Fifth Third Bancorp (FITB) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Annual Shareholder Meeting of Fifth Third Bancorp. It's 11:30, so I'm calling the meeting to order. I'm Greg Carmichael, Chairman, President and CEO of Fifth Third Bancorp, and it's my pleasure to preside today. We're happy to welcome you to this meeting, which we are holding in a virtual format in light of the ongoing public health concerns related to COVID-19. Our shareholders, directors, auditors and executive officers are attending today in conference. The agenda and regulations for conduct at this meeting were included in the proxy, which was made available to all shareholders. Now I would like to introduce the other members of the Board of Directors who are with us in conference today. Nicholas Akins, Evan Bayh, Jorge Benitez, Katie Blackburn, Emerson Brumback, Jerry Burris, Bryan Daniels, Hal Harvey, Gary Heminger, Jewell Hoover, Eileen Mallesch, Mike McCallister and Marsha Williams. We also have members of Fifth Third's Enterprise Management Committee in conference with us today. [ Robert Bitter ] and [ Mark Mettey ] from the accounting firm of Deloitte & Touche are also available today to answer any questions you may have. Susan Zaunbrecher, Fifth Third's Chief Legal Officer, Corporate Secretary and Executive Vice President, will serve as Secretary of this meeting. Susan, please provide us with a summary of how notice of this meeting was provided to the shareholders.

Mr. Chairman, notice of this meeting was first mailed on March 4, 2020, to all shareholders of record as of February 21, 2020. Additional materials were mailed to registered shareholders on March 24, 2020, in order to convert the meeting location to a virtual format. This was done in recognition of statewide shelter-in-place requirements put into effect as a result of COVID-19. A quorum is present.

Thank you, Susan. Representatives from Broadridge are acting as inspectors for this meeting. Peter Descovich is in the conference with us from Broadridge today and is serving as the inspector of election. Broadridge has been assisted today by members of our legal department. Polls are open. Shareholders wishing to vote or change their vote during the meeting may do so online using the vote here button on the web portal and following the instructions provided. I will let you know when voting closes. Shareholders who have sent in their proxies or voted via telephone or internet using Broadridge's system, and do not want to change their vote, do not need to take any further action. Susan, would you please summarize the minutes of the 2019 Annual Meeting?

The 2019 Annual Meeting was held at the Renaissance Hotel in Cincinnati, Ohio, on April 16, 2019. At that meeting, the following items were acted upon: First, 14 Directors were elected to the Board; second, the firm of Deloitte & Touche was reappointed to serve as the company's auditors; third, an advisory vote on compensation of the company's executives was approved; fourth, in the advisory vote to determine whether the shareholder vote on the compensation of the company's executives will occur every 1, 2 or 3 years, every 1 year was approved; fifth, the Fifth Third Bancorp 2019 Incentive Compensation Plan was approved; sixth, the amendment to the Fifth Third Bancorp articles of incorporation to authorize a new class of preferred stock was approved; and finally, Mr. Carmichael briefly reviewed the company's business and financial results and answered questions from shareholders.

Unless there are corrections, those minutes stand approved. We have 4 items to be voted on today that have been proposed by the company. Susan, please introduce those items.

The first item of business to be voted on is the election of 14 Directors to serve until the 2021 Annual Meeting of Shareholders. The nominees approved by the company's Nominating and Corporate Governance Committee are named in the proxy statement. The next item to be voted on is a proposal to approve the appointment of Deloitte & Touche as auditor of the company for the year 2020. The third item to be voted on is an advisory vote to approve the compensation of the company's executives as described in the proxy statement. The fourth item to be voted on today is an advisory vote to determine whether the shareholder votes on the compensation of the company's executives will occur every 1, 2 or 3 years.

Shareholders who wish to nominate a Director or propose a matter to be acted upon at the annual meeting, must do so by providing a notice to the Board Secretary in accordance with the requirements of Fifth Third's code of regulations. The deadline for submission of such a notice for this year's annual meeting has passed. Since no nominations or proposals required to be voted on at the annual meeting were received prior to the deadline, I declare the nominations for directors and proposals for consideration closed. I have a motion to approve the resolution proposed by the Board of Directors.

So moved.

Now that everyone has had the opportunity to vote. Voting is closed. We will announce the results of the votes later in this meeting. I will now share how we have strengthened Fifth Third over the past several years to be more resilient in this environment. I will also discuss the actions we have taken for our employees, our customers, our communities and the broader economy in these unprecedented times. Slide 2 highlights how Fifth Third continues to be a source of strength and stability for our stakeholders. Our capital liquidity positions are very strong and are significantly higher than 2007, prior to the last downturn. From a liquidity perspective, our loan to core deposit ratio of 90% is the best level in 15 years with the highest deposit balance in our history. And from a capital perspective, our common equity Tier 1 ratio is approximately 50% higher compared to 2007. Our fourth quarter 2019 CET1 ratio of 9.75% was over 300 basis points above the regulatory well-capitalized level. Additionally, we have grown our capital ratios and raised our capital targets over the past year, while most of our peers have reduced their capital levels. Given the challenges throughout much of the economy, we joined the largest U.S. banks in temporarily suspending share repurchases through the second quarter of 2020. This will allow us to use our significant capital and liquidity to provide maximum support to our customers and the overall economy. As shown on Slide 3, we have taken proactive steps over the past several years to improve our resilience and outperform peers through the full economic cycle. Reflecting on the past year, as the Fed lowered rates 75 basis points in 2019, our net interest margin resilience stood out among peers. From a credit risk management perspective, we expect to benefit from the actions taken since I became CEO in 2015. Since that time, we optimized the balance sheet, which reduced our highly monitored leverage lending exposures by approximately 50%. As you can see on Slide 4, our goal is to stand with our customers and our employees in these unprecedented times of the pandemic. That's why we put special policies in place for our customers to help them address COVID-19 related hardships. These include payment deferral and fee waiver programs as well as temporarily suspending all foreclosure and vehicle repossession activities. These policies are helping to keep people in their homes, food in refrigerators and businesses going. We're also here for our employees and their families. A large number of our employees now work remotely. We have limited in-person meetings to critical and essential needs required to serve our customers and clients. We've also created additional benefits to cover our employees. Turning to Slide 5. At Fifth Third, we continue to believe it is our mission to improve the lives of the individuals and the well-being of the communities we serve. We continue to track ahead of our 5-year $32 billion community commitment. We have lent or invested more than $29 billion over the last 4 years. Recently, we committed $8.75 million on philanthropic funds to our communities to help address the effects of COVID-19. For 2019, we exceeded two of our sustainability goals by reducing our greenhouse gas emissions by 32%, our water consumption by 30%. After the opening of our solar project last year, we achieved our goal of purchasing 100% green power annually. In summary, we have spent several years taking proactive steps to make our balance sheet more resilient and our revenue streams more diverse. We have performed numerous stress tests under severely adverse scenarios for more than a decade, which has shown we can withstand deep downturns. We will continue to put the appropriate level of prioritization and focus on the areas that have the greatest probability of driving long-term financial success. We remain focused on performing well through the business cycles. Our strategies align with the interest of our shareholders, our customers, our employees and the communities we serve. I want to thank all of our employees for their hard work and dedication to the company's values and objectives every day and especially over the past couple of months. Their commitment is making a difference in our communities and the lives of the people we serve. I would like to remind you that we report first quarter earnings on April 21 and are hosting a webcast at 9:00 a.m. Eastern Time to discuss our results.

At this point, we will address questions. Questions may be submitted through the virtual shareholders meeting web portal and the question box. Though we may not be able to answer every question, we will do our best to provide a response to as many as possible. [Operator Instructions] Only questions relevant to the meeting will be addressed. As a reminder, if your question pertains to any of your Fifth Third accounts, we will have -- we will try to have one of our customer service employees follow up with you in a confidential manner after the meeting. If there are any other questions that we are not able to address, the Investor Relations department will follow-up with you after the meeting. Mr. Carmichael, your first question from shareholders is related to the paycheck protection provision, and the question reads, could you address whether Fifth Third will be active in the small business loan program under the PPP of the coronavirus legislation?

Yes, we are active. We processed several thousand requests already for about $1.5 billion. It's an important program. We're working very hard to take care of our clients during this difficult period of time. And we'll continue to support this program as long as the resources are available.

Mr. Carmichael, the next question from shareholders is related to -- the question is, what is Fifth Third Bank doing to protect its employees from the COVID-19 virus?

Well, first off, it's extremely important we take care of our employees in this difficult time. We have been deemed an essential organization. We've got to provide our products and services to our customers. So it's important we take care of our employees, and we've worked hard to do that. Over 12,000 of our 22,000 employees are working from home, remotely. Our branch employees and operations personnel who are required to come in, those deemed essential to come in, we bring them in, we support all the CDC requirements: social distancing, cleansing, sanitation of the areas -- sanitizing the areas. So we've worked hard to make sure our employees are protected, putting up plexiglass when they face a customer in the branch areas, also closing our lobbies of our branches to protect our employees at the branches.

Mr. Carmichael, the next question from shareholders pertains to 5% owners of Fifth Third stock who provide advice and services to the company. And just to answer that question, we do provide in our proxy statement. We disclosed transactions with any beneficial owners that hold greater than 5% of Fifth Third shares. So at this point, we think that our disclosures are adequate. And the final question that we have here today from shareholders pertains to our credit policies. And the question reads, with the tightening of credit policies and the down payment process, do you see Fifth Third also tightening its mortgage credit policies for its customers attempting to purchase a home at this time?

When we look at our customer base and we think about our products and services, we look at the environment we're operating in, and we continue to make sure that our products, one, meet the needs of our customers, and if they qualify those products under the environment in which we're operating in. So we definitely continue to look at our credit policies on an ongoing manner based on the environment and what the opportunities look like from our customers' perspective.

And yet, there's one more question that came through here. The question is, is there any truth that Fifth Third has been opening new accounts without the client knowing about the account opening, as Wells Fargo did?

We believe the issues identified by the CFPB were historic in nature. We work very hard to make sure we're always doing what's right for the -- for our customers and opening accounts appropriately. We've put numerous procedures in place and policies in place to make sure we do that all the way to following up with the customer 2 days after they open an account, 2 weeks, and then 2 months after they open an account. We now have electronic signatures in place for the accounts open. And we also have a PIN number that's sent to the mobile phone to verify that they opened that account. So we work very hard to make sure we're always opening the accounts appropriately. If we find any wrongdoing, we immediately take action and take care of the customer.

At this time, there are no further questions. Mr. Carmichael, you may continue.

Thanks for all your questions. The polls are now closed, and Ms. Zaunbrecher has received the interim report of the inspectors and will now report on the preliminary results of the vote.

The inspectors have counted the preliminary vote and reported as follows: on the election of Directors, the 14 nominees listed in the proxy statement have each received a majority of the votes cast in favor of their election with each such nominee receiving over 94% of the votes cast for their election. The proposal to approve the appointment of Deloitte & Touche has received a vote of at least 95% of the shares of common stock present in person or by proxy at the meeting and entitled to vote on the proposal in favor of that proposal. The advisory vote to adopt the resolution approving executive compensation has received the votes of at least 93% of the shares of common stock present in person or by proxy at the meeting and entitled to vote on the proposal in favor of that proposal. In the advisory vote on whether the shareholder vote on executive compensation will occur every 1, 2 or 3 years, at least 97% of the shares of common stock present in person or by proxy at the meeting, and entitled to vote on the proposal, have voted in favor of having the advisory vote every year. This completes my report.

Assuming the votes submitted during this meeting have not significantly changed the voting results reported by the inspector in his interim report, all the directors have been reelected. The proposal to approve the appointment of Deloitte & Touche has passed. The advisory vote on executive compensation proposal has passed. The advisory vote on whether the shareholder vote on executive compensation will occur every year has passed. We will receive the inspectors' final report shortly after this meeting, and we'll report the final voting results within the required time frame. This completes today's business. Thank you for attending today, and thank you for your continued support of Fifth Third Bancorp. The meeting is now adjourned.