Fifth Third 3Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Slower loan growth because the rest of the industry is being too aggressive

“Loan growth was more muted compared to other quarters, especially in C&I, as we maintain our cautious approach with respect to the industry’s aggressive pricing and structure from both banks and non-banks that we’re seeing in certain segments of commercial lending today.”

credit environment remains positive

“The credit environment in general remains positive. Net charge-offs ticked up slightly. But non-performing asset levels continued to trend down and were 21% lower than the prior year, and our non-performing asset ratio declined below 90 basis points.”

current environment leaves little room for error

“Shifting to loans, similar to our cautious approach within our investment portfolio, we are being prudent on pricing and terms, and we continue to originate loans to customers where their relationship profitability meets our return hurdles. We believe that the current market environment and pricing levels leave little room for error in extending loans under riskier structures.”

Sitting on the sidelines rather than investing the securities portfolio

“In terms of activity in this environment, we’re just not adding leverage to the portfolio. We just don’t believe that the risk/return profile of those investments at this point are attractive enough, and we’re willing to sustain a little bit short-term pain for that because I think in the long term, being able to invest – although I have to say that we don’t know yet when that environment will realize. But at 2%, 10-year and even the short end of the curve being where it is, I think we will remain on the sidelines, which obviously from a NIM perspective actually it’s not that hurtful. But from an NII perspective, we will have some short-term pain, as we actually discussed in the script.”

It’s difficult to predict how this is going to play out

“30 days ago the likelihood of us being in this environment was as high as the Reds making the playoffs at that time. The Reds didn’t make the playoffs, but here we are in this environment. And at the same time, this morning’s economic data indicated that the jobless claims are at the lowest level since April of 2000. So it’s difficult to predict exactly how this is going to play out in the global context and what the Fed will do.”

Refi volumes replace slack in loan yields in weak interest rate environment

“refi volumes are picking up, but we’ll see how long that holds. If I were truly prophetic and had put in the interest rate sensitivity slide on page 15 that had a flat-and-fall scenario, what you would see for us is about a 1% NII decline, but more than made up for by that mortgage banking revenue and refi. So we think we’re well positioned and have a nice diversified balance sheet and business to really battle through this type of environment if it were to stay this way for a while.”