Fifth Third Bancorp (NASDAQ:FITB) Q3 2023 Earnings Call Transcript

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GerardCassidy: Thank you, Tim. Very insightful. And then on credit, tying into maybe the economic comments that you just made, and I don’t know if this is sort of Greg and Jamie. But can you share with us — Jamie, you showed some very strong credit numbers prepared remarks. And can you tell us, is it better underwriting, if you look back to the financial crisis, through the cycle, net charge-off ratio, I guess it’s quite a bit higher than what you’re thinking today? And then second, is it also your customers, because of the pandemic and what they went through, are they just better managed today from a balance sheet perspective than was the case pre-financial crisis?

GregSchroeck: It’s Greg. It’s a great question. I think it’s all of the above, right? I think we have been very disciplined, very fundamental about our through-the-cycle underwriting for the past several years. We’ve been very disciplined around our concentration in geographically or by product, right? So we have a very well-diversified portfolio. As a result, we’re not seeing trending one way or the other. So we’ve just been disciplined around that. We’ve been disciplined around ongoing portfolio management, right? So we are proactive. We’re getting out ahead of issues when they arise. We are stress testing 200 basis points ahead of the yield curve, forward-looking yield curve. And we’ve seen throughout the cycles. To the extent we get out ahead of this and we identified issues earlier, we minimize.

We also have the ability then to bring solutions to our clients, right, to help them through some of these cycles. And so we’re seeing all of that across the board, be it in our commercial real estate portfolio, very diverse. We weren’t as aggressive in that portfolio as some other banks were when rates were 550 basis points lower and the same thing through our C&I book. So it’s fundamental, sticking to those fundamentals, staying disciplined, both on the front-end underwriting, client selection and then staying on top of the portfolio.

Operator: Your next question comes from the line of Ebrahim Poonawala from Bank of America.

EbrahimPoonawala: I guess maybe just following up on Gerard’s question on the macro and credit. Tim, just if you can add to your comments there’s still some concern that we could hit a recession first half of next year could drive significant deterioration in credit quality. One, how much of a visibility do you have into credit change over the next few quarters where you can safely say that’s unlikely. And maybe, Jamie, just talk to us about the ability of the CECL model to capture that kind of deterioration ahead of time.

TimothySpence: So good morning Ebrahim, it’s good to chat. I think a couple of comments. So narrowly to your point, I think we have fairly good visibility into what the first half of the year is going to look like. And we’re not seeing anything at the moment that would suggest that we’re headed toward credit deterioration in the first half, right? We talked about it in the script delinquency formation that delinquency rates are actually down on the early-stage basis. NPAs are down sequentially, and we have a roll forward for you in the appendix. The slides, which would indicate that, that trend is likely to continue through the fourth quarter. And on the consumer side, just as an example, the nice thing about the way that we manage delinquencies is it’s like an assembly line.

So you can see in the zero to 29 and then the 30-plus buckets what you’re going to be dealing with or early next year, and there just isn’t anything in there to be worried about. With that said, the base case we’re using as we think about the management of the company, strategic investments, how we manage expenses and otherwise, continues to assume that maybe the market is a little bit too bullish on the idea of a soft landing here. I mean again, you just look at the payroll numbers, so — and apply a human lens to it. So jobs are up, but job participation is flat. Labor force participation is flat. And average hours worked are down and unemployment stable. What that means is you have more people working two jobs because they’re not getting enough hours or earning enough money at the job that they were working, the base job that they were working to be able to cover their expenses.

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