Speaker 1: Now on SOCC we're watching this morning Fifth third Bank Corp.
Speaker 1: The company meeting deposit expectations in the third quarter as
Speaker 1: it focuses on stability. The bank is also keeping its
Speaker 1: focus on expanding to the southeastern United States. Joining US
Speaker 1: now is Tim Spence, Fifth Third Bank Corp. Chairman, CEO
Speaker 1: and President. And you know, a lot of investors have
Speaker 1: their eye on your market right now. Things seem to
Speaker 1: be improving and holding stable in terms of that interest
Speaker 1: income you're bringing in, but you're also looking to expand
Speaker 1: you're looking to grow at this point in time. According
Speaker 1: to Bloomberg's own estimates, the expense ratio just a little
Speaker 1: bit more than expectations. How do you Tim set expectations
Speaker 1: for investors on the growth rate you're putting forward.
Speaker 2: Sure, and Shanelli, thank you for having me on this morning,
Speaker 2: and I have been looking forward to chatting with you folks.
Speaker 2: I think from my point of view, the way that
Speaker 2: you run a really great regional bank through the cycle
Speaker 2: as you focus on stability, profitability and growth in that order.
Speaker 2: So last year was an important proving ground with the
Speaker 2: challenges in liquidity that face so much of the sector.
Speaker 2: If Third had a very good run in that regard.
Speaker 2: I think we grew deposits by five percent year over year,
Speaker 2: and the industry was down three The profitabilities remained really strong.
Speaker 2: We have the highest roe of any of the banks
Speaker 2: that have reported thus far, at least in our investor
Speaker 2: peer group, and it's been the most stable over the
Speaker 2: course of the past year. And the byproduct of that,
Speaker 2: then is you get to focus on growth. I think
Speaker 2: we have tried to be really diligent about maintaining consistent
Speaker 2: expense growth. It's been the lowest of any of our
Speaker 2: investor peers over the last five years on an organic basis.
Speaker 2: But during that time we also been making big investments
Speaker 2: in the franchise, principally in the expansion into the Southeast.
Speaker 2: The investments that we continue to make in our commercial
Speaker 2: payments platform and then our own internal technology projects, and
Speaker 2: those things are important. You have to do them over
Speaker 2: time because in a market that is as competitive as
Speaker 2: the US banking system is building a competitive moas a
Speaker 2: little bit like digging a hole in sand. If you
Speaker 2: stop digging, it fills in a little bit. So we
Speaker 2: will continue to be focused on making and investments and
Speaker 2: strengthening the customer value proposition, expanding the reach and ensuring
Speaker 2: as we enter into what I think may be a
Speaker 2: pretty favorable environment for banks next year that we are
Speaker 2: positioned to benefit from the grandw.
Speaker 1: No, I want to go back to what you were
Speaker 1: saying about that Southeastern expansion. Guys, this is a Cincinnati,
Speaker 1: Ohio based banking I know it. I know Matt Matt
Speaker 1: loves Ohio of course, from of course, I know we got.
Speaker 2: A fellow Ohio and the Ohio.
Speaker 1: So that Southeast expansion, I'm really curious about how you
Speaker 1: go about it. Is this a matter of investing in
Speaker 1: different branches and more people, or do you see yourself
Speaker 1: making an acquisition at any point in time as you
Speaker 1: make your expansion across the US little more.
Speaker 2: Sure, the focus four fifth third really has been on
Speaker 2: building out existing markets organically. We entered the Southeast in
Speaker 2: South Florida specifically as far back as thirty years ago,
Speaker 2: and then the bank did make a series of acquisitions
Speaker 2: in the early two thousands that provided the initial entry
Speaker 2: point in the platform. But all of the growth that
Speaker 2: we have benefited from over the course of the past
Speaker 2: few years has come from organic investments, either in building
Speaker 2: out our retail branch network, or in the hiring of
Speaker 2: experienced middle market banking and wealth management teams to ensure
Speaker 2: that we had the full complement of businesses. So we
Speaker 2: have built the second most branches in the Southeast over
Speaker 2: the course of the past five years and have then
Speaker 2: been able to benefit from that, in particular in an
Speaker 2: environment where raising deposits was important. The FDIC releases a
Speaker 2: summary of deposits once a year in the third quarter
Speaker 2: that gives us kind of a view market by market
Speaker 2: into how we're doing. And we grew deposits in the
Speaker 2: Southeast by sixteen percent last year and gained market share
Speaker 2: in fourteen of the fifteen mssays we compete. So I
Speaker 2: feel really good about our ability to continue to grow
Speaker 2: in those markets achieve the top five share position that
Speaker 2: we have targeted on an organic basis. Well, let's keep
Speaker 2: talking about the Southeast, because you highlight in your notes
Speaker 2: that you plan to accelerate your new branch opening so
Speaker 2: that by twenty twenty eight nearly half of your network
Speaker 2: will be in the Southeast.
Speaker 1: So some big plans there. Can we talk about why
Speaker 1: what do you see in the Southeast?
Speaker 2: Yeah, well, I think the thing that everybody sees in
Speaker 2: the Southeast has been the big demographic migration that many
Speaker 2: of the mid size markets in the Southeast have benefited
Speaker 2: from over a period of about the last ten or
Speaker 2: fifteen years. The pandemic certainly accelerated the growth in some
Speaker 2: of the markets, but even if you take the pandemic
Speaker 2: out the Southeast mid size metro areas, we're growing at
Speaker 2: a rate, call it, two to five times the rate
Speaker 2: of US population. And the other reason that we like
Speaker 2: this sort of fifty to fifty mix is that I
Speaker 2: think a glowlobal financial crisis and then a global health
Speaker 2: pandemic caused people to forget that historically economic pullbacks recessions
Speaker 2: were really regional phenomenon, and we think there's a real
Speaker 2: benefit to having a fifty to fifty multi regional split
Speaker 2: just in terms of our ability to continue to drive
Speaker 2: diversification into the business and thereforeum more stable, consistent return
Speaker 2: profile through the cycle.
Speaker 3: All Right, I want to ask about you know, your customers,
Speaker 3: the business that you're dealing with, because we talk about
Speaker 3: the US economy as a monolith all the time. Three
Speaker 3: percent GDP adding I don't know, two hundred and fifty
Speaker 3: thousand jobs, three percent unemployed. Sorry, three percent inflation at
Speaker 3: the core. But obviously it's going to be different for
Speaker 3: the people at Skyline Chile. You know that you're dealing
Speaker 3: with in Cincinnati every day. So what's your customer profile
Speaker 3: look like compared to sort of the medium that we
Speaker 3: talk about here in New York All the time?
Speaker 2: You had me worried there for a minute, Matt, that
Speaker 2: you were going to ask me to com on the
Speaker 2: Skyline Chili Greater's ice cream collaboration.
Speaker 3: Delicious.
Speaker 2: Yeah, I'd had to know comment on that one. Yeah. Look,
Speaker 2: I think the economy is a little bit uneven right now.
Speaker 2: Maybe I'll start on the consumer side and then I'll
Speaker 2: hit businesses. If you look at the consumer population, and
Speaker 2: we really are a super prime lender in consumer, but
Speaker 2: we bank the full spectrum in terms of financial circumstances.
Speaker 2: In our deposit business, folks who had assets and who
Speaker 2: owned their homes going into the pandemic are benefiting from
Speaker 2: really a historically favorable environment. Their wage growth has been
Speaker 2: pretty good, All asset values have performed well. They locked
Speaker 2: in fixed rate mortgages at a two and a half
Speaker 2: to three percent interest rate, and the byproduct to that
Speaker 2: is they continue to run at a level if you
Speaker 2: just look at the liquidity they have available that's well
Speaker 2: above and to spend, for the matter, at a level
Speaker 2: that's well above what the historical trend would be. If,
Speaker 2: on the other hand, you look at the bottom core
Speaker 2: tile of the population in terms of income more likely
Speaker 2: to rent than they are to own, they're experiencing is
Speaker 2: still pretty significant hardships, right. Inflation hit those folks hard,
Speaker 2: not just because you were talking about the increased cost
Speaker 2: of buying or ensuring a car, but you had rental inflation,
Speaker 2: which is the single largest expense that they face on
Speaker 2: a monthly basis, and then the run up in food prices,
Speaker 2: and they have not kept up. In fact, the bottom
Speaker 2: core tile of the consumer population in terms of income,
Speaker 2: it's like twenty percent below pre pandemic levels in terms
Speaker 2: of the balance they carry in their checking account month
Speaker 2: to month, so they're tight. I think the same dynamic
Speaker 2: as materialized in businesses. More interest rates sensitive sectors like
Speaker 2: real estate have been challenged over the course of the
Speaker 2: past couple of years. More indebted companies have been challenged.
Speaker 2: Companies that didn't have control over their supply chain or
Speaker 2: didn't have enough scale in their markets where they were
Speaker 2: able to pass on increases in costs, whether they were
Speaker 2: labor or otherwise. You know, have continued to struggle in
Speaker 2: terms of their ability to rebound. The good news is
Speaker 2: when you look at our footprint, we principally bank people
Speaker 2: who make things, or who move things or distribute things.
Speaker 2: We have the lowest chair of commercial real estate relative
Speaker 2: to total loans of any of the banks are size.
Speaker 2: We don't have an outsized mortgage portfolio. And the byproduct
Speaker 2: of that is, you know, they have done pretty well
Speaker 2: and in fact, in many cases have actually benefited from
Speaker 2: the industrial policy here that's focused on more domestic manufacturing,
Speaker 2: more energy independence, and otherwise.
Speaker 3: All right, Tim, thanks so much for joining us. Tim
Speaker 3: Spence there coming to us from Cincinnati and Fifth Third
Speaker 3: Bank