Fifth Third Bancorp

Ladies and gentlemen, thank you for standing by, and welcome to the Fifth Third Bancorp Third Quarter 2019 Earnings Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's call is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today. Crystal, please go ahead, sir.

Thank you, Prince. Good morning, and thank you for joining us today. We'll be discussing our financial results for the third quarter of 2019. Please review the cautionary statements on our materials, which can be found in our earnings release and presentation. These materials contain reconciliations to non-GAAP measures, along with information pertaining to the use of non-GAAP measures. as well as forward-looking statements about Fifth Third's performance. We undertake no obligation to, and would not expect to, update any such forward-looking statements after the date of this call. This morning, I'm joined by our President and CEO, Greg Carmichael, CFO Typhoon Tuzun, Chief Operating Officer Lars Anderson, Chief Risk Officer Frank Forrest, and Treasurer Jamie Leonard. Following prepared remarks by Greg and Typhoon, we will open the call for questions. Let me turn the call over now to Greg for his comments.

Thanks, Chris. Thank all of you for joining us this morning. Earlier today, we reported third quarter 2019 net income available to common shareholders of $530 million, or $0.71 per share. Our reported EPS included a negative $0.04 impact from the items shown on page two of our release, mostly from merger-related expenses associated with MB Financial. Excluding these items, adjusted third quarter earnings were $0.75 per share. Our financial results were very strong and reflect our ongoing discipline throughout the bank, as well as the strength of our diversified revenue streams. We generated strong fee revenue, including a record in capital markets, while tightly managing our expenses. Our revenue and expense results exceeded our July expectations. During the quarter, we also returned 96% of our earnings to shareholders in the form of common dividends and share repurchases. Adjusted pre-provision net revenue increased 28% from a year ago to quarter, The strong performance reflects our ability to generate strong core revenue growth as we manage our expenses and deliver on our financial commitments from the MD financial acquisition. We also generate strong core deposit growth compared to the prior quarter while proactively lowering interest-bearing deposit costs. All of our key return and profitability metrics improved significantly in the third quarter as we achieved our year-end financial targets by generating an ROTCE excluding AOCI of 16.5%, an ROA of 1.35%, and an efficiency ratio below 57% on adjusted basis. Our ROTCE has increased 280 basis points, our ROA has increased seven basis points, and our efficiency ratio has decreased 260 basis points from the year-ago quarter. And the period loans were flat sequentially, Our commercial loan production continued to be strong during the quarter, but was muted by elevated payoffs. Consistent with our prior guidance, we generated average consumer loan growth of 2% sequentially. We remain focused on maximizing our returns through the full cycle rather than generating lower quality loan growth. Credit quality once again remained relatively benign during the quarter. Non-performing assets and the NPA ratio both declined from the prior quarter, and many of our credit metrics remain at or near historical low levels. Before I turn it over to Typhoon to discuss our financial results and fourth quarter outlook, I'll review our four key strategic priorities to improve our long-term performance. First, we continue to leverage technology, such as our data analytics capabilities, to accelerate our digital transformations. Our investments are focused in areas that reduce the friction inherent in traditional banking channels while also investing in areas that drive operational efficiencies. We have made considerable investments over the past several years to modernize, simplify, and rationalize our infrastructure. In addition, we are investing in advanced fraud and cybersecurity technologies to detect and respond to threats quickly. In total, our annual technology spend exceeds $650 million. While we will continue to invest in technology next year and beyond, we expect our investments will lead to improved efficiencies throughout the bank. Second, we continue to invest to drive future organic growth in several areas of the bank. The ultimate goal of our investments is to improve both the employee and customer experience in order to support sustainable profitable growth. We believe it is critical to provide our employees with the right tools to maximize productivity, particularly those who directly interact with our clients. To that end, we recently announced an increase in the minimum wage for our employees to $18 an hour effective at the end of this month, which will primarily impact those located in branches in our operations center. We fully expect that this increase will lead to lower employee turnover, a better customer experience, and as a result, improved revenue growth. We have also added talent and capabilities to our Texas and California geographies. We remain pleased with our ability to successfully generate strong relationship growth while maintaining a credit standard consistent with our in-footprint middle market banking business. In addition, we've already seen positive financial outcomes from our renewable energy M&A advisory team, which complements our investment banking capabilities to deliver strategic client solutions throughout our national commercial franchise. Third, we continue to expand our presence in select key geographies, including Chicago. As I have mentioned previously, our strategy is to generate a higher market share in large and high-growth markets. Our employees remain energized about the combined potential of Chicago. Our overall employee attrition continues to track our original deal expectations. Most importantly, we have not experienced any material client attrition. We remain very pleased with the middle market loan production in our Chicago region, which was by far the strongest region during the quarter. Although we are not finished working to ensure sustainable success, we remain pleased with the progress we have made so far. We are confident in our ability to deliver the financial synergies from the MB financial acquisition as previously communicated. We continue to expect to realize the $255 million in annual expense synergies by the end of the first quarter of 2020 and have already completed many of the key expense actions. We also continue to expect revenue to generate approximately $60 to $75 million in annual pre-tax income by 2022. Our commercial teams have done a great job in laying a foundation to leverage our capabilities and strengths across our entire franchise. We already see success generating incremental revenue opportunities. For instance, we have successfully leveraged our enhanced leasing capabilities to provide value-added client solutions to all our middle market and corporate banking clients. We continue to believe that Fifth Third Chicago is in a position of strength that will allow us to generate stronger deposit, household, and revenue growth moving forward. With the MB acquisition significantly improving our position in the Chicago MSA, we are continuing to invest in our southeast markets with better deposit growth trends, higher expected population growth, and greater market vitality. Lastly, we are focused on maintaining our disciplined approach throughout the company. While we continue to expect generally stable credit quality, we are cognizant of the evolving economic and interest rate environment. From a balance sheet perspective, we have successfully generated strong deposit growth while maintaining pricing discipline. We expect to continue our strong deposit growth momentum going forward. Our average loan-to-core deposit ratio of 91% is the lowest in over 15 years, reflecting our ability to generate strong core deposit growth and an unwillingness to stretch for loan growth. We expect that this ratio will remain in the low 90s for the foreseeable future. Our balance sheet management philosophy of focusing on improved performance through the full economic cycle positions us well for the future. Given our capital management priorities are focused on returning capital through dividends and repurchases, in addition to organic growth strategies I mentioned, bank acquisitions are not a priority. We have continued to demonstrate our discipline in managing our expenses diligently while investing in areas of strategic importance. though expenses declined $3 million sequentially excluding merger-related items. We generated year-over-year positive operating leverage on an adjusted basis for this quarter, but I think we share more about our expense expectations for the fourth quarter. Our clearly defined strategic priorities and our proactive balance sheet management and our continued discipline throughout the bank positions us well into next year and beyond. We remain cognizant of the dynamic economic interest rate environment and continue to focus on through-the-cycle outperformance to create long-term shareholder value. And please report that we were again able to deliver strong financial results. I'd like to once again thank all of our employees for their hard work, dedication, and for always keeping the customer at the center of everything we do. With that, I'll turn it over to Typhoon to discuss our third quarter results and our current outlook.