 4% average deposit growth compared to the year ago quarter versus the 5% decline for the industry. New relationship growth remains strong, Consumer households grew more than 2%, led by the 6% growth in the Southeast, a continuation of our multiyear growth pace. In commercial, our new middle market relationships added this year are setting a new record and remained 25% ahead of last year's previous record. One of the data points we are most proud of is that this year, Fifth Third maintained or improved our market share rank in every single one of our 40 largest MSAs. In our Midwest markets, we maintained our #2 overall position behind JPMorgan. In our Southeast markets, we've added the second most new branches over the past 3 years, again, behind only JPMorgan. These market share gains are the byproduct of multiyear strategies that are not easily replicated by competitors. These include operational deposit-oriented product solutions in our treasury management business, momentum Banking and consumer, AI-driven customer acquisition strategies, and a top quartile customer service model in addition to our investments in new branches. We are just 4 years [ new ] from opening our first next-gen branch and have reached or are approaching our target locational share in eight of our original 11 Southeast focused markets. Moving to Slide 5. Our consumer deposit franchise has really shined since the March Madness. We have benefited tremendously from the consistent multiyear investments in the franchise and our focus on providing the best products and services to our customers. We intend to continue to invest in our Southeast footprint and plan to open 30 to 35 branches per year through 2028, at which time, nearly 50% of our branches will be in our Southeast markets. Momentum Banking has proven to be a significant driver of our annual household growth and momentum customers have benefited from ongoing product upgrades roughly every 6 months. Our next enhancements include a simplified account and payroll direct deposit switching experience and SmartShield, a proprietary suite of services designed to help customers protect against cyber fraud that also includes dark web monitoring. We've also heavily invested in our decision science capabilities over the past decade to enhance internal decision-making and provide a more tailored customer experience. Our customer recommendation engine has empowered us to both deepen and retain relationships, which shapes roughly 1 billion annual customer interactions across all of our channels. Within that, our MyDay portal gives our retail employees an easy-to-follow dashboard with the top actions they should take every day. These are personalized recommendations tailored to the customers' needs. MyDay helped improve retail banker productivity by 25% since it was launched and is the same analytic engine, which drives customized content in all of our digital channels. By leveraging technology to provide solutions that meet customers' needs, we've grown and deepened relationships over time. Moving to Slide 6. From a credit risk management perspective, we have continually improved the granularity and diversification of our loan portfolios through a focus on generating and maintaining high-quality relationships. As many of you know, we tightened underwriting standards during COVID, which limited our growth but improved the stability of our balance sheet. In commercial, we have maintained the lowest overall CRE concentration as a percent of total loans relative to peers for many years. Our criticized nonperforming and delinquent CRE loans have all improved sequentially and remain very well behaved. And within that, the same is true for our office exposure. Criticized office loans represented just 5.4% of total office CRE, which improved 180 basis points sequentially. Additionally, we had zero delinquencies and zero charge-offs in our office CRE book last quarter. We also decreased loan balances by 8% in the office book without any loan sales. These credit quality metrics are significantly better than peers who reported their office exposures for the third quarter. In consumer, we have maintained one of the lowest overall portfolio concentrations in non-prime consumer borrowers among our peers and have maintained conservative underwriting policies. We have also focused on lending to homeowners, which is a segment less impacted by inflationary pressures. Our credit resilience in our commercial and consumer portfolios highlights our proactive risk culture. Moving to Slide 7. We thought this was a good example of our commitment to provide transparency in how we provide our outlook and our balance sheet risk positioning. This slide compares Fifth Third's and our peers' actual NII outcomes relative to their third quarter of 2022 rate risk disclosures. Over the last year, as rates increased 225 basis points, the absolute variance of our NII results compared to a 200 basis point ramp scenario was the most accurate among peers. Moving to Slide 8. Another area which we have been extremely transparent is in our approach to managing the securities portfolio, including our economically driven decision to allocate 100% of our bond portfolio to available for sale. Given our bullet and locked out cash flow structure at 63% of the total portfolio, we continue to expect improvement in our unrealized securities losses resulting in approximately 35% of our current loss position accreting back into equity by the end of 2025 and approximately 2/3 by 2028, assuming the forward curve plays out. This accretion translates to nearly 25% growth in our tangible book value per share, assuming no share buybacks or earnings benefit by the end of 2025. In summary, with our proactive balance sheet management, disciplined credit risk management and commitment to delivering strong performance through the cycle, we believe we are well positioned to meet the proposed regulatory requirements while continuing to generate long-term value for our shareholders. Our multiyear focus on growing a diverse portfolio of fee businesses should enable us to perform well in different economic environments. We've demonstrated the ability to consistently make strategic investments necessary to generate strong long-term results while maintaining peer-leading expense discipline. Finally, we have established a track record of making proactive decisions to improve the business, and we pride ourselves on our transparency with respect to risks, uncertainties and opportunities for the future. With that, Bryan and I are happy to take your questions.

Thank you, Jamie. We'll get the questions in the second. Maybe if we step back for a second, banks, as we all know, are products of the economy. Can you guys give us what your current thinking is on what's going on in your markets economically? And is there any thinking that we could likely have a recession maybe in the next 12 months or so?

So our outlook is pretty well aligned to even the Moody's base scenario, which includes a slight uptick in unemployment, call it, 0.5 point assumes that the Fed holds rates flat at $5.50, which now certainly looks to be more like the path we are headed now. And overall general tightening conditions that will lead to slowing GDP growth, but not a recession and not negative GDP. With that said, our actions are one of being perhaps more cautious than that outlook. Our motto internally is prepare for the worst and hope for the best. And so that's what we've been preparing for is that perhaps there is a recession on the horizon, and therefore, the decisions you're making today on credit and one of the drivers of our improvement in the liquidity profile of the balance sheet is that we really believe we have a strong balance sheet and those with strongest balance sheets are going to be best positioned should the environment turn. I think the downside to our approach in full transparency would be that we'll be giving up a couple of points of growth along the way, predominantly in loan growth, but then that would carry with it, perhaps a little bit of opportunity on fees that we wouldn't capitalize on. But we think that is a much better approach given all of the uncertainty in the environment right now. When you look out at how things are playing out, there's such a wide range of outcomes that could occur, unlike prior years where we may have had very strong conviction on what was going to happen, and we positioned the balance sheet that way. Today, we're have worked really hard to try to position the balance sheet to perform well throughout a wide range of outcomes and whether that's our asset sensitivity or neutrality and the credit decisions. liquidity, the deferment of buybacks, we've just continue to be cautious just given that it's a very wide range of things that could happen.

Very good. We hear a lot about the onshoring of America more activity in the Midwest. Ohio seems to be ground zero possibly for that onshoring. Obviously, the Intel plant on side of Columbus is the big news. Can you share with us, are you guys seeing any increased activity in your legacy markets due to this onshoring?

Yes, I'll give you both the positives as well as one of the concerns. So for our footprint, call it, 11-state footprint, our footprint is going to get far more of its pro rata share of government investing and even private investments on the capital projects that have been announced. Our footprint will get 33% of those projects. So to the good, yes, that activity is happening. It is certainly bolstering middle market companies, manufacturing companies, we see that in our book. The one concern that we're seeing is that the speed at which the projects were being initiated, getting to decision and starting has been slowing. And Tim talked a little bit about that on the earnings call, where companies are being a little more cautious in their willingness to deploy capital expenditures. But in addition to that, the process with the different state and local governments is also taking a little bit longer. So we are seeing a little bit of an extension of that process. So that will continue. Over time, there will be benefits, and that's certainly a very real tailwind. But again, it's perhaps a slowing tailwind.

If we touch on credit for a moment. Obviously, you purchased dividend finance back in 2022. One of your peers has exited the solar panel financing business that's obviously in the wheelhouse of dividend. Can you share with us -- and there have been any surprises on credit? Or what's your views on that business? And how has it gone since the acquisition?

Yes. I mean the business has gone very well. We're very happy with what we've been able to do, the business we acquired. Dividend was a business that was founded around solar lending. And so everything that it is done. It's technology, it's underwriting, it's processes, it's installer management program. All of those things were focused on being successful in dividend or in solar lending. Solar lending, it's not a hobby because there are unique risks to it relative to other asset classes and in particular, some of the home improvement lending that others may have kind of built their businesses around. More so than a lot of asset classes, and solar management is incredibly important from a solar lending perspective. The quality of installation is a huge driver of credit performance. And so you do want to make sure that you've got the right installers in place. And dividend has a very robust installer management program. and something that we've enhanced since they've become part of an OCC-regulated bank. The product structure is one also that is well designed for solar lending. This is not a product where you want to have a long period no interest, no payments and then all of a sudden, moving to significantly higher interest rates. It's a product where it has to be underwritten to the cash flows ultimately that the customer is going to save and it creates a net cash flow savings for them. Overall, there's -- the credit continues to perform better than we expected from a solar perspective. charge-offs right now are running sub-1%. We modeled around 125, 130 as part of the deal model. We were never expecting to actually have as much demand as we've seen. The market opportunity created an opportunity for us as a bank with a stable funding profile to significantly up-tier the quality of the installers as well as some of the other competitors in the space were running into some challenges because they didn't have the same funding base. And so there's a lot that's been very good product. But it is one, we understand the dynamics in the industry like any consumer credit, especially with a cautious economic outlook. We are making sure that we're staying very close to what's happened, managing things very closely and we're going to deliver good outcomes.

Yes, I would say on the solar, I think what happened a couple of weeks ago was frustrating from our standpoint because it's really apples and oranges. Dividend tech-enabled company focused on solar lending. The other is a home improvement focused company that then branched out into solar. And then obviously, they've reversed course there. But dividend does solar. That is their job, and they are very good at it.

And speaking of just credit in general, you gave us some of the metrics that you guys are measuring on credit, which are quite strong. What's the outlook for credit, if you can expand upon your comments, If you would.

So at a very high level, fourth quarter charge-offs continue to have a guide of 30 to 35 basis points, 2024, continue a 35 to 45 basis points outlook. And we actually have been very pleased with how the portfolio has done. And you've often coached us but when banking is boring, that's a big accomplishment. And right now, from a credit perspective, things are actually fairly boring.

Which is very good. Coming back to your deposit growth, maybe you can expand upon what's going on in this quarter in terms of quarter-to-date deposit growth. And any new strategies to drive momentum even further deeper into your customer base?

Yes. With one month under our belt, from the balance sheet from a loan perspective, we're just a hair under the H8 on an EOP loan basis, which is good, given what we're trying to accomplish there. And deposit perspective, on a quarterly average basis, we're up about 1 point on deposits. So deposit growth continues to be very strong. You want to touch on some of the strategies.

Yes. No, it's really just continued execution of the same things that we've been focused on the retail deposit campaigns that we've been doing continue to perform. The pricing continues to come in as we've seen. Commercial continues to be very strong from an execution perspective. I think that's one of the things that is probably the most different is as we went down this path of an RWA diet, one of our concerns or one of the things that we made sure we were thinking about is that there's a potential we're going to lose some deposits as we're asking some of these customers that, hey, we're no longer going to be a lender to you. And that's actually not what's played out. Jamie has talked a lot about how -- what we're actually seeing is customers coming back to us and saying, "What would it take to stay in the deal and a lot of times, that means more deposits. And we're also finding that in general, that customers are trying to stay fairly liquid, and they want to keep a strong bank group. And so the commercial deposit and just the focus that we've had from an execution perspective has been a big outperformance item for us relative to what we were expecting earlier this year.

When it comes to deposits, the diet is like one of my diets where we are going the other way. But that's okay. When it comes to deposits we'll take it.

Speaking of diet, you have talked about the RWA type of diet. Maybe you can expand upon where you are there and when that might end.

So when we set out on this path, it was driven both by the need to bolster capital. But frankly, it was more driven by our desire to have an incredibly liquid balance sheet and really bolster liquidity with all of the uncertainty in the environment. So our goal was reduce RWA by 1% in the third quarter. We did that. But now the next phase is reduce RWA by 2 points in the fourth quarter. And as Bryan alluded to, we've not done loan sales. We do conversations with customers. And that is a very different approach because when you do a loan sale or other RWA optimization, transaction, you're not having that conversation with the client and you're not giving yourself a chance to get a better share of wallet. Over 50% of the conversations that we're having with clients that at renewal where we say we are going to exit result in the customer saying, look, we do to keep you in the transaction, how about better share of wallet on fees, on deposits. And that has been obviously very helpful as you saw in our third quarter results through October, continuing to outperform from a deposit perspective. So the diet has been very beneficial, not just in the outcomes we're getting, but we'll certainly be changing our incentive compensation plans. We've already changed all of our RAROC internal modeling. The comp plans are poised to change on January 1, 2024, to be driven by RAROC and SBA as opposed to revenue growth and other measures. And we're building a discipline inside the company in the commercial sales force to really focus on what all of you are focused on, which is what's going to be the return we're able to achieve for our shareholders, given all of the regulatory changes and the erosion that will occur from those actions. And the way you can overcome that is through better credit pricing or better share of wallet, and we're working hard on that. So we will finish at December 31, at which point we are poised to then return to growth on the lending side of the balance sheet in January.

I want to come back to deposits, and then we'll go to questions to the audience. QE grew the deposits of this country quite dramatically. Now of course, the Fed's QT is shrinking their balance sheet and taking deposits out of the system. Have you guys seen any impact to your deposits from QT? Or are you really not that impacted versus a large money is in the bank.

I mean everybody has some amount of impact, obviously. And certainly, early in the cycle, one of the biggest impacts is you saw. You did see money that was shifting into the money markets in particular. The wealth customers, obviously being one of your more sophisticated customer bases. That's certainly been an asset class. And we monitor the comings and goings out of our deposit book fairly closely. And as the rates started to move up, we did see an uptick in actually just direct outflows into the treasury direct accounts. So that certainly was a factor that we've seen. And then as we've worked with our customers and continue to make sure that we have the right strategies in place, we've been able to obviously grow deposits even in the face of that. Industry deposits in total have somewhat flattened over the last several months. And that has been a function of it. More money has been coming out of the ERRP, obviously, than at the bank reserves, and so that's one of the reasons that we're thinking about making sure that we stay very liquid and have a very strong, stable liquidity structure to our balance sheet is that when those reverse repo facilities are depleted. There's a question of as QT continues, whether or not that is going to start impacting bank reserves and industry deposits again. So that's certainly something that we're monitoring and paying attention to. But it is one that has -- the industry finally got rates up to a level that we're more competitive with money funds, you've gotten to a point where there has been some stabilization.

Yes. With that, we'll do some questions. Brent, is away from the microphone, Walt will bring it over to you. Thank you.

Probably hear this quite [indiscernible], you looks like a PBS interrview today, you're talking to [indiscernible]

Sorry.

I have just a question on bank M&A. And I was just wondering if the -- first of all, the regulatory appetite has changed given what happened with speed with which they approved Bank Western and Banc of California and PacWest. And second, how do you value a deposit franchise today given what happened earlier in the spring?

So I'll take the first part of that on M&A. I think the challenge on the M&A environment is that -- the regulators are willing to fast track transactions to the extent that it helps alleviate a troubled franchise. But the administration has been a little bit less willing, obviously, with DOJ and other activities. So I think it would be challenging. It's not something, obviously, we're pursuing. We're very pleased with our organic growth and how we're progressing. Even if we were wanting to pursue M&A, though, the rate marks on loans and securities are so wicked, you'd need a 150 to 200 basis point further rally in order for the marks to even be possible. But again, not a priority for us at this time and then on the deposit franchise.

Yes. It's interesting because now I've somehow reached the point where I can say that I've seen multiple cycles. And at one point in time, that wasn't something I could say. But the -- it seems like we learned the same lesson over and over again, which is in these long periods of stable rates or low rate stability that people forget the value of the deposit franchise. And that once again, we've learned that relationships matter. Deposits aren't something that you just -- they're just not wholesale funding that you go out. And the lessons from March were really that just how incredibly valuable retail deposits are and how fickle commercial deposits can be. And that has a huge impact then on how you think about valuing a deposit franchise and it has a huge impact on how we think about valuing relationships. And that's part of what the RWA diet has been for us because it's a recognition that the economics associated with the commercial deposit relationships aren't what we had anticipated pre March madness. They're certainly -- and even beyond that, you've learned a lot about the rate sensitive of your customers as well, being the first time we've seen a significantly higher rate environment. And we're taking all of that into account as we're evaluating these relationships and saying, "Hey, what does it take for us to truly want to extend this credit to this customer? So those are big factors for us. But ultimately, it's the insured granular retail deposit franchise. That's certainly the most valuable franchise that you would be thinking about. And if you're going to pay a premium for it, you better be sure that they have a strong foundation like that. And that's one thing that we feel very good about our business model. We have a very diversified business model. We have a very strong retail foundation from a funding perspective. And so it gives us a lot of optionality as Jamie mentioned the uncertainty. We're not sure what the environment is going to be, but we know we have a lot of different businesses that will help us navigate from a balance sheet management perspective to ensure that we can be successful in a lot of different places. We're just not overweight we're not overweight commercial. That's the spot where you would not want to be right now from a funding perspective.

Mike?

So stability, profitability growth, I got that order, correct?

You do.

Okay. And you said you're sacrificing what like 2 percentage points of loan growth to preserve your balance sheet. Did I hear that correctly?

Yes, that's perhaps against the peer average, but yes. This year, that would be a little bit more given a 3% diet, but yes.

So when the loans don't go to Fifth Third, whereas they would have gone there in the past, where are those loans going today? And for the loans that you continue to originate, are the loan spreads getting wider and how much wider?

Great question. In terms of where loans are going today, the private credit markets clearly are taking share and they're taking share in an interesting way because at least from our perspective, on deals that we are not executing on not deciding to do they're taking half a turn or so more in leverage with looser credit structures, but they're also getting paid for it with wider spreads. So that could play out very well for them or it may not, from our perspective, our risk appetite is not one that we are looking to have large exposures on that type of leverage. What was the second part.

Loan pricing? I mean...

Yes, it's been widening a touch, but not nearly what it needs to widen. So let's call it, 2 or 3 basis points in the second quarter, maybe another 3 to 5 in the third but it definitely needs to go wider as an industry. Part of that, we will accomplish in the RWA diet, but part of it is that all of the banks need to price the cost of capital more appropriately when it comes to lending relationships. And I think the new rules when they get here will enforce a little bit more discipline on that.

So does Fifth Third intent to go ahead and price the higher capital costs when you price new loans?

Yes. We've already implemented that in all of our tools that we provide the relationship managers.

To follow-up on the deposit conversation. You guys talked on the third quarter call about expected increase in deposit costs in the fourth quarter. I think you said 15 to 20 -- and basis points. And I'm just wondering that split between retail and commercial when you think about getting to terminal betas and how much that might lag if, in fact, this might be the last hike, how do you think about the difference of the sides? Has wholesale and wealth already fully moved? And then how do you -- more importantly, inside that commercial base to the point about the stickiness, how do you model that back book latent potential repricing passed the last hike?

Yes. We -- at this point, the most price-sensitive customers have moved, both on a consumer and a commercial perspective as well as in wealth. The majority of the big moves from a commercial perspective have happened as well. So we think that from here, it is going to be more about a consumer story. And it's a consumer story about both a little bit of back book continuation that's going to happen, and that's going to be a very granular repricing that occurs over time and is somewhat predictable as you can look at those trends. It's not the big step changes we had seen as the hikes were occurring. But the bigger dynamic there is probably just going to be continued migration and that migration is more around, in particular, into CDs. We think it's going to continue to be a fairly competitive CD market. And that will be part of the repricing trends. It's just you're going to see more and more of the savings and some of the still low -- we still have some pretty cost savings that will slowly migrate into a couple of other categories as rates stay high. And similar to what we saw back in 2006, we currently expect that, that most of that will continue throughout the period of time that the Fed stays at peak rates. But it is a very measured and manageable amount. And that's where the fixed-rate asset repricing is going to overcome that cost. And so when we talk about both NII and NIM troughs, it is a function of takes about two quarters for the big impacts of the last hike to come through. Then we'll have a day count headwind as we head into Q1. But from there, we're going to be in a position to start growing both NII and NIM. NIM, the wildcard on them will just be the amount of cash that we have. If we can continue to outperform on deposits and be comfortable with what we're paying and sit it at the Fed and a scrape 40, 50 basis off of IOER. That's something we're willing to do. It's NII-accretive, but it's NIM dilutive. But in general, we feel good about the overall profile. It will continue to drift a little bit, but it will be very manageable from here if the Fed is done.

And when you look at our cash position, and we're up to last night, $22 billion in cash. And so on an average basis, we were $13 billion in the third quarter. We're expecting $20-ish billion in the fourth quarter, that alone is the sole driver of the NIM erosion that we have in our forecast, it would be down, call it, 10 basis points in the fourth quarter, all driven by this cash. So when folks will ask when is your NIM trough or NII trough from a NIM perspective, the trough is going to be solely driven by the cash because from a core basis, it feels like we've really already gotten there, but you're just going to see some more erosion on NIM simply from a cash perspective. But with that said, we were able to get our LCR to full CAT 1 compliance on August 31 and everyday sense, and we finished the quarter at 118%, and it's, I'm sure, even higher today. So it's a very liquid balance sheet that there will come a time that we will need to then rightsize that balance sheet and reduce the cash position and have a little bit more level 1, but we need -- really need to have the final LCR rules because there's a lot of chatter right now on what those may or may not include. And so we don't want to make any changes to the profile of the balance sheet until we know for certain which way the balance sheet needs to go. And if we need to have more cash as an asset or more level 1, then we'll deal with that at this time. So, I think we'll end up with maybe a year of some of this excess cash position until the rules come out.

Terry?

I just have a question on investing for long-term outperformance. You've talked a lot about what you're doing in the Southeast with the deposit franchise beyond that, where are you investing in next year when you're at BAAB,What's going to be the next kind of Southeast story or growth story for Fifth Third.

So where we're investing that is a drain on returns today but deliver a better outcome in the future. The de novo obviously, as you mentioned, both provide a dividend in terms of the fintech fixed rate loan engines that we've purchased. You all see it predominantly in the ACL build. That there will come a day when rates decline. And that repricing and that benefit of having that fixed rate engine is going to be incredibly helpful. And we've talked a lot about our platform modernization and the conversion to cloud core. We're well on our way in our journey. Those expenses are in our run rate. They will continue to be IT expense growth in the, call it, 5% to 10% rate over the next few years, but that is going to deliver a much better customer experience and offer more opportunities to innovative products. And you'll see the new features within Momentum Banking here shortly that we're pretty excited about as well. So we continue to make a lot of strategic initiative investments and at the same time, continue to expand the commercial sales force. So treasury management and middle market relationship managers in the Southeast is a big focus for us. And so that will be the story at BAAB next year will be how much further can we push the market share gains and the momentum that we have in the Southeast and have really built out a very strong franchise in the past 10 years or so without acquisition.

Another question back to Mike.

How much does Fifth Third lend to private credit companies or entities. And I know the industry has lent a lot more to private capital companies. And so if you're -- how much are you doing that?

I don't know the exact number, but I can tell you it is not significant, very small.

Okay. So a lot of other banks are looking that as an opportunity and you're choosing not to.

Correct.

So why are you right and the rest of the industry is wrong?

We just don't know how it plays out. And if we don't understand the risks, then we're not going to take those risks when it comes to the credit structure is inherent in the fund, ultimately, what happens should there be a more severe downturn.

Jamie, we're running out of time, but one of the areas that has a lot of investors talking is the unrealized losses in bond portfolio. You've chosen a strategy where the bonds are all available for sale. Maybe can you share with us how you evaluate that thoughts should investors be very worried about those unrealized losses, not just for Fifth Third, but as an industry coment too.

Do you want to take a crack on it since I've tried for 3 or 4 conferences and I failed.

Yes, we are very comfortable with our overall balance sheet position because the bond portfolio ultimately is part of your balance sheet structure, right? And one thing for us is, we have a very asset-sensitive core business. We have a lot of floating rate commercial loan origination. We are very underweight mortgages in our loan portfolio. And so when you think about broad balance sheet management, you do have to have the ability to put some duration on your balance sheet in some spots to make sure that you're managing across a range of outcomes. It wasn't that long ago that we were talking about being worried about negative interest rates, right? So it seems like we forget those things fairly quickly. So because of that, we structured our balance sheet. AFS. We put some duration in the investment portfolio. We try to do it in a very disciplined way, where we minimized extension risk and we minimize prepayment risk because that's one of the biggest risks from an investment perspective is being forced to reinvest at the worst times as many of us are now seeing across the industry as people put huge amounts cash flows from an investment portfolio into residential mortgages at the worst time.

Our bullet and locked out structure means we know when we're gaining our cash flows, and that makes us unique relative to the peers. So when you say should investors be worried? No, absolutely not, they should not be worried. Our securities are going to mature at par. Our cash flows are known and are time certain and AOCI burned down in the improvement in the book value per share are known and absolutely will happen. And therefore, that is why we've continued to pursue the AFS allocation because economically, it gives us a lot more flexibility. And frankly, sitting here right now, I feel very good about the AFS selection until we see the final LCR rules.

Great. We've run out of time. Please join me in around of applause, thanking Bryan and Jamie. And Bank Of New York is up next. Please stay in your seats. Thank you.