Fifth Third Bank

Investor Relations

Fifth Third Announces Fourth Quarter 2019 Results

Diluted earnings per share of $0.96, including a positive $0.28 impact from certain items on page 2 of the 4Q19 earnings release

Category:

Wednesday, January 22, 2020 6:30 am EST

Dateline:

CINCINNATI

Public Company Information:

NASDAQ:
FITB
US3167731005
"From a balance sheet perspective, our loan growth was consistent with our prior guidance, reflective of the generally subdued macroeconomic environment. Also, we again generated strong core deposit growth while also proactively reducing deposit costs more than our previous guidance."

CINCINNATI--(BUSINESS WIRE)--Fifth Third Bancorp (FITB):

Key Highlights

  • Record full year net income of $2.5 billion
  • Generated $345 million pre-tax gain in 4Q19 from Worldpay tax receivable agreement (TRA) transaction with FIS
  • 4Q19 net interest income, NIM, noninterest income, and expense performance in-line with or better than prior guidance
  • Effectively managed interest-bearing core deposit costs better than prior guidance (down 19 bps vs. 3Q19), while continuing to grow core deposits (up 1% vs. 3Q19)
  • Generated record capital markets revenue in 4Q19; full year revenue up 12%
  • Several credit metrics impacted by conversion to national charter; excluding conversion, total NCO ratio up 1 bp from 3Q19 with consumer NCO ratio flat from 3Q19
  • Remain on-track to achieve MB expense savings by the end of 1Q20 ($255 million pre-tax)
  • Continue to realize desired MB employee and client outcomes

 

Key Financial Data

 

 

 

 

 

 

 

 

 

$ millions for all balance sheet and income statement items

 

 

 

 

 

 

4Q19

3Q19

4Q18

 

 

 

 

 

 

 

 

 

Income Statement Data

 

 

 

 

 

 

 

Net income available to common shareholders

$

701

 

$

530

 

$

432

 

 

Net interest income (U.S. GAAP)

 

1,228

 

 

1,242

 

 

1,081

 

 

Net interest income (FTE) (a)

 

1,232

 

 

1,246

 

 

1,085

 

 

Noninterest income

 

1,035

 

 

740

 

 

575

 

 

Noninterest expense

 

1,160

 

 

1,159

 

 

975

 

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

Earnings per share, basic

$

0.97

 

$

0.72

 

$

0.65

 

 

Earnings per share, diluted

 

0.96

 

 

0.71

 

 

0.64

 

 

Book value per share

 

27.41

 

 

27.32

 

 

23.07

 

 

Tangible book value per share (a)

 

21.13

 

 

21.06

 

 

19.17

 

 

 

 

 

 

 

 

 

 

Balance Sheet & Credit Quality

 

 

 

 

 

 

 

Average portfolio loans and leases

$

109,787

 

$

109,541

 

$

94,757

 

 

Average deposits

 

126,116

 

 

125,206

 

 

107,495

 

 

Net charge-off ratio (b)

 

0.41

%

 

0.36

%

 

0.35

%

 

Nonperforming asset ratio (c)

 

0.62

 

 

0.47

 

 

0.41

 

 

 

 

 

 

 

 

 

 

Financial Ratios

 

 

 

 

 

 

 

Return on average assets

 

1.72

%

 

1.28

%

 

1.25

%

 

Return on average common equity

 

14.2

 

 

10.7

 

 

11.8

 

 

Return on average tangible common equity (a)

 

18.7

 

 

14.2

 

 

14.3

 

 

CET1 capital (d)(e)

 

9.75

 

 

9.56

 

 

10.24

 

 

Net interest margin (a)

 

3.27

 

 

3.32

 

 

3.29

 

 

Efficiency (a)

 

51.2

 

 

58.4

 

 

58.7

 

 

Other than the Quarterly Financial Review tables beginning on page 14 of the 4Q19 earnings release, commentary is on a fully taxable-equivalent (FTE) basis unless otherwise noted. Consistent with SEC guidance in Industry Guide 3 that contemplates the calculation of tax-exempt income on a taxable-equivalent basis, net interest income, net interest margin, net interest rate spread, total revenue and the efficiency ratio are provided on an FTE basis.

CEO Commentary

“Our fourth quarter and full year results were strong, reflecting the strength of our diversified revenue streams, our continued expense discipline, and our ability to achieve our targeted financial outcomes from the MB Financial acquisition. Net interest income, noninterest income, and noninterest expense were in-line with or better than our previous guidance. We generated very strong fee revenue, including a new record in capital markets. Additionally, our net interest income results continue to reflect our ability to successfully manage the balance sheet despite the lower rate environment, which led to better than expected NIM performance for the quarter. Also, we continued to diligently manage our expenses, reflecting our ongoing focus on generating efficiencies throughout the Bank while still investing in high priority areas to support revenue growth.”

“We also successfully completed a transaction with FIS that has addressed the future payments related to our TRA. Similar to all the strategic decisions over the past ten years related to this relationship, this agreement has created significant value for our shareholders. We have successfully recognized over $7 billion on a pre-tax basis for shareholders from all sources since the spin-off of our legacy processing business, with another $195 million in TRA cash flows beyond this quarter’s transaction yet to be monetized.”

“From a balance sheet perspective, our loan growth was consistent with our prior guidance, reflective of the generally subdued macroeconomic environment. Also, we again generated strong core deposit growth while also proactively reducing deposit costs more than our previous guidance.”

“We remain on-track to achieve the previously-stated expense and revenue synergy targets related to the MB Financial acquisition. We continue to be pleased with the low client and employee attrition levels.”

“Our clearly defined strategic growth priorities, proactive balance sheet management, and ongoing discipline throughout the Bank position us well for the future. We expect to build on our strong fourth quarter NIM performance and maintain our expense discipline in order to generate positive operating leverage this year while continuing to invest for long-term outperformance.”

-Greg D. Carmichael, Chairman, President and CEO

 

Income Statement Highlights

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions, except per share data)

For the Three Months Ended

 

 

% Change

 

 

December

 

September

 

December

 

 

 

 

 

 

2019

 

2019

 

2018

 

Seq

 

Yr/Yr

 

Condensed Statements of Income

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income (NII) (a)

$

1,232

 

$

1,246

 

$

1,085

 

(1

%)

 

14

%

 

Provision for credit losses

 

162

 

 

134

 

 

97

 

21

%

 

67

%

 

Noninterest income

 

1,035

 

 

740

 

 

575

 

40

%

 

80

%

 

Noninterest expense

 

1,160

 

 

1,159

 

 

975

 

-

 

 

19

%

 

Income before income taxes (a)

$

945

 

$

693

 

$

588

 

36

%

 

61

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable equivalent adjustment

 

4

 

 

4

 

 

4

 

-

 

 

-

 

 

Applicable income tax expense

 

207

 

 

140

 

 

129

 

48

%

 

60

%

 

Net income

$

734

 

$

549

 

$

455

 

34

%

 

61

%

 

Less: Net income attributable to noncontrolling interests

 

-

 

 

-

 

 

-

 

NM

 

 

NM

 

 

Net income attributable to Bancorp

$

734

 

$

549

 

$

455

 

34

%

 

61

%

 

Dividends on preferred stock

 

33

 

 

19

 

 

23

 

74

%

 

43

%

 

Net income available to common shareholders

$

701

 

$

530

 

$

432

 

32

%

 

62

%

 

Earnings per share, diluted

$

0.96

 

$

0.71

 

$

0.64

 

35

%

 

50

%

Fifth Third Bancorp (Nasdaq: FITB) today reported fourth quarter 2019 net income of $734 million compared to net income of $455 million in the year-ago quarter. Net income available to common shareholders was $701 million, or $0.96 per diluted share, compared to $432 million, or $0.64 per diluted share in the year-ago quarter. Prior quarter net income was $549 million and net income available to common shareholders was $530 million, or $0.71 per diluted share.

 

 

Diluted earnings per share impact of certain items - 4Q19

 

 

 

 

 

 

 

 

 

(after-tax impacts (f) ; $ in millions, except per share data)

 

 

 

 

 

 

 

 

 

Valuation of Visa total return swap

($34

)

 

 

 

Fifth Third Foundation contribution

($15

)

 

 

 

Provision impact from conversion to a national charter

($7

)

 

 

 

Merger-related expenses

($7

)

 

 

 

Gain recognized from Worldpay TRA transaction

$265

 

 

 

 

After-tax impact (f) of certain items

$202

 

 

 

 

 

 

 

 

 

Average diluted common shares outstanding (thousands)

724,968

 

 

 

 

 

 

 

 

 

Diluted earnings per share impact

$0.28

 

 

 

 

 

 

 

Reported full year 2019 net income was $2.5 billion compared to full year 2018 net income of $2.2 billion. Full year 2019 net income available to common shareholders was $2.4 billion, or $3.33 per diluted share, compared to 2018 full year net income available to common shareholders of $2.1 billion, or $3.06 per diluted share.

 

Net Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(FTE; $ in millions) (a)

For the Three Months Ended

 

% Change

 

 

December

 

September

 

December

 

 

 

 

 

 

2019

 

2019

 

2018

 

Seq

 

Yr/Yr

 

Interest Income

 

 

 

 

 

 

 

 

 

 

Interest income

$

1,563

 

 

$

1,629

 

 

$

1,397

 

 

(4

%)

 

12

%

 

Interest expense

 

331

 

 

 

383

 

 

 

312

 

 

(14

%)

 

6

%

 

Net interest income (NII)

$

1,232

 

 

$

1,246

 

 

$

1,085

 

 

(1

%)

 

14

%

 

Adjusted NII (a)

$

1,214

 

 

$

1,218

 

 

$

1,085

 

 

-

 

 

12

%

 

 

 

 

 

 

 

 

 

 

 

 

Average Yield/Rate Analysis

 

 

 

 

 

 

bps Change

 

Yield on interest-earning assets

 

4.15

%

 

 

4.34

%

 

 

4.23

%

 

(19

)

 

(8

)

 

Rate paid on interest-bearing liabilities

 

1.22

%

 

 

1.41

%

 

 

1.33

%

 

(19

)

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

 

Ratios

 

 

 

 

 

 

 

 

 

 

Net interest rate spread

 

2.93

%

 

 

2.93

%

 

 

2.90

%

 

-

 

 

3

 

 

Net interest margin (NIM)

 

3.27

%

 

 

3.32

%

 

 

3.29

%

 

(5

)

 

(2

)

 

Adjusted NIM (a)

 

3.22

%

 

 

3.25

%

 

 

3.29

%

 

(3

)

 

(7

)

Compared to the year-ago quarter, reported NII increased $147 million, or 14%. Excluding purchase accounting accretion of $18 million in the fourth quarter of 2019, adjusted NII increased $129 million, or 12%, reflecting an increase in interest-earning assets, including the impact from the MB Financial acquisition, partially offset by the declining rate environment. Compared to the year-ago quarter, reported NIM decreased 2 bps, or 7 bps excluding purchase accounting accretion.

Compared to the prior quarter, reported NII decreased $14 million, or 1%. Excluding purchase accounting accretion, adjusted NII decreased $4 million primarily reflecting lower short-term market rates, partially offset by growth in the indirect secured consumer portfolio (predominantly indirect automobile), as well as the favorable impact of previously executed cash flow hedges. Compared to the prior quarter, reported NIM decreased 5 bps. Excluding purchase accounting accretion, adjusted NIM decreased 3 bps, primarily reflecting lower short-term market rates, partially offset by the favorable impact of previously executed hedges, proactive management of deposit rates, and a decrease in other short-term investments.

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

% Change

 

 

December

 

September

 

December

 

 

 

 

 

 

2019

 

2019

 

2018

 

Seq

 

Yr/Yr

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

Service charges on deposits

$

149

 

 

$

143

 

$

135

 

 

4

%

 

10

%

 

Corporate banking revenue

 

153

 

 

 

168

 

 

130

 

 

(9

%)

 

18

%

 

Mortgage banking net revenue

 

73

 

 

 

95

 

 

54

 

 

(23

%)

 

35

%

 

Wealth and asset management revenue

 

129

 

 

 

124

 

 

109

 

 

4

%

 

18

%

 

Card and processing revenue

 

95

 

 

 

94

 

 

84

 

 

1

%

 

13

%

 

Other noninterest income

 

427

 

 

 

111

 

 

93

 

 

285

%

 

359

%

 

Securities gains (losses), net

 

10

 

 

 

5

 

 

(32

)

 

100

%

 

NM

 

Securities (losses) gains, net - non-qualifying

hedges on mortgage servicing rights

 

(1

)

 

 

-

 

 

2

 

 

NM

 

NM

 

Total noninterest income

$

1,035

 

 

$

740

 

$

575

 

 

40

%

 

80

%

Reported noninterest income increased $460 million, or 80%, from the year-ago quarter, and increased $295 million, or 40%, from the prior quarter. The reported results reflect the impact of certain items in the table below, in both the prior quarter and the year-ago quarter.

 

Noninterest Income excluding certain items

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

 

December

 

September

 

December

 

 

2019

 

2019

 

2018

 

Noninterest Income excluding certain items

 

 

 

 

 

 

Noninterest income (U.S. GAAP)

$

1,035

 

 

$

740

 

 

$

575

 

 

Valuation of Visa total return swap

 

44

 

 

 

11

 

 

 

(7

)

 

GreenSky equity securities losses

 

-

 

 

 

-

 

 

 

21

 

 

Gain recognized from Worldpay TRA transaction

 

(345

)

 

 

-

 

 

 

-

 

 

Securities (gains) losses, net (excluding GreenSky)

 

(10

)

 

 

(5

)

 

 

11

 

 

Noninterest income excluding certain items (a)

$

724

 

 

$

746

 

 

$

600

 

 

 

Compared to the year-ago quarter, noninterest income excluding the items in the preceding table increased $124 million, or 21%. Compared to the prior quarter, noninterest income excluding the items in the preceding table decreased $22 million, or 3%.

Compared to the year-ago quarter, service charges on deposits increased $14 million, or 10%, driven by higher commercial deposit fees, partially offset by lower consumer deposit fees. Corporate banking revenue increased $23 million, or 18%, primarily driven by leasing business revenue resulting from the MB Financial acquisition, as well as an increase in corporate bond fees. Mortgage banking net revenue increased $19 million, or 35%, primarily driven by higher mortgage originations of $3.8 billion, an increase of 144%. Wealth and asset management revenue increased $20 million, or 18%, primarily driven by higher personal asset management revenue.

Compared to the prior quarter, service charges on deposits increased $6 million, or 4%, driven by higher consumer and commercial deposit fees. Corporate banking revenue decreased $15 million, or 9%, primarily driven by a decrease in leasing business revenue, partially offset by an increase in loan syndications revenue. Mortgage banking net revenue decreased $22 million, or 23%, primarily driven by a seasonally lower gain on sale margin partially offset by a 13% increase in origination volumes. Wealth and asset management revenue increased $5 million, or 4%, primarily driven by higher personal asset management revenue and brokerage fees.

Other noninterest income results on a reported basis in the current quarter were impacted by the gain recognized from the Worldpay TRA transaction. Current and previous quarters were also impacted by the Visa total return swap valuation adjustments. Excluding these items, other noninterest income of $126 million increased $40 million, or 47%, compared to the year-ago quarter, primarily driven by operating lease revenue from MB Financial. Compared to the prior quarter, other noninterest income excluding these item increased $4 million, or 3%, reflecting higher private equity investment income.

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

% Change

 

 

December

 

September

 

December

 

 

 

 

 

 

2019

 

2019

 

2018

 

Seq

 

Yr/Yr

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

$

576

 

$

584

 

$

506

 

(1

%)

 

14

%

 

Net occupancy expense

 

84

 

 

84

 

 

73

 

-

 

15

%

 

Technology and communications

 

103

 

 

100

 

 

79

 

3

%

 

30

%

 

Equipment expense

 

33

 

 

33

 

 

31

 

-

 

 

6

%

 

Card and processing expense

 

33

 

 

33

 

 

33

 

-

 

Intangible amortization expense

 

14

 

 

14

 

 

1

 

-

 

NM

 

Other noninterest expense

 

317

 

 

311

 

 

252

 

2

%

 

26

%

 

Total noninterest expense

$

1,160

 

$

1,159

 

$

975

 

-

 

 

19

%

 

Impacts of Merger-Related Expenses

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

 

December

 

September

 

December

 

 

2019

 

2019

 

2018

 

Merger-Related Expenses

 

 

 

 

 

 

Compensation and benefits

$

1

 

$

14

 

$

1

 

Net occupancy expense

 

3

 

 

3

 

 

-

 

Technology and communications

 

4

 

 

8

 

 

6

 

Equipment expense

 

-

 

 

-

 

 

-

 

Card and processing expense

 

-

 

 

-

 

 

1

 

Intangible amortization expense

 

-

 

 

-

 

 

-

 

Other noninterest expense

 

1

 

 

3

 

 

19

 

Total merger-related expenses

$

9

 

$

28

 

$

27

 

Noninterest Expense excluding Merger-Related Expenses(a)

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

% Change

 

 

December

 

September

 

December

 

 

 

 

 

 

2019

 

2019

 

2018

 

Seq

 

Yr/Yr

 

Noninterest Expense excluding Merger-Related Expenses

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

$

575

 

$

570

 

$

505

 

1

%

 

14

%

 

Net occupancy expense

 

81

 

 

81

 

 

73

 

-

 

 

11

%

 

Technology and communications

 

99

 

 

92

 

 

73

 

8

%

 

36

%

 

Equipment expense

 

33

 

 

33

 

 

31

 

-

 

 

6

%

 

Card and processing expense

 

33

 

 

33

 

 

32

 

-

 

 

3

%

 

Intangible amortization expense

 

14

 

 

14

 

 

1

 

-

 

 

NM

 

Other noninterest expense

 

316

 

 

308

 

 

233

 

3

%

 

36

%

 

Total noninterest expense excluding merger-related expenses

$

1,151

 

$

1,131

 

$

948

 

2

%

 

21

%

Compared to the year-ago quarter, reported noninterest expense increased $185 million, or 19%, impacted by the expenses associated with the MB Financial acquisition. Excluding the merger-related expenses, intangible amortization expense, and a $20 million contribution to the Fifth Third Foundation (included in other noninterest expense) in the current quarter, noninterest expense increased $170 million, or 18%, reflecting the operating expenses resulting from the MB Financial acquisition as well as continued technology investments.

Compared to the prior quarter, reported noninterest expense increased $1 million. Excluding the aforementioned merger-related expenses, intangible amortization expense, and contribution to the Fifth Third Foundation, noninterest expense was flat driven by investments in technology and offset by the continued benefits from the MB Financial expense synergies.

 

Average Interest-Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

% Change

 

 

December

 

September

 

December

 

 

 

 

 

 

2019

 

2019

 

2018

 

Seq

 

Yr/Yr

 

Average Portfolio Loans and Leases

 

 

 

 

 

 

 

 

 

 

Commercial loans and leases:

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans

$

50,938

 

$

51,241

 

$

43,829

 

(1

%)

 

16

%

 

Commercial mortgage loans

 

10,831

 

 

10,692

 

 

6,864

 

1

%

 

58

%

 

Commercial construction loans

 

5,334

 

 

5,267

 

 

4,885

 

1

%

 

9

%

 

Commercial leases

 

3,384

 

 

3,562

 

 

3,632

 

(5

%)

 

(7

%)

 

Total commercial loans and leases

$

70,487

 

$

70,762

 

$

59,210

 

-

 

 

19

%

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

$

16,697

 

$

16,736

 

$

15,520

 

-

 

 

8

%

 

Home equity

 

6,147

 

 

6,267

 

 

6,438

 

(2

%)

 

(5

%)

 

Indirect secured consumer loans

 

11,281

 

 

10,707

 

 

8,970

 

5

%

 

26

%

 

Credit card

 

2,496

 

 

2,448

 

 

2,373

 

2

%

 

5

%

 

Other consumer loans

 

2,679

 

 

2,621

 

 

2,246

 

2

%

 

19

%

 

Total consumer loans

$

39,300

 

$

38,779

 

$

35,547

 

1

%

 

11

%

 

Total average portfolio loans and leases

$

109,787

 

$

109,541

 

$

94,757

 

-

 

 

16

%

 

 

 

 

 

 

 

 

 

 

 

 

Average Loans and Leases Held for Sale

 

 

 

 

 

 

 

 

 

 

Commercial loans and leases held for sale

$

43

 

$

127

 

$

88

 

(66

%)

 

(51

%)

 

Consumer loans held for sale

 

1,156

 

 

998

 

 

553

 

16

%

 

109

%

 

Total average loans and leases held for sale

$

1,199

 

$

1,125

 

$

641

 

7

%

 

87

%

 

 

 

 

 

 

 

 

 

 

 

 

Securities and other short-term investments

$

38,326

 

$

38,188

 

$

35,674

 

-

 

 

7

%

 

Total average interest-earning assets

$

149,312

 

$

148,854

 

$

131,072

 

-

 

 

14

%

Compared to the year-ago quarter, total average portfolio loans and leases increased 16%, reflecting the impact of the MB Financial acquisition. Average commercial portfolio loans and leases increased 19%, reflecting the impact of MB Financial as well as higher commercial mortgage and commercial and industrial (C&I) loans, partially offset by a decline in commercial leases. Average consumer portfolio loans increased 11%, reflecting the impact of MB Financial as well as growth in indirect secured consumer loans and other consumer loans.

Compared to the prior quarter, total average portfolio loans and leases were flat, as higher indirect secured consumer loans were partially offset by lower C&I loans and commercial leases. Average commercial portfolio loans and leases were flat, as higher commercial mortgage and construction loans were offset by lower C&I loans. Average consumer portfolio loans increased 1%, reflecting growth in indirect secured consumer loans (predominantly automobile) and other consumer loans, partially offset by a decline in home equity loans.

Period end commercial line utilization was 36%, consistent with both the year-ago quarter and prior quarter.

Average securities and other short-term investments were $38.3 billion compared to $35.7 billion in the year-ago quarter and $38.2 billion in the prior quarter. Average available-for-sale debt and other securities of $35.4 billion increased 6% compared to the year-ago quarter and increased 2% compared to the prior quarter.

Average Deposits

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

% Change

 

 

December

 

September

 

December

 

 

 

 

 

 

2019

 

2019

 

2018

 

Seq

 

Yr/Yr

 

Average Deposits

 

 

 

 

 

 

 

 

 

 

Demand

$

35,710

 

$

35,223

 

$

31,571

 

1

%

 

13

%

 

Interest checking

 

38,628

 

 

37,729

 

 

32,428

 

2

%

 

19

%

 

Savings

 

14,274

 

 

14,405

 

 

12,933

 

(1

%)

 

10

%

 

Money market

 

27,429

 

 

26,962

 

 

22,517

 

2

%

 

22

%

 

Foreign office (g)

 

244

 

 

222

 

 

272

 

10

%

 

(10

%)

 

Total transaction deposits

$

116,285

 

$

114,541

 

$

99,721

 

2

%

 

17

%

 

Other time

 

5,507

 

 

5,823

 

 

4,366

 

(5

%)

 

26

%

 

Total core deposits

$

121,792

 

$

120,364

 

$

104,087

 

1

%

 

17

%

 

Certificates - $100,000 and over

 

4,072

 

 

4,795

 

 

2,662

 

(15

%)

 

53

%

 

Other deposits

 

252

 

 

47

 

 

746

 

436

%

 

(66

%)

 

Total average deposits

$

126,116

 

$

125,206

 

$

107,495

 

1

%

 

17

%

Compared to the year-ago quarter, average core deposits increased 17%, reflecting the impact of the MB Financial acquisition. Average core deposit growth was primarily driven by an increase in interest checking, money market, and demand deposits. Average commercial transaction deposits increased 22% and average consumer transaction deposits increased 12%.

Compared to the prior quarter, average core deposits increased 1%, primarily driven by higher interest checking, demand, and money market deposits. Average demand deposits represented 29% of total core deposits in both the current and prior quarter. Average commercial transaction deposits increased 2%, and average consumer transaction deposits increased 1%.

Average Wholesale Funding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

% Change

 

 

December

 

September

 

December

 

 

 

 

 

 

2019

 

2019

 

2018

 

Seq

 

Yr/Yr

 

Average Wholesale Funding

 

 

 

 

 

 

 

 

 

 

Certificates - $100,000 and over

$

4,072

 

$

4,795

 

$

2,662

 

(15

%)

 

53

%

 

Other deposits

 

252

 

 

47

 

 

746

 

436

%

 

(66

%)

 

Federal funds purchased

 

1,174

 

 

739

 

 

2,254

 

59

%

 

(48

%)

 

Other short-term borrowings

 

1,133

 

 

1,278

 

 

578

 

(11

%)

 

96

%

 

Long-term debt

 

14,860

 

 

15,633

 

 

14,420

 

(5

%)

 

3

%

 

Total average wholesale funding

$

21,491

 

$

22,492

 

$

20,660

 

(4

%)

 

4

%

Compared to the year-ago quarter, average wholesale funding increased 4% driven by growth in jumbo CD balances associated with the acquisition of MB Financial, as well as increased other short-term borrowings, partially offset by a decrease in federal funds borrowings. Compared to the prior quarter, average wholesale funding decreased 4%, reflecting the ability to fund the balance sheet through strong core deposit growth.

 

Credit Quality Summary(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

 

December

 

September

 

June

 

March

 

December

 

 

2019

 

2019

 

2019

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

Total nonaccrual portfolio loans and leases (NPLs)

$

618

 

 

$

482

 

 

$

521

 

 

$

450

 

 

$

348

 

 

Repossessed property

 

10

 

 

 

9

 

 

 

8

 

 

 

11

 

 

 

10

 

 

OREO

 

52

 

 

 

28

 

 

 

31

 

 

 

37

 

 

 

37

 

 

Total nonperforming portfolio loans and leases and OREO (NPAs)

$

680

 

 

$

519

 

 

$

560

 

 

$

498

 

 

$

395

 

 

 

 

 

 

 

 

 

 

 

 

 

NPL ratio (h)

 

0.56

%

 

 

0.44

%

 

 

0.48

%

 

 

0.41

%

 

 

0.37

%

 

NPA ratio (c)

 

0.62

%

 

 

0.47

%

 

 

0.51

%

 

 

0.45

%

 

 

0.41

%

 

 

 

 

 

 

 

 

 

 

 

 

Total loans and leases 30-89 days past due (accrual)

 

364

 

 

 

402

 

 

 

383

 

 

 

322

 

 

 

297

 

 

Total loans and leases 90 days past due (accrual)

 

130

 

 

 

132

 

 

 

128

 

 

 

132

 

 

 

93

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses, beginning

$

1,143

 

 

$

1,115

 

 

$

1,115

 

 

$

1,103

 

 

$

1,091

 

 

Total net losses charged-off

 

(113

)

 

 

(99

)

 

 

(78

)

 

 

(77

)

 

 

(83

)

 

Provision for loan and lease losses

 

172

 

 

 

127

 

 

 

78

 

 

 

89

 

 

 

95

 

 

Allowance for loan and lease losses, ending

$

1,202

 

 

$

1,143

 

 

$

1,115

 

 

$

1,115

 

 

$

1,103

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve for unfunded commitments, beginning

$

154

 

 

$

147

 

 

$

133

 

 

$

131

 

 

$

129

 

 

Reserve for acquired commitments

 

-

 

 

 

-

 

 

 

7

 

 

 

1

 

 

 

-

 

 

(Benefit from) provision for the reserve for unfunded commitments

 

(10

)

 

 

7

 

 

 

7

 

 

 

1

 

 

 

2

 

 

Reserve for unfunded commitments, ending

$

144

 

 

$

154

 

 

$

147

 

 

$

133

 

 

$

131

 

 

 

 

 

 

 

 

 

 

 

 

 

Total allowance for credit losses

$

1,346

 

 

$

1,297

 

 

$

1,262

 

 

$

1,248

 

 

$

1,234

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses ratios

 

 

 

 

 

 

 

 

 

 

As a percent of portfolio loans and leases

 

1.10

%

 

 

1.04

%

 

 

1.02

%

 

 

1.02

%

 

 

1.16

%

 

As a percent of nonperforming portfolio loans and leases

 

194

%

 

 

237

%

 

 

214

%

 

 

248

%

 

 

317

%

 

As a percent of nonperforming portfolio assets

 

177

%

 

 

221

%

 

 

199

%

 

 

224

%

 

 

279

%

 

 

 

 

 

 

 

 

 

 

 

 

Total losses charged-off

$

(152

)

 

$

(130

)

 

$

(119

)

 

$

(108

)

 

$

(116

)

 

Total recoveries of losses previously charged-off

 

39

 

 

 

31

 

 

 

41

 

 

 

31

 

 

 

33

 

 

Total net losses charged-off

$

(113

)

 

$

(99

)

 

$

(78

)

 

$

(77

)

 

$

(83

)

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-off ratio (NCO ratio) (b)

 

0.41

%

 

 

0.36

%

 

 

0.29

%

 

 

0.32

%

 

 

0.35

%

 

Commercial NCO ratio

 

0.20

%

 

 

0.18

%

 

 

0.13

%

 

 

0.11

%

 

 

0.19

%

 

Consumer NCO ratio

 

0.78

%

 

 

0.68

%

 

 

0.59

%

 

 

0.68

%

 

 

0.61

%

(1) Upon conversion of Fifth Third Bank to a national charter in the fourth quarter of 2019, Fifth Third changed its accounting policy to conform to Office of the Comptroller of the Currency (OCC) guidance regarding non-reaffirmed loans included in Chapter 7 bankruptcy filings to be accounted for as nonperforming troubled debt restructurings (TDRs) and collateral dependent loans regardless of payment history and capacity to pay in the future. As a result of the change in accounting policy, TDRs increased $105 million, of which $83 million were transferred to NPL status. Due to the fact that the collateral dependent loans require the carrying value to be less than or equal to the appraised value less the cost to sell, Fifth Third also incurred a $10 million increase in charge-offs during the quarter, which resulted in a $9 million impact to provision for loan and lease losses. In addition, Fifth Third changed its accounting policy to conform to OCC guidance associated with branch-related real estate no longer intended to be used for banking purposes, which resulted in an increase in OREO of $30 million, with an offsetting reduction to bank premises and equipment.

Nonperforming portfolio loans and leases were $618 million in the current quarter, with the resulting NPL ratio of 0.56%. NPLs included an $83 million unfavorable impact due to the aforementioned accounting policy change, or 7 bps to the NPL ratio. Compared to the year-ago quarter, NPLs increased $270 million with the NPL ratio increasing 19 bps. Compared to the prior quarter, NPLs increased $136 million with the NPL ratio increasing 12 bps.

Nonperforming portfolio assets were $680 million in the current quarter, with the resulting NPA ratio of 0.62%. NPAs included a $113 million unfavorable impact due to the aforementioned accounting policy changes, or 10 bps to the NPA ratio. Compared to the year-ago quarter, NPAs increased $285 million with the NPA ratio increasing 21 bps. Compared to the prior quarter, NPAs increased $161 million, or with the NPA ratio increasing 15 bps.

The provision for loan and lease losses totaled $172 million in the current quarter, which included a $9 million unfavorable impact due to the aforementioned accounting policy change. The provision for loan and lease losses increased $77 million compared to the year-ago quarter, and $45 million compared to the prior quarter. The allowance for loan and lease losses ratio represented 1.10% of total portfolio loans and leases outstanding in the current quarter, compared with 1.16% in the year-ago quarter and 1.04% in the prior quarter. The allowance for loan and lease losses represented 194% of nonperforming portfolio loans and leases in the current quarter. The allowance for loan and lease losses represented 177% of nonperforming portfolio assets in the current quarter.

Net charge-offs were $113 million in the current quarter, with the resulting NCO ratio of 0.41%. NCOs included a $10 million unfavorable impact due to the aforementioned accounting policy changes, or 4 bps to the NCO ratio. Compared to the year-ago quarter, net charge-offs increased $30 million and the NCO ratio increased 6 bps. Compared to the prior quarter, net charge-offs increased $14 million and the NCO ratio increased 5 bps.

 

Capital Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

 

December

 

September

 

June

 

March

 

December

 

 

 

 

2019

 

2019

 

2019

 

2019

 

2018

 

Capital Position

 

 

 

 

 

 

 

 

 

 

 

Average total Bancorp shareholders' equity as a percent of average assets

 

12.58

%

 

12.43

%

 

12.02

%

 

11.43

%

 

10.95

%

 

Tangible equity (a)

 

9.52

%

 

9.29

%

 

9.09

%

 

9.03

%

 

9.63

%

 

Tangible common equity (excluding AOCI) (a)

 

8.44

%

 

8.21

%

 

8.27

%

 

8.21

%

 

8.71

%

 

Tangible common equity (including AOCI) (a)

 

9.08

%

 

9.09

%

 

8.91

%

 

8.44

%

 

8.64

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regulatory Capital Ratios (e)

 

 

 

CET1 capital (d)

 

9.75

%

 

9.56

%

 

9.57

%

 

9.60

%

 

10.24

%

 

Tier I risk-based capital (d)

 

10.99

%

 

10.81

%

 

10.62

%

 

10.67

%

 

11.32

%

 

Total risk-based capital (d)

 

13.84

%

 

13.68

%

 

13.53

%

 

13.57

%

 

14.48

%

 

Tier I leverage

 

9.54

%

 

9.36

%

 

9.24

%

 

10.32

%

 

9.72

%

Capital ratios remained strong during the quarter. The CET1 capital ratio was 9.75%, the tangible common equity to tangible assets ratio was 8.44% excluding AOCI, and 9.08% including AOCI. The Tier I risk-based capital ratio was 10.99%, the Total risk-based capital ratio was 13.84%, and the Tier I leverage ratio was 9.54%.

On October 25, 2019, Fifth Third initially settled a share repurchase agreement whereby Fifth Third would purchase $300 million of its outstanding stock. The initial settlement reduced third quarter common shares outstanding by 9.0 million shares. On December 17, 2019, Fifth Third settled the forward contract, which resulted in an additional 1.1 million shares repurchased in connection with the completion of this agreement.

Tax Rate

The effective tax rate was 22.0% compared with 22.4% in the year-ago quarter and 20.2% in the prior quarter.

Other

On December 27, 2019, Fifth Third Bancorp entered into a transaction with FIS and Worldpay which grants each of Fifth Third Bancorp and Worldpay the ability to terminate and settle certain cash flows payable under Fifth Third Bancorp’s Tax Receivable Agreement with Worldpay. Under the TRA transaction, Worldpay may be obligated to pay up to a total of approximately $366 million to Fifth Third Bancorp to terminate and settle certain remaining cash flows Fifth Third Bancorp expected to receive under the TRA in the years 2021 to 2035, totaling an estimated $720 million. If exercised, certain of the obligations would be settled with four quarterly payments beginning in April 2020, a second set of the obligations would be settled with four quarterly payments beginning in April 2022, and a third set of the obligations would be settled with four quarterly payments beginning in April 2023. Fifth Third Bancorp recognized a pre-tax gain and corresponding receivable of $345 million in the fourth quarter of 2019 associated with these options.

Conference Call

Fifth Third will host a conference call to discuss these financial results at 9:00 a.m. (Eastern Time) today. This conference call will be webcast live and may be accessed through the Fifth Third Investor Relations website at www.53.com (click on “About Us” then “Investor Relations”).

Those unable to listen to the live webcast may access a webcast replay through the Fifth Third Investor Relations website at the same web address. Additionally, a telephone replay of the conference call will be available after the conference call until approximately February 5, 2020 by dialing 800-585-8367 for domestic access or 404-537-3406 for international access (passcode 3389028#).

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio, and the indirect parent company of Fifth Third Bank, National Association, a federally chartered institution. As of December 31, 2019, the Company had $169 billion in assets and operates 1,149 full-service Banking Centers, and 2,481 Fifth Third branded ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia and North Carolina. In total, Fifth Third provides its customers with access to approximately 53,000 fee-free ATMs across the United States. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Wealth & Asset Management. Fifth Third is among the largest money managers in the Midwest and, as of December 31, 2019, had $413 billion in assets under care, of which it managed $49 billion for individuals, corporations and not-for-profit organizations through its Trust and Registered Investment Advisory businesses. Investor information and press releases can be viewed at www.53.com. Fifth Third’s common stock is traded on the NASDAQ® Global Select Market under the symbol “FITB.”

Earnings Release End Notes

(a)

Non-GAAP measure; see discussion of non-GAAP and Reg. G reconciliation beginning on page 27 of the 4Q19 earnings release.

(b)

Net losses charged-off as a percent of average portfolio loans and leases.

(c)

Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO.

(d)

Under the U.S. banking agencies' Basel III Final Rule, assets and credit equivalent amounts of off-balance sheet exposures are calculated according to the standardized approach for risk-weighted assets. The resulting values are added together resulting in the Bancorp’s total risk-weighted assets.

(e)

Current period regulatory capital ratios are estimated.

(f)

Assumes a 23% tax rate.

(g)

Includes commercial customer Eurodollar sweep balances for which the Bank pays rates comparable to other commercial deposit accounts.

(h)

Nonperforming portfolio loans and leases as a percent of portfolio loans and leases and OREO.

FORWARD-LOOKING STATEMENTS

This release contains statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. They usually can be identified by the use of forward-looking language such as “will likely result,” “may,” “are expected to,” “is anticipated,” “potential,” “estimate,” “forecast,” “projected,” “intends to,” or may include other similar words or phrases such as “believes,” “plans,” “trend,” “objective,” “continue,” “remain,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” or similar verbs. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including but not limited to the risk factors set forth in our most recent Annual Report on Form 10-K as updated by our Quarterly Reports on Form 10-Q. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements we may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to us. We undertake no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this document.

There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) deteriorating credit quality; (2) loan concentration by location or industry of borrowers or collateral; (3) problems encountered by other financial institutions; (4) inadequate sources of funding or liquidity; (5) unfavorable actions of rating agencies; (6) inability to maintain or grow deposits; (7) limitations on the ability to receive dividends from subsidiaries; (8) cyber-security risks; (9) Fifth Third’s ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; (10) failures by third-party service providers; (11) inability to manage strategic initiatives and/or organizational changes; (12) inability to implement technology system enhancements; (13) failure of internal controls and other risk management systems; (14) losses related to fraud, theft or violence; (15) inability to attract and retain skilled personnel; (16) adverse impacts of government regulation; (17) governmental or regulatory changes or other actions; (18) failures to meet applicable capital requirements; (19) regulatory objections to Fifth Third’s capital plan; (20) regulation of Fifth Third’s derivatives activities; (21) deposit insurance premiums; (22) assessments for the orderly liquidation fund; (23) replacement of LIBOR; (24) weakness in the national or local economies; (25) global political and economic uncertainty or negative actions; (26) changes in interest rates; (27) changes and trends in capital markets; (28) fluctuation of Fifth Third’s stock price; (29) volatility in mortgage banking revenue; (30) litigation, investigations, and enforcement proceedings by governmental authorities; (31) breaches of contractual covenants, representations and warranties; (32) competition and changes in the financial services industry; (33) changing retail distribution strategies, customer preferences and behavior; (34) risks relating to Fifth Third’s ability to realize anticipated benefits of the merger with MB Financial, Inc.; (35) difficulties in identifying, acquiring or integrating suitable strategic partnerships, investments or acquisitions; (36) potential dilution from future acquisitions; (37) loss of income and/or difficulties encountered in the sale and separation of businesses, investments or other assets; (38) results of investments or acquired entities; (39) changes in accounting standards or interpretation or declines in the value of Fifth Third’s goodwill or other intangible assets; (40) inaccuracies or other failures from the use of models; (41) effects of critical accounting policies and judgments or the use of inaccurate estimates; (42) weather-related events or other natural disasters; and (43) the impact of reputational risk created by these or other developments on such matters as business generation and retention, funding and liquidity.

You should refer to our periodic and current reports filed with the Securities and Exchange Commission, or “SEC,” for further information on other factors, which could cause actual results to be significantly different from those expressed or implied by these forward-looking statements.

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Contact:

Investor contact: Chris Doll (513) 534-2345 | Media contact: Gary Rhodes (513) 534-4225