Yahoo Finance

All right, shares of Fifth Third Bank are in focus following the company's earnings this morning. Fresh off its earnings call is CEO of Fifth Third Bank, Tim Spence. Tim, good to see you. Welcome to Yahoo Finance for the first time. Appreciate you taking the time. I know these are busy days. Before we get into the earnings, these outages this morning are something, have you seen any impact to the bank? We're putting this question to all our executives.

Yeah, no. Great question. I think there is no question there was a lot of work going on in the wee hours of the morning here to make sure that our customers weren't impacted. I think, as you know, one of the challenges of modern IT architectures is we're all reliant on the same utilities across our cloud security and endpoint security. And when there's an issue in one place, it impacts people across sectors. So we were happy we got the call at somewhere around 1:00 this morning, so very early hours, and before 7:00 a.m., we had all of our customer channels operational and all of our back office running. So we're open for business and available to help customers when and where they need, but it's not without an immense amount of effort on the part of our technology organization. I'm very appreciative that we have done the work we have to make sure that we can respond when these sorts of things materialize.

Tim, you have Wall Street cred in the tech field, have really a large part of your career very much focused on tech. What do you tell your team on a day like this? And how do you future-proof your bank to prevent it from getting impacted from things like this that really come out of the blue?

Yeah, no. Listen, the world is so interconnected today that there is as much outside of our control as there is inside of our control. And the byproduct of that is the thing you have to focus on and drill for is resiliency, right? It's when there's an issue, how quickly can you get back up and are you able to do it fast enough to be able to prevent any sort of a direct impact on customers? So today, a good example of the benefit of the fire drills that you run on an ongoing basis here because we were able to get everything back up and operational before most people were even awake this morning.

All right, let's talk about some of the things you actually do from day to day outside of all the tech stuff. It's banking and it's financial services. What really stood out to me on the earnings release, you noted that you're holding more just elevated levels of liquidity because of the, I believe the quote was, because of the environment. What environment are you seeing and why are you holding that excess capital?

Yeah, I think our view here, right, the focus at Fifth Third has been deliver superior returns to shareholders through consistency and strong levels of profitability. We are not a company that's focused on achieving the highest levels of growth when times are good. We're focused on delivering the most consistent earnings profile and in particular, a port in the storm when things are challenging, and that obviously worked well for us last year. I think in general, the environment is pretty benign. There's more discounting going on. I think the labor market has stabilized. So there is evidence that we're going to continue to see a decline in inflation. But the other side of the equation is we have land wars going on in two important regions around the world. We have uncertainty, in particular in the rates markets, about the impact that the Treasury issuance, which is going to have to happen, you know, in the next 18 months will have on the direction of rates and the long end of the curve. And we're running historically large deficits here in the US which historically have been difficult to maintain. So the right thing for a bank that wants to deliver a more consistent earnings profile is to make sure that we're prepared for anything that comes. And the byproduct of that is we are carrying elevated liquidity. I think our liquidity coverage ratio has been full Category 1 LCR compliant for nearly a year now and was north of 135% of the target. And that's a pretty good metric that you can compare across financial institutions. We feel very good about our ability to, you know, handle the unexpected in addition to, you know, what we expect to materialize here over the next six months.

And it's not lost on me, Tim, of course, your bank is headquartered in Ohio. Senator J.D. Vance of Ohio is now the Republican nominee for vice president. What's your relationship with him? And do you think he is as favorable toward regional banks like yours, like I think many in the market think he is?

Yeah, I mean, I don't know that I can add a whole lot beyond what Senator Vance shared at his convention speech earlier this week. So I'll let him speak for himself. But I do believe he is very focused on economic opportunity being broadly available and not concentrated in individual pockets. He's been very outspoken in technology, in particular, on the importance of making space for innovation and tech startups in addition to the large tech platforms that are broadly established. And to the extent he thinks the same way about the importance of a diverse ecosystem in the banking sector, I think the regional banks are well positioned to make sure that consumers have lots of options.

Your consumers are really in the heartland of America. What are their financial standings? When you talk to them, are they as bad as some would portray them to be?

No, I mean, I think the challenge here really is the averages, right? We haven't had a recovery here over the course of the past few years that delivered, you know, an average experience for everybody. If you were a homeowner in 2020 and 2021, if you had, you know, large investment holdings and otherwise, it's been the best of times because you were able to lock in a low fixed rate mortgage, all asset prices are up, deposits and fixed income are paying real interest rates again, and the byproduct of that is homeowners and in particular, high-income or higher wealth homeowners are doing as well now as they have ever. On the other side of the equation, you know, if you have a lower income, you spend essentially your entire income on rent, food, and energy and transportation. And all those things are much more expensive today than they were three years ago. So I think that's the reason why when you look at the data, it would say that the US consumer is doing really well on average, and then when you look at the misery index or otherwise, it would lead you to believe that there's a significant share of the country that feels like they're having a difficult time making ends meet. And that is true everywhere. It's true in our Southeast markets. It's true in our Midwestern markets, and my sense is it's true in the parts of the country where we don't do business.

Yeah, that misery index, Tim, and that's always just rubs me the wrong way. Of course, everything is, it's called the misery index. Of course, something is going to be wrong with it. But look, I appreciate you taking the time. I know these are very busy days. We're looking forward to staying in touch with you moving forward. Tim Spence, Fifth Third Bank CEO. Have a great weekend. We'll talk to you soon.

Thank you.