WEBVTT - Fifth Third Bancorp President and CEO Talks Expansion

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<v Speaker 1>Now on SOCC we're watching this morning Fifth third Bank Corp.

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<v Speaker 1>The company meeting deposit expectations in the third quarter as

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<v Speaker 1>it focuses on stability. The bank is also keeping its

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<v Speaker 1>focus on expanding to the southeastern United States. Joining US

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<v Speaker 1>now is Tim Spence, Fifth Third Bank Corp. Chairman, CEO

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<v Speaker 1>and President. And you know, a lot of investors have

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<v Speaker 1>their eye on your market right now. Things seem to

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<v Speaker 1>be improving and holding stable in terms of that interest

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<v Speaker 1>income you're bringing in, but you're also looking to expand

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<v Speaker 1>you're looking to grow at this point in time. According

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<v Speaker 1>to Bloomberg's own estimates, the expense ratio just a little

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<v Speaker 1>bit more than expectations. How do you Tim set expectations

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<v Speaker 1>for investors on the growth rate you're putting forward.

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<v Speaker 2>Sure, and Shanelli, thank you for having me on this morning,

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<v Speaker 2>and I have been looking forward to chatting with you folks.

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<v Speaker 2>I think from my point of view, the way that

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<v Speaker 2>you run a really great regional bank through the cycle

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<v Speaker 2>as you focus on stability, profitability and growth in that order.

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<v Speaker 2>So last year was an important proving ground with the

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<v Speaker 2>challenges in liquidity that face so much of the sector.

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<v Speaker 2>If Third had a very good run in that regard.

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<v Speaker 2>I think we grew deposits by five percent year over year,

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<v Speaker 2>and the industry was down three The profitabilities remained really strong.

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<v Speaker 2>We have the highest roe of any of the banks

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<v Speaker 2>that have reported thus far, at least in our investor

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<v Speaker 2>peer group, and it's been the most stable over the

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<v Speaker 2>course of the past year. And the byproduct of that,

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<v Speaker 2>then is you get to focus on growth. I think

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<v Speaker 2>we have tried to be really diligent about maintaining consistent

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<v Speaker 2>expense growth. It's been the lowest of any of our

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<v Speaker 2>investor peers over the last five years on an organic basis.

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<v Speaker 2>But during that time we also been making big investments

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<v Speaker 2>in the franchise, principally in the expansion into the Southeast.

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<v Speaker 2>The investments that we continue to make in our commercial

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<v Speaker 2>payments platform and then our own internal technology projects, and

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<v Speaker 2>those things are important. You have to do them over

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<v Speaker 2>time because in a market that is as competitive as

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<v Speaker 2>the US banking system is building a competitive moas a

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<v Speaker 2>little bit like digging a hole in sand. If you

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<v Speaker 2>stop digging, it fills in a little bit. So we

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<v Speaker 2>will continue to be focused on making and investments and

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<v Speaker 2>strengthening the customer value proposition, expanding the reach and ensuring

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<v Speaker 2>as we enter into what I think may be a

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<v Speaker 2>pretty favorable environment for banks next year that we are

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<v Speaker 2>positioned to benefit from the grandw.

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<v Speaker 1>No, I want to go back to what you were

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<v Speaker 1>saying about that Southeastern expansion. Guys, this is a Cincinnati,

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<v Speaker 1>Ohio based banking I know it. I know Matt Matt

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<v Speaker 1>loves Ohio of course, from of course, I know we got.

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<v Speaker 2>A fellow Ohio and the Ohio.

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<v Speaker 1>So that Southeast expansion, I'm really curious about how you

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<v Speaker 1>go about it. Is this a matter of investing in

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<v Speaker 1>different branches and more people, or do you see yourself

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<v Speaker 1>making an acquisition at any point in time as you

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<v Speaker 1>make your expansion across the US little more.

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<v Speaker 2>Sure, the focus four fifth third really has been on

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<v Speaker 2>building out existing markets organically. We entered the Southeast in

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<v Speaker 2>South Florida specifically as far back as thirty years ago,

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<v Speaker 2>and then the bank did make a series of acquisitions

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<v Speaker 2>in the early two thousands that provided the initial entry

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<v Speaker 2>point in the platform. But all of the growth that

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<v Speaker 2>we have benefited from over the course of the past

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<v Speaker 2>few years has come from organic investments, either in building

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<v Speaker 2>out our retail branch network, or in the hiring of

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<v Speaker 2>experienced middle market banking and wealth management teams to ensure

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<v Speaker 2>that we had the full complement of businesses. So we

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<v Speaker 2>have built the second most branches in the Southeast over

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<v Speaker 2>the course of the past five years and have then

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<v Speaker 2>been able to benefit from that, in particular in an

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<v Speaker 2>environment where raising deposits was important. The FDIC releases a

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<v Speaker 2>summary of deposits once a year in the third quarter

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<v Speaker 2>that gives us kind of a view market by market

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<v Speaker 2>into how we're doing. And we grew deposits in the

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<v Speaker 2>Southeast by sixteen percent last year and gained market share

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<v Speaker 2>in fourteen of the fifteen mssays we compete. So I

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<v Speaker 2>feel really good about our ability to continue to grow

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<v Speaker 2>in those markets achieve the top five share position that

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<v Speaker 2>we have targeted on an organic basis. Well, let's keep

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<v Speaker 2>talking about the Southeast, because you highlight in your notes

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<v Speaker 2>that you plan to accelerate your new branch opening so

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<v Speaker 2>that by twenty twenty eight nearly half of your network

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<v Speaker 2>will be in the Southeast.

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<v Speaker 1>So some big plans there. Can we talk about why

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<v Speaker 1>what do you see in the Southeast?

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<v Speaker 2>Yeah, well, I think the thing that everybody sees in

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<v Speaker 2>the Southeast has been the big demographic migration that many

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<v Speaker 2>of the mid size markets in the Southeast have benefited

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<v Speaker 2>from over a period of about the last ten or

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<v Speaker 2>fifteen years. The pandemic certainly accelerated the growth in some

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<v Speaker 2>of the markets, but even if you take the pandemic

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<v Speaker 2>out the Southeast mid size metro areas, we're growing at

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<v Speaker 2>a rate, call it, two to five times the rate

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<v Speaker 2>of US population. And the other reason that we like

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<v Speaker 2>this sort of fifty to fifty mix is that I

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<v Speaker 2>think a glowlobal financial crisis and then a global health

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<v Speaker 2>pandemic caused people to forget that historically economic pullbacks recessions

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<v Speaker 2>were really regional phenomenon, and we think there's a real

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<v Speaker 2>benefit to having a fifty to fifty multi regional split

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<v Speaker 2>just in terms of our ability to continue to drive

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<v Speaker 2>diversification into the business and thereforeum more stable, consistent return

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<v Speaker 2>profile through the cycle.

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<v Speaker 3>All Right, I want to ask about you know, your customers,

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<v Speaker 3>the business that you're dealing with, because we talk about

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<v Speaker 3>the US economy as a monolith all the time. Three

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<v Speaker 3>percent GDP adding I don't know, two hundred and fifty

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<v Speaker 3>thousand jobs, three percent unemployed. Sorry, three percent inflation at

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<v Speaker 3>the core. But obviously it's going to be different for

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<v Speaker 3>the people at Skyline Chile. You know that you're dealing

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<v Speaker 3>with in Cincinnati every day. So what's your customer profile

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<v Speaker 3>look like compared to sort of the medium that we

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<v Speaker 3>talk about here in New York All the time?

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<v Speaker 2>You had me worried there for a minute, Matt, that

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<v Speaker 2>you were going to ask me to com on the

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<v Speaker 2>Skyline Chili Greater's ice cream collaboration.

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<v Speaker 3>Delicious.

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<v Speaker 2>Yeah, I'd had to know comment on that one. Yeah. Look,

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<v Speaker 2>I think the economy is a little bit uneven right now.

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<v Speaker 2>Maybe I'll start on the consumer side and then I'll

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<v Speaker 2>hit businesses. If you look at the consumer population, and

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<v Speaker 2>we really are a super prime lender in consumer, but

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<v Speaker 2>we bank the full spectrum in terms of financial circumstances.

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<v Speaker 2>In our deposit business, folks who had assets and who

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<v Speaker 2>owned their homes going into the pandemic are benefiting from

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<v Speaker 2>really a historically favorable environment. Their wage growth has been

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<v Speaker 2>pretty good, All asset values have performed well. They locked

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<v Speaker 2>in fixed rate mortgages at a two and a half

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<v Speaker 2>to three percent interest rate, and the byproduct to that

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<v Speaker 2>is they continue to run at a level if you

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<v Speaker 2>just look at the liquidity they have available that's well

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<v Speaker 2>above and to spend, for the matter, at a level

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<v Speaker 2>that's well above what the historical trend would be. If,

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<v Speaker 2>on the other hand, you look at the bottom core

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<v Speaker 2>tile of the population in terms of income more likely

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<v Speaker 2>to rent than they are to own, they're experiencing is

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<v Speaker 2>still pretty significant hardships, right. Inflation hit those folks hard,

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<v Speaker 2>not just because you were talking about the increased cost

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<v Speaker 2>of buying or ensuring a car, but you had rental inflation,

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<v Speaker 2>which is the single largest expense that they face on

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<v Speaker 2>a monthly basis, and then the run up in food prices,

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<v Speaker 2>and they have not kept up. In fact, the bottom

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<v Speaker 2>core tile of the consumer population in terms of income,

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<v Speaker 2>it's like twenty percent below pre pandemic levels in terms

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<v Speaker 2>of the balance they carry in their checking account month

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<v Speaker 2>to month, so they're tight. I think the same dynamic

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<v Speaker 2>as materialized in businesses. More interest rates sensitive sectors like

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<v Speaker 2>real estate have been challenged over the course of the

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<v Speaker 2>past couple of years. More indebted companies have been challenged.

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<v Speaker 2>Companies that didn't have control over their supply chain or

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<v Speaker 2>didn't have enough scale in their markets where they were

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<v Speaker 2>able to pass on increases in costs, whether they were

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<v Speaker 2>labor or otherwise. You know, have continued to struggle in

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<v Speaker 2>terms of their ability to rebound. The good news is

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<v Speaker 2>when you look at our footprint, we principally bank people

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<v Speaker 2>who make things, or who move things or distribute things.

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<v Speaker 2>We have the lowest chair of commercial real estate relative

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<v Speaker 2>to total loans of any of the banks are size.

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<v Speaker 2>We don't have an outsized mortgage portfolio. And the byproduct

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<v Speaker 2>of that is, you know, they have done pretty well

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<v Speaker 2>and in fact, in many cases have actually benefited from

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<v Speaker 2>the industrial policy here that's focused on more domestic manufacturing,

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<v Speaker 2>more energy independence, and otherwise.

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<v Speaker 3>All right, Tim, thanks so much for joining us. Tim

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<v Speaker 3>Spence there coming to us from Cincinnati and Fifth Third

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<v Speaker 3>Bank