UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 23, 2019
(Exact name of registrant as specified in its charter)
(800) 972-3030
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|||
Common Stock, Without Par Value |
FITB |
The NASDAQ Stock Market LLC |
|||
Depositary Shares Representing a 1/1000th Ownership Interest in a Share of 6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series I |
FITBI |
The NASDAQ Stock Market LLC |
|||
Depositary Shares Representing a 1/40th Ownership Interest in a Share of 6.00% Non-Cumulative Perpetual Class B Preferred Stock, Series A |
FITBP |
The NASDAQ Stock Market LLC |
|||
Depositary Shares Representing a 1/1000th Ownership Interest in a Share of 4.95% Non-Cumulative Perpetual Preferred Stock, Series K |
FITBO |
The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 8.01 Other Events
Fifth Third Bancorp is filing the information in Exhibit 99.1 to this Current Report on Form 8-K to incorporate into its securities filing certain information from its October 22, 2019 earnings release for the third quarter of 2019.
Item 9.01 Financial Statements and Exhibits.
Exhibit 99.1 - Certain financial information contained in press release dated October 22, 2019 |
Exhibit 104 - Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
FIFTH THIRD BANCORP |
||
|
|
(Registrant) |
||
Date: October 23, 2019 |
|
/s/ TAYFUN TUZUN |
||
|
|
Tayfun Tuzun |
||
|
|
Executive Vice President and Chief Financial Officer |
Exhibit 99.1
Income Statement Highlights | ||||||||||||||||||||
($ in millions, except per share data) |
For the Three Months Ended | % Change | ||||||||||||||||||
September | June | September | ||||||||||||||||||
2019 | 2019 | 2018 | Seq | Yr/Yr | ||||||||||||||||
Condensed Statements of Income |
||||||||||||||||||||
Net interest income (NII)(a) |
$1,246 | $1,250 | $1,047 | - | 19% | |||||||||||||||
Provision for credit losses |
134 | 85 | 84 | 58% | 60% | |||||||||||||||
Noninterest income |
740 | 660 | 563 | 12% | 31% | |||||||||||||||
Noninterest expense |
1,159 | 1,243 | 972 | (7%) | 19% | |||||||||||||||
Income before income taxes(a) |
$693 | $582 | $554 | 19% | 25% | |||||||||||||||
Taxable equivalent adjustment |
4 | 5 | 4 | (20%) | - | |||||||||||||||
Applicable income tax expense |
140 | 124 | 114 | 13% | 23% | |||||||||||||||
Net income |
$549 | $453 | $436 | 21% | 26% | |||||||||||||||
Less: Net income attributable to noncontrolling interests |
- | - | - | NM | NM | |||||||||||||||
Net income attributable to Bancorp |
$549 | $453 | $436 | 21% | 26% | |||||||||||||||
Dividends on preferred stock |
19 | 26 | 15 | (27%) | 27% | |||||||||||||||
Net income available to common shareholders |
$530 | $427 | $421 | 24% | 26% | |||||||||||||||
Earnings per share, diluted |
$0.71 | $0.57 | $0.61 | 25% | 16% |
Fifth Third Bancorp (Nasdaq: FITB) today reported third quarter 2019 net income of $549 million compared to net income of $436 million in the year-ago quarter. Net income available to common shareholders was $530 million, or $0.71 per diluted share, compared to $421 million, or $0.61 per diluted share in the year-ago quarter. Prior quarter net income was $453 million and net income available to common shareholders was $427 million, or $0.57 per diluted share.
Diluted earnings per share impact of certain items | ||||
(after-tax impacts(f); $ in millions, except per share data) | ||||
Merger-related expenses |
($22 | ) | ||
Valuation of Visa total return swap |
($8 | ) | ||
After-tax impact(f) of certain items |
($30 | ) | ||
Average diluted common shares outstanding (thousands) |
736,086 | |||
Diluted earnings per share impact |
($0.04 | ) | ||
2
Net Interest Income | ||||||||||||||||||||
(FTE; $ in millions)(a) | For the Three Months Ended | % Change | ||||||||||||||||||
September | June | September | ||||||||||||||||||
2019 | 2019 | 2018 | Seq | Yr/Yr | ||||||||||||||||
Interest Income |
||||||||||||||||||||
Interest income |
$1,629 | $1,641 | $1,319 | (1%) | 24% | |||||||||||||||
Interest expense |
383 | 391 | 272 | (2%) | 41% | |||||||||||||||
Net interest income (NII) |
$1,246 | $1,250 | $1,047 | - | 19% | |||||||||||||||
Adjusted NII(a) |
$1,218 | $1,232 | $1,047 | (1%) | 16% | |||||||||||||||
Average Yield/Rate Analysis |
bps Change | |||||||||||||||||||
|
|
|||||||||||||||||||
Yield on interest-earning assets |
4.34% | 4.42% | 4.07% | (8) | 27 | |||||||||||||||
Rate paid on interest-bearing liabilities |
1.41% | 1.47% | 1.20% | (6) | 21 | |||||||||||||||
Ratios |
||||||||||||||||||||
Net interest rate spread |
2.93% | 2.95% | 2.87% | (2) | 6 | |||||||||||||||
Net interest margin (NIM) |
3.32% | 3.37% | 3.23% | (5) | 9 | |||||||||||||||
Adjusted NIM(a) |
3.25% | 3.32% | 3.23% | (7) | 2 |
Compared to the year-ago quarter, reported NII increased $199 million, or 19%. Excluding purchase accounting accretion of $28 million in the third quarter of 2019, adjusted NII increased $171 million, or 16%, reflecting an increase in interest earning assets, including the impact from the MB Financial acquisition. Compared to the year-ago quarter, reported NIM increased 9 bps, or 2 bps excluding purchase accounting accretion.
Compared to the prior quarter, reported NII decreased $4 million. Excluding purchase accounting accretion, adjusted NII decreased $14 million, or 1%, primarily reflecting lower short-term market rates and a decline in commercial & industrial (C&I) loans, partially offset by growth in the indirect secured consumer portfolio (predominantly indirect automobile) and lower deposit costs. Compared to the prior quarter, reported NIM decreased 5 bps. Excluding purchase accounting accretion, adjusted NIM decreased 7 bps, primarily reflecting lower short-term market rates, increased deposit balances resulting in elevated cash levels and higher day count, partially offset by continued improvement in indirect secured consumer yields (predominantly indirect automobile).
Noninterest Income | ||||||||||||||||||
($ in millions) | For the Three Months Ended | % Change | ||||||||||||||||
September | June | September | ||||||||||||||||
2019 | 2019 | 2018 | Seq | Yr/Yr | ||||||||||||||
Noninterest Income |
||||||||||||||||||
Service charges on deposits |
$143 | $143 | $139 | - |
3% |
|||||||||||||
Corporate banking revenue |
168 | 137 | 100 | 23% |
68% |
|||||||||||||
Mortgage banking net revenue |
95 | 63 | 49 | 51% |
94% |
|||||||||||||
Wealth and asset management revenue |
124 | 122 | 114 | 2% |
9% |
|||||||||||||
Card and processing revenue |
94 | 92 | 82 | 2% |
15% |
|||||||||||||
Other noninterest income |
111 | 93 | 86 | 19% |
29% |
|||||||||||||
Securities gains (losses), net |
5 | 8 | (6 | ) | (38%) |
NM |
||||||||||||
Securities gains (losses), net - non-qualifying hedges on mortgage servicing rights |
- | 2 | (1 | ) | (100%) |
NM |
||||||||||||
Total noninterest income |
$740 | $660 | $563 | 12% | 31% |
3
Reported noninterest income increased $177 million, or 31%, from the year-ago quarter, and increased $80 million, or 12%, 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.
Compared to the year-ago quarter, noninterest income excluding the items in the preceding table increased $160 million, or 27%. Compared to the prior quarter, noninterest income excluding the items in the preceding table increased $72 million, or 11%.
Compared to the year-ago quarter, service charges on deposits increased $4 million, or 3%, primarily driven by higher commercial deposit fees, partially offset by lower consumer deposit fees. Corporate banking revenue increased $68 million, or 68%, primarily driven by lease-related services revenue resulting from the MB Financial acquisition, as well as increases in lease remarketing revenue, corporate bond fees, and M&A advisory revenue. Mortgage banking net revenue increased $46 million, or 94%, primarily driven by higher mortgage originations of $3.4 billion, an increase of 81%. Wealth and asset management revenue increased $10 million, or 9%, primarily driven by higher personal asset management revenue.
Compared to the prior quarter, service charges on deposits were flat, as higher consumer deposit fees were offset by lower commercial deposit fees. Corporate banking revenue increased $31 million, or 23%, primarily driven by an increase in lease remarketing revenue, M&A advisory revenue, and corporate bond fees. Mortgage banking net revenue increased $32 million, or 51%, primarily driven by an improved gain on sale margin and a 17% increase in origination volumes. Wealth and asset management revenue increased $2 million, or 2%, primarily driven by higher personal asset management revenue and brokerage fees.
Other noninterest income results on a reported basis in the current and previous quarters were impacted by the Visa total return swap valuation adjustments. Excluding this item, other noninterest income of $122 million increased $19 million, or 18%, compared to the year-ago quarter, primarily driven by other noninterest income from MB Financial. Compared to the prior quarter, other noninterest income excluding this item increased $7 million, or 6%, reflecting higher private equity investment income.
4
Noninterest Expense | ||||||||||||||||||||
($ in millions) | For the Three Months Ended | % Change | ||||||||||||||||||
September | June | September | ||||||||||||||||||
2019 | 2019 | 2018 | Seq | Yr/Yr | ||||||||||||||||
Noninterest Expense |
||||||||||||||||||||
Compensation and benefits |
$584 | $641 | $503 | (9%) | 16% | |||||||||||||||
Net occupancy expense |
84 | 88 | 70 | (5%) | 20% | |||||||||||||||
Technology and communications |
100 | 136 | 71 | (26%) | 41% | |||||||||||||||
Equipment expense |
33 | 33 | 31 | - | 6% | |||||||||||||||
Card and processing expense |
33 | 34 | 31 | (3%) | 6% | |||||||||||||||
Intangible amortization expense |
14 | 14 | 2 | - | NM | |||||||||||||||
Other noninterest expense |
311 | 297 | 264 | 5% | 18% | |||||||||||||||
Total noninterest expense |
$1,159 | $1,243 | $972 | (7%) | 19% |
Impacts of Merger-Related Expenses |
|
|
||||||||||||||
($ in millions) | For the Three Months Ended | |||||||||||||||
September | June | September | ||||||||||||||
2019 | 2019 | 2018 | ||||||||||||||
Merger-Related Expenses |
||||||||||||||||
Compensation and benefits |
$14 | $41 | $- | |||||||||||||
Net occupancy expense |
3 | 6 | - | |||||||||||||
Technology and communications |
8 | 49 | - | |||||||||||||
Equipment expense |
- | 1 | - | |||||||||||||
Card and processing expense |
- | 1 | - | |||||||||||||
Intangible amortization expense |
- | - | - | |||||||||||||
Other noninterest expense |
3 | 11 | 1 | |||||||||||||
Total merger-related expenses |
$28 | $109 | $1 |
Compared to the year-ago quarter, reported noninterest expense increased $187 million, or 19%, impacted by the expenses associated with the MB Financial acquisition. Excluding the merger-related expenses and the intangible amortization expense noted in the table above, noninterest expense increased $148 million, or 15%, reflecting the ongoing expenses from the MB Financial acquisition, including elevated other noninterest expense associated with operating lease expense, as well as continued technology investments. The growth was partially offset by the elimination of the FDIC surcharge.
5
Compared to the prior quarter, reported noninterest expense decreased $84 million, or 7%, and was impacted by lower merger-related expenses, partially offset by elevated other noninterest expense. Excluding the merger-related expenses and the aforementioned intangible amortization expense, noninterest expense decreased $3 million, driven by lower compensation and benefits partially offset by higher other noninterest expense.
Average Interest-Earning Assets | ||||||||||||||||||||
($ in millions) | For the Three Months Ended | % Change | ||||||||||||||||||
September | June | September | ||||||||||||||||||
2019 | 2019 | 2018 | Seq | Yr/Yr | ||||||||||||||||
Average Portfolio Loans and Leases |
||||||||||||||||||||
Commercial loans and leases: |
||||||||||||||||||||
Commercial and industrial loans |
$51,241 | $52,078 | $42,494 | (2%) | 21% | |||||||||||||||
Commercial mortgage loans |
10,692 | 10,632 | 6,635 | 1% | 61% | |||||||||||||||
Commercial construction loans |
5,267 | 5,248 | 4,870 | - | 8% | |||||||||||||||
Commercial leases |
3,562 | 3,809 | 3,738 | (6%) | (5%) | |||||||||||||||
Total commercial loans and leases |
$70,762 | $71,767 | $57,737 | (1%) | 23% | |||||||||||||||
Consumer loans: |
||||||||||||||||||||
Residential mortgage loans |
$16,736 | $16,804 | $15,598 | - | 7% | |||||||||||||||
Home equity |
6,267 | 6,376 | 6,529 | (2%) | (4%) | |||||||||||||||
Indirect secured consumer loans |
10,707 | 10,190 | 8,969 | 5% | 19% | |||||||||||||||
Credit card |
2,448 | 2,408 | 2,299 | 2% | 6% | |||||||||||||||
Other consumer loans |
2,621 | 2,550 | 2,060 | 3% | 27% | |||||||||||||||
Total consumer loans |
$38,779 | $38,328 | $35,455 | 1% | 9% | |||||||||||||||
Total average portfolio loans and leases |
$109,541 | $110,095 | $93,192 | (1%) | 18% | |||||||||||||||
Average Loans and Leases Held for Sale |
||||||||||||||||||||
Commercial loans and leases held for sale |
$127 | $113 | $157 | 12% | (19%) | |||||||||||||||
Consumer loans held for sale |
998 | 785 | 628 | 27% | 59% | |||||||||||||||
Total average loans and leases held for sale |
$1,125 | $898 | $785 | 25% | 43% | |||||||||||||||
Securities and other short-term investments |
$38,188 | $37,797 | $34,822 | 1% | 10% | |||||||||||||||
Total average interest-earning assets |
$148,854 | $148,790 | $128,799 | - | 16% |
Compared to the year-ago quarter, average total portfolio loans and leases increased 18%, reflecting the impact of the MB Financial acquisition. Average commercial portfolio loans and leases increased 23%, reflecting the impact of MB Financial as well as higher commercial and industrial (C&I) and commercial mortgage loans, partially offset by a decline in commercial leases. Average consumer portfolio loans increased 9%, reflecting the impact of MB Financial as well as growth in indirect secured consumer loans and other consumer loans.
Compared to the prior quarter, average total portfolio loans and leases decreased 1%, primarily driven by a decline in C&I loans and commercial leases, partially offset by an increase in indirect secured consumer loans. Average commercial portfolio loans and leases decreased 1%, primarily driven by a decline in C&I loans and commercial leases. Average consumer portfolio loans increased 1%, reflecting growth in indirect secured consumer loans and other consumer loans, partially offset by a decline in home equity loans.
Period end commercial line utilization was 36%, compared to 35% in the year-ago quarter and 37% in the prior quarter.
6
Average securities and other short-term investments were $38.2 billion compared to $34.8 billion in the year-ago quarter and $37.8 billion in the prior quarter. Average available-for-sale debt and other securities of $34.8 billion increased 7% compared to the year-ago quarter and remained flat compared to the prior quarter.
Average Deposits | ||||||||||||||||||||
($ in millions) | For the Three Months Ended | % Change | ||||||||||||||||||
September | June | September | ||||||||||||||||||
2019 | 2019 | 2018 | Seq | Yr/Yr | ||||||||||||||||
Average Deposits |
||||||||||||||||||||
Demand |
$35,223 | $35,818 | $32,333 | (2%) | 9% | |||||||||||||||
Interest checking |
37,729 | 36,514 | 29,681 | 3% | 27% | |||||||||||||||
Savings |
14,405 | 14,418 | 13,231 | - | 9% | |||||||||||||||
Money market |
26,962 | 25,934 | 21,753 | 4% | 24% | |||||||||||||||
Foreign office(g) |
222 | 163 | 317 | 36% | (30%) | |||||||||||||||
Total transaction deposits |
$114,541 | $112,847 | $97,315 | 2% | 18% | |||||||||||||||
Other time |
5,823 | 5,678 | 4,177 | 3% | 39% | |||||||||||||||
Total core deposits |
$120,364 | $118,525 | $101,492 | 2% | 19% | |||||||||||||||
Certificates - $100,000 and over |
4,795 | 5,780 | 2,596 | (17%) | 85% | |||||||||||||||
Other deposits |
47 | 40 | 578 | 18% | (92%) | |||||||||||||||
Total average deposits |
$125,206 | $124,345 | $104,666 | 1% | 20% |
Compared to the year-ago quarter, average core deposits increased 19%, reflecting the impact of the MB Financial acquisition. Average core deposit growth was driven by an increase in interest checking, money market, and demand deposits. The increases were partially offset by lower foreign office deposits. Average commercial transaction deposits increased 26% and average consumer transaction deposits increased 11%.
Compared to the prior quarter, average core deposits increased 2%, primarily driven by higher interest checking and money market deposits, partially offset by a decline in demand deposits. Average demand deposits represented 29% of total core deposits in the third quarter of 2019, down from 30% in the prior quarter. Average commercial transaction deposits increased 4%, and average consumer transaction deposits decreased 1%.
Average Wholesale Funding | ||||||||||||||||||||
($ in millions) | For the Three Months Ended | % Change | ||||||||||||||||||
September | June | September | ||||||||||||||||||
2019 | 2019 | 2018 | Seq | Yr/Yr | ||||||||||||||||
Average Wholesale Funding |
||||||||||||||||||||
Certificates - $100,000 and over |
$4,795 | $5,780 | $2,596 | (17%) | 85% | |||||||||||||||
Other deposits |
47 | 40 | 578 | 18% | (92%) | |||||||||||||||
Federal funds purchased |
739 | 1,151 | 1,987 | (36%) | (63%) | |||||||||||||||
Other short-term borrowings |
1,278 | 1,119 | 1,018 | 14% | 26% | |||||||||||||||
Long-term debt |
15,633 | 15,543 | 14,434 | 1% | 8% | |||||||||||||||
Total average wholesale funding |
$22,492 | $23,633 | $20,613 | (5%) | 9% |
Compared to the year-ago quarter, average wholesale funding increased 9% driven by growth in jumbo CD balances and long-term debt balances associated with the acquisition of MB Financial, partially offset by a decrease in federal funds borrowings. Compared to the prior quarter, average wholesale funding decreased 5% reflecting a decrease in jumbo CD balances and federal funds borrowings, partially offset by an increase in other short-term debt.
7
Credit Quality Summary | ||||||||||||||||||||
($ in millions) | For the Three Months Ended | |||||||||||||||||||
September | June | March | December | September | ||||||||||||||||
2019 | 2019 | 2019 | 2018 | 2018 | ||||||||||||||||
Total nonaccrual portfolio loans and leases (NPLs) |
$482 | $521 | $450 | $348 | $403 | |||||||||||||||
Repossessed property |
9 | 8 | 11 | 10 | 8 | |||||||||||||||
OREO |
28 | 31 | 37 | 37 | 37 | |||||||||||||||
Total nonperforming portfolio assets (NPAs) |
$519 | $560 | $498 | $395 | $448 | |||||||||||||||
NPL ratio(h) |
0.44% | 0.48% | 0.41% | 0.37% | 0.43% | |||||||||||||||
NPA ratio(c) |
0.47% | 0.51% | 0.45% | 0.41% | 0.48% | |||||||||||||||
Total loans and leases 30-89 days past due (accrual) |
402 | 383 | 322 | 297 | 270 | |||||||||||||||
Total loans and leases 90 days past due (accrual) |
132 | 128 | 132 | 93 | 87 | |||||||||||||||
Allowance for loan and lease losses, beginning |
$1,115 | $1,115 | $1,103 | $1,091 | $1,077 | |||||||||||||||
Total net losses charged-off |
(99 | ) | (78 | ) | (77 | ) | (83 | ) | (72 | ) | ||||||||||
Provision for loan and lease losses |
127 | 78 | 89 | 95 | 86 | |||||||||||||||
Allowance for loan and lease losses, ending |
$1,143 | $1,115 | $1,115 | $1,103 | $1,091 | |||||||||||||||
Reserve for unfunded commitments, beginning |
$147 | $133 | $131 | $129 | $131 | |||||||||||||||
Reserve for acquired commitments |
- | 7 | 1 | - | - | |||||||||||||||
Provision for (benefit from) the reserve for unfunded commitments |
7 | 7 | 1 | 2 | (2) | |||||||||||||||
Reserve for unfunded commitments, ending |
$154 | $147 | $133 | $131 | $129 | |||||||||||||||
Total allowance for credit losses |
$1,297 | $1,262 | $1,248 | $1,234 | $1,220 | |||||||||||||||
Allowance for loan and lease losses ratios |
||||||||||||||||||||
As a percent of portfolio loans and leases |
1.04% | 1.02% | 1.02% | 1.16% | 1.17% | |||||||||||||||
As a percent of nonperforming portfolio loans and leases |
237% | 214% | 248% | 317% | 270% | |||||||||||||||
As a percent of nonperforming portfolio assets |
221% | 199% | 224% | 279% | 243% | |||||||||||||||
Total losses charged-off |
$(130 | ) | $(119 | ) | $(108 | ) | $(116 | ) | $(112 | ) | ||||||||||
Total recoveries of losses previously charged-off |
31 | 41 | 31 | 33 | 40 | |||||||||||||||
Total net losses charged-off |
$(99 | ) | $(78 | ) | $(77 | ) | $(83 | ) | $(72 | ) | ||||||||||
Net charge-off ratio (NCO ratio)(b) |
0.36% | 0.29% | 0.32% | 0.35% | 0.30% | |||||||||||||||
Commercial NCO ratio |
0.18% | 0.13% | 0.11% | 0.19% | 0.19% | |||||||||||||||
Consumer NCO ratio |
0.68% | 0.59% | 0.68% | 0.61% | 0.50% |
Compared to the year-ago quarter, NPLs increased $79 million, or 20%, with the resulting NPL ratio of 0.44% increasing 1 bp. NPAs increased $71 million, or 16%, with the resulting NPA ratio of 0.47% decreasing 1 bp. Compared to the prior quarter, NPLs decreased $39 million, or 7%, with the resulting NPL ratio decreasing 4 bps. NPAs decreased $41 million, or 7%, with the resulting NPA ratio decreasing 4 bps.
The provision for loan and lease losses totaled $127 million in the current quarter compared to $86 million in the year-ago quarter and $78 million in the prior quarter. The resulting allowance for loan and lease losses ratio represented 1.04% of total portfolio loans and leases outstanding in the current quarter, compared with 1.17% in the year-ago quarter and 1.02% in the prior quarter. The allowance for loan and lease losses represented 237% of nonperforming portfolio loans and leases and 221% of nonperforming portfolio assets in the current quarter.
8
Net charge-offs totaled $99 million in the current quarter compared to $72 million in the year-ago quarter and $78 million in the prior quarter. The resulting NCO ratio of 0.36% in the current quarter increased 6 bps compared to the year-ago quarter and increased 7 bps compared to the prior quarter.
Capital and Liquidity Position | ||||||||||||||||||||
For the Three Months Ended | ||||||||||||||||||||
September | June | March | December | September | ||||||||||||||||
2019 | 2019 | 2019 | 2018 | 2018 | ||||||||||||||||
Capital Position |
||||||||||||||||||||
Average total Bancorp shareholders equity as a percent of average assets |
12.43% | 12.02% | 11.43% | 10.95% | 11.29% | |||||||||||||||
Tangible equity(a) |
9.29% | 9.09% | 9.03% | 9.63% | 9.97% | |||||||||||||||
Tangible common equity (excluding AOCI)(a) |
8.21% | 8.27% | 8.21% | 8.71% | 9.02% | |||||||||||||||
Tangible common equity (including AOCI)(a) |
9.09% | 8.91% | 8.44% | 8.64% | 8.53% | |||||||||||||||
Regulatory Capital and Liquidity Ratios(e) |
||||||||||||||||||||
CET1 capital(d) |
9.56% | 9.57% | 9.60% | 10.24% | 10.67% | |||||||||||||||
Tier I risk-based capital(d) |
10.81% | 10.62% | 10.67% | 11.32% | 11.78% | |||||||||||||||
Total risk-based capital(d) |
13.69% | 13.53% | 13.57% | 14.48% | 14.94% | |||||||||||||||
Tier I leverage |
9.36% | 9.24% | 10.32% | 9.72% | 10.10% | |||||||||||||||
Modified liquidity coverage ratio (LCR) |
116% | 119% | 113% | 128% | 119% |
Capital ratios remained strong during the quarter. The CET1 capital ratio was 9.56%, the tangible common equity to tangible assets ratio was 8.21% excluding AOCI, and 9.09% including AOCI. The Tier I risk-based capital ratio was 10.81%, the Total risk-based capital ratio was 13.69%, and the Tier I leverage ratio was 9.36%.
Fifth Third completed multiple share repurchases during the quarter totaling $350 million, including approximately $50 million of its outstanding common stock (approximately 1.7 million shares) through the open market, which settled between July 31, 2019 and August 1, 2019. Below is a summary of the remaining share repurchases.
● |
On August 7, 2019, Fifth Third initially settled a share repurchase agreement whereby Fifth Third would purchase $100 million of its outstanding stock. The initial settlement reduced third quarter common shares outstanding by 3.1 million shares. On August 16, 2019, Fifth Third settled the forward contract, which resulted in an additional 0.7 million shares repurchased in connection with the completion of this agreement. |
● |
On August 9, 2019, Fifth Third initially settled a share repurchase agreement whereby Fifth Third would purchase $200 million of its outstanding stock in two $100 million tranches. The initial settlement reduced third quarter common shares outstanding by 6.4 million shares. On August 28, 2019, Fifth Third settled both tranches from the forward contract. An additional 1.5 million shares were repurchased in connection with the completion of this agreement. |
Based on the transactions noted above, common shares outstanding decreased by approximately 13.4 million shares, or 1.8%, in the third quarter of 2019 from the second quarter of 2019.
Fifth Third issued $250 million of 4.95% fixed rate non-cumulative perpetual preferred stock (Series K preferred stock) for net proceeds of $242 million on September 17, 2019.
9
Tax Rate
The effective tax rate was 20.2% compared with 20.7% in the year-ago quarter and 21.5% in the prior quarter. The current quarter tax rate was impacted by a $7 million tax benefit associated with certain commercial lease terminations.
Other
On September 10, 2019, Fifth Third Bank received approval from the Office of the Comptroller of the Currency (OCC) to convert from an Ohio state-chartered bank to a national bank.
Corporate Profile
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of September 30, 2019, the Company had $171 billion in assets and operates 1,143 full-service Banking Centers, and 2,487 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 September 30, 2019, had $397 billion in assets under care, of which it managed $46 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 Thirds 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 18. |
(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 Bancorps total risk-weighted assets. |
(e) |
Current period regulatory capital and liquidity ratios are estimated. |
(f) |
Assumes a 23% tax rate, except for merger-related expenses which were impacted by certain non-deductible items. |
(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. |
10
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 Thirds 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 Thirds capital plan; (20) regulation of Fifth Thirds 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 Thirds 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 Thirds 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 Thirds 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.
# # #
11
Fifth Third Bancorp and Subsidiaries | ||||||||||||||||||||||||||||||||||
Consolidated Statements of Income | ||||||||||||||||||||||||||||||||||
$ in millions | For the Three Months Ended | % Change | Year to Date | % Change | ||||||||||||||||||||||||||||||
(unaudited) | September | June | September | September | September | |||||||||||||||||||||||||||||
2019 | 2019 | 2018 | Seq | Yr/Yr | 2019 | 2018 | Yr/Yr | |||||||||||||||||||||||||||
Interest Income |
||||||||||||||||||||||||||||||||||
Interest and fees on loans and leases |
$1,320 | $1,336 | $1,040 | (1%) | 27% | $3,799 | $2,975 | 28% | ||||||||||||||||||||||||||
Interest on securities |
291 | 290 | 269 | - | 8% | 862 | 798 | 8% | ||||||||||||||||||||||||||
Interest on other short-term investments |
14 | 10 | 6 | 40% | 133% | 33 | 17 | 94% | ||||||||||||||||||||||||||
Total interest income |
1,625 | 1,636 | 1,315 | (1%) | 24% | 4,694 | 3,790 | 24% | ||||||||||||||||||||||||||
Interest Expense |
||||||||||||||||||||||||||||||||||
Interest on deposits |
243 | 243 | 144 | - | 69% | 692 | 359 | 93% | ||||||||||||||||||||||||||
Interest on federal funds purchased |
4 | 8 | 10 | (50%) | (60%) | 23 | 17 | 35% | ||||||||||||||||||||||||||
Interest on other short-term borrowings |
8 | 9 | 6 | (11%) | 33% | 23 | 25 | (8%) | ||||||||||||||||||||||||||
Interest on long-term debt |
128 | 131 | 112 | (2%) | 14% | 387 | 330 | 17% | ||||||||||||||||||||||||||
Total interest expense |
383 | 391 | 272 | (2%) | 41% | 1,125 | 731 | 54% | ||||||||||||||||||||||||||
Net Interest Income |
1,242 | 1,245 | 1,043 | - | 19% | 3,569 | 3,059 | 17% | ||||||||||||||||||||||||||
Provision for credit losses |
134 | 85 | 84 | 58% | 60% | 310 | 111 | 179% | ||||||||||||||||||||||||||
Net Interest Income After Provision for Credit Losses |
1,108 | 1,160 | 959 | (4%) | 16% | 3,259 | 2,948 | 11% | ||||||||||||||||||||||||||
Noninterest Income |
||||||||||||||||||||||||||||||||||
Service charges on deposits |
143 | 143 | 139 | - | 3% | 417 | 414 | 1% | ||||||||||||||||||||||||||
Corporate banking revenue |
168 | 137 | 100 | 23% | 68% | 417 | 308 | 35% | ||||||||||||||||||||||||||
Mortgage banking net revenue |
95 | 63 | 49 | 51% | 94% | 214 | 158 | 35% | ||||||||||||||||||||||||||
Wealth and asset management revenue |
124 | 122 | 114 | 2% | 9% | 358 | 335 | 7% | ||||||||||||||||||||||||||
Card and processing revenue |
94 | 92 | 82 | 2% | 15% | 266 | 245 | 9% | ||||||||||||||||||||||||||
Other noninterest income |
111 | 93 | 86 | 19% | 29% | 794 | 794 | - | ||||||||||||||||||||||||||
Securities gains (losses), net |
5 | 8 | (6 | ) | (38%) | NM | 30 | (21 | ) | NM | ||||||||||||||||||||||||
Securities gains (losses), net - non-qualifying hedges on mortgage servicing rights |
- | 2 | (1 | ) | (100%) | NM | 5 | (18 | ) | NM | ||||||||||||||||||||||||
Total noninterest income |
740 | 660 | 563 | 12% | 31% | 2,501 | 2,215 | 13% | ||||||||||||||||||||||||||
Noninterest Expense |
||||||||||||||||||||||||||||||||||
Compensation and benefits |
584 | 641 | 503 | (9%) | 16% | 1,843 | 1,609 | 15% | ||||||||||||||||||||||||||
Net occupancy expense |
84 | 88 | 70 | (5%) | 20% | 248 | 219 | 13% | ||||||||||||||||||||||||||
Technology and communications |
100 | 136 | 71 | (26%) | 41% | 319 | 206 | 55% | ||||||||||||||||||||||||||
Equipment expense |
33 | 33 | 31 | - | 6% | 96 | 92 | 4% | ||||||||||||||||||||||||||
Card and processing expense |
33 | 34 | 31 | (3%) | 6% | 98 | 91 | 8% | ||||||||||||||||||||||||||
Other noninterest expense |
325 | 311 | 266 | 5% | 22% | 895 | 767 | 17% | ||||||||||||||||||||||||||
Total noninterest expense |
1,159 | 1,243 | 972 | (7%) | 19% | 3,499 | 2,984 | 17% | ||||||||||||||||||||||||||
Income Before Income Taxes |
689 | 577 | 550 | 19% | 25% | 2,261 | 2,179 | 4% | ||||||||||||||||||||||||||
Applicable income tax expense |
140 | 124 | 114 | 13% | 23% | 483 | 442 | 9% | ||||||||||||||||||||||||||
Net Income |
549 | 453 | 436 | 21% | 26% | 1,778 | 1,737 | 2% | ||||||||||||||||||||||||||
Less: Net income attributable to noncontrolling interests |
- | - | - | NM | NM | - | - | NM | ||||||||||||||||||||||||||
Net Income Attributable to Bancorp |
549 | 453 | 436 | 21% | 26% | 1,778 | 1,737 | 2% | ||||||||||||||||||||||||||
Dividends on preferred stock |
19 | 26 | 15 | (27%) | 27% | 60 | 52 | 15% | ||||||||||||||||||||||||||
Net Income Available to Common Shareholders |
$530 | $427 | $421 | 24% | 26% | $1,718 | $1,685 | 2% |
12
Fifth Third Bancorp and Subsidiaries | ||||||||||||||||||||
Consolidated Statements of Income |
||||||||||||||||||||
$ in millions |
For the Three Months Ended | |||||||||||||||||||
(unaudited) |
September | June | March | December | September | |||||||||||||||
2019 | 2019 | 2019 | 2018 | 2018 | ||||||||||||||||
Interest Income |
||||||||||||||||||||
Interest and fees on loans and leases |
$1,320 | $1,336 | $1,143 | $1,104 | $1,040 | |||||||||||||||
Interest on securities |
291 | 290 | 281 | 282 | 269 | |||||||||||||||
Interest on other short-term investments |
14 | 10 | 9 | 7 | 6 | |||||||||||||||
Total interest income |
1,625 | 1,636 | 1,433 | 1,393 | 1,315 | |||||||||||||||
Interest Expense |
||||||||||||||||||||
Interest on deposits |
243 | 243 | 205 | 179 | 144 | |||||||||||||||
Interest on federal funds purchased |
4 | 8 | 12 | 13 | 10 | |||||||||||||||
Interest on other short-term borrowings |
8 | 9 | 6 | 4 | 6 | |||||||||||||||
Interest on long-term debt |
128 | 131 | 128 | 116 | 112 | |||||||||||||||
Total interest expense |
383 | 391 | 351 | 312 | 272 | |||||||||||||||
Net Interest Income |
1,242 | 1,245 | 1,082 | 1,081 | 1,043 | |||||||||||||||
Provision for credit losses |
134 | 85 | 90 | 97 | 84 | |||||||||||||||
Net Interest Income After Provision for Credit Losses |
1,108 | 1,160 | 992 | 984 | 959 | |||||||||||||||
Noninterest Income |
||||||||||||||||||||
Service charges on deposits |
143 | 143 | 131 | 135 | 139 | |||||||||||||||
Corporate banking revenue |
168 | 137 | 112 | 130 | 100 | |||||||||||||||
Mortgage banking net revenue |
95 | 63 | 56 | 54 | 49 | |||||||||||||||
Wealth and asset management revenue |
124 | 122 | 112 | 109 | 114 | |||||||||||||||
Card and processing revenue |
94 | 92 | 79 | 84 | 82 | |||||||||||||||
Other noninterest income |
111 | 93 | 592 | 93 | 86 | |||||||||||||||
Securities gains (losses), net |
5 | 8 | 16 | (32 | ) | (6 | ) | |||||||||||||
Securities gains (losses), net - non-qualifying hedges on mortgage servicing rights |
- | 2 | 3 | 2 | (1 | ) | ||||||||||||||
Total noninterest income |
740 | 660 | 1,101 | 575 | 563 | |||||||||||||||
Noninterest Expense |
||||||||||||||||||||
Compensation and benefits |
584 | 641 | 610 | 506 | 503 | |||||||||||||||
Net occupancy expense |
84 | 88 | 75 | 73 | 70 | |||||||||||||||
Technology and communications |
100 | 136 | 83 | 79 | 71 | |||||||||||||||
Equipment expense |
33 | 33 | 30 | 31 | 31 | |||||||||||||||
Card and processing expense |
33 | 34 | 31 | 33 | 31 | |||||||||||||||
Other noninterest expense |
325 | 311 | 268 | 253 | 266 | |||||||||||||||
Total noninterest expense |
1,159 | 1,243 | 1,097 | 975 | 972 | |||||||||||||||
Income Before Income Taxes |
689 | 577 | 996 | 584 | 550 | |||||||||||||||
Applicable income tax expense |
140 | 124 | 221 | 129 | 114 | |||||||||||||||
Net Income |
549 | 453 | 775 | 455 | 436 | |||||||||||||||
Less: Net income attributable to noncontrolling interests |
- | - | - | - | - | |||||||||||||||
Net Income Attributable to Bancorp |
549 | 453 | 775 | 455 | 436 | |||||||||||||||
Dividends on preferred stock |
19 | 26 | 15 | 23 | 15 | |||||||||||||||
Net Income Available to Common Shareholders |
$530 | $427 | $760 | $432 | $421 |
13
14
15
Fifth Third Bancorp and Subsidiaries | ||||||||||||||||
Consolidated Statements of Changes in Equity | ||||||||||||||||
$ in millions | For the Three Months Ended | Year to Date | ||||||||||||||
(unaudited) | September | September | September | September | ||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Total Equity, Beginning |
$20,671 | $16,100 | $16,250 | $16,220 | ||||||||||||
Net income attributable to Bancorp |
549 | 436 | 1,778 | 1,737 | ||||||||||||
Other comprehensive income, net of tax: |
||||||||||||||||
Change in unrealized gains (losses): |
||||||||||||||||
Available-for-sale securities |
377 | (207 | ) | 1,385 | (827 | ) | ||||||||||
Qualifying cash flow hedges |
79 | (17 | ) | 359 | (22 | ) | ||||||||||
Change in accumulated other comprehensive income related to employee benefit plans |
1 | 1 | 3 | 3 | ||||||||||||
Comprehensive income |
1,006 | 213 | 3,525 | 891 | ||||||||||||
Cash dividends declared: |
||||||||||||||||
Common stock |
(175 | ) | (121 | ) | (518 | ) | (355 | ) | ||||||||
Preferred stock |
(19 | ) | (15 | ) | (60 | ) | (52 | ) | ||||||||
Issuance of preferred stock |
439 | - | 439 | - | ||||||||||||
Impact of stock transactions under stock compensation plans, net |
24 | 24 | 59 | 46 | ||||||||||||
Shares acquired for treasury |
(350 | ) | (500 | ) | (1,463 | ) | (1,053 | ) | ||||||||
Impact of MB Financial, Inc. acquisition |
- | - | 3,159 | - | ||||||||||||
Noncontrolling interest |
(197 | ) | - | - | - | |||||||||||
Other |
5 | - | 3 | - | ||||||||||||
Impact of cumulative effect of change in account principles |
- | - | 10 | 4 | ||||||||||||
Total Equity, Ending |
$21,404 | $15,701 | $21,404 | $15,701 |
16
Fifth Third Bancorp and Subsidiaries |
||||||||||||||||||||
Regulatory Capital |
||||||||||||||||||||
$ in millions |
As of | |||||||||||||||||||
(unaudited) |
September | June | March | December | September | |||||||||||||||
2019(a) | 2019 | 2019 | 2018 | 2018 | ||||||||||||||||
Regulatory Capital |
||||||||||||||||||||
CET1 capital |
$13,568 | $13,532 | $13,430 | $12,534 | $12,809 | |||||||||||||||
Additional tier I capital |
1,769 | 1,493 | 1,493 | 1,330 | 1,331 | |||||||||||||||
Tier I capital |
15,337 | 15,025 | 14,923 | 13,864 | 14,140 | |||||||||||||||
Tier II capital |
4,085 | 4,111 | 4,048 | 3,859 | 3,792 | |||||||||||||||
Total regulatory capital |
$19,422 | $19,136 | $18,971 | $17,723 | $17,932 | |||||||||||||||
Risk-weighted assets(b) |
$141,880 | $141,421 | $139,844 | $122,432 | $120,002 | |||||||||||||||
Ratios |
||||||||||||||||||||
Average total Bancorp shareholders equity as a percent of average assets |
12.43% | 12.02% | 11.43% | 10.95% | 11.29% | |||||||||||||||
Regulatory Capital Ratios |
||||||||||||||||||||
Fifth Third Bancorp |
||||||||||||||||||||
CET1 capital(b) |
9.56% | 9.57% | 9.60% | 10.24% | 10.67% | |||||||||||||||
Tier I risk-based capital(b) |
10.81% | 10.62% | 10.67% | 11.32% | 11.78% | |||||||||||||||
Total risk-based capital(b) |
13.69% | 13.53% | 13.57% | 14.48% | 14.94% | |||||||||||||||
Tier I leverage |
9.36% | 9.24% | 10.32% | 9.72% | 10.10% | |||||||||||||||
Fifth Third Bank |
||||||||||||||||||||
Tier I risk-based capital(b) |
11.79% | 11.67% | 12.22% | 11.93% | 12.27% | |||||||||||||||
Total risk-based capital(b) |
13.38% | 13.23% | 13.86% | 13.57% | 13.94% | |||||||||||||||
Tier I leverage |
10.26% | 10.59% | 10.49% | 10.27% | 10.56% |
(a) |
Current period regulatory capital data and ratios are estimated. |
(b) |
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 Bancorps total risk-weighted assets. |
17
Use of Non-GAAP Financial Measures
In addition to GAAP measures, management considers various Non-GAAP measures when evaluating the performance of the business, including: net interest income (FTE), interest income (FTE), net interest margin (FTE), net interest rate spread (FTE), income before income taxes (FTE), tangible net income available to common shareholders, average tangible common equity, return on average tangible common equity, tangible common equity (excluding AOCI), tangible common equity (including AOCI), tangible equity, tangible book value per share, adjusted noninterest income, adjusted noninterest expense, pre-provision net revenue, adjusted efficiency ratio, adjusted return on average common equity, adjusted return on average tangible common equity, adjusted return on average tangible common equity, excluding accumulated other comprehensive income, adjusted net interest margin, adjusted pre-provision net revenue, adjusted return on average assets, efficiency ratio (FTE), total revenue (FTE), and certain ratios derived from these measures. The Bancorp believes these non-GAAP measures provide useful information to investors because these are among the measures used by the Fifth Third management team to evaluate operating performance and make day-to-day operating decisions.
The FTE basis adjusts for the tax-favored status of income from certain loans and securities held by the Bancorp that are not taxable for federal income tax purposes. The Bancorp believes this presentation to be the preferred industry measurement of net interest income and net interest margin as they provide a relevant comparison between taxable and non-taxable amounts.
The Bancorp believes tangible net income available to common shareholders, average tangible common equity, tangible common equity (excluding AOCI), tangible common equity (including AOCI), tangible equity, tangible book value per share and return on average tangible common equity are important measures for evaluating the performance of the business without the impacts of intangible items, whether acquired or created internally, compared to other companies in the industry who present similar measures.
The Bancorp believes noninterest income, noninterest expense, net interest income, net interest margin, pre-provision net revenue, efficiency ratio, return on average common equity, return on average tangible common equity, and return on average assets are important measures that adjust for significant, unusual, or large transactions that may occur in a reporting period which management does not consider indicative of on-going financial performance and enhances comparability of results with prior periods.
Management considers various measures when evaluating capital utilization and adequacy, including the tangible equity and tangible common equity (including and excluding AOCI), in addition to capital ratios defined by the U.S. banking agencies. These calculations are intended to complement the capital ratios defined by the U.S. banking agencies for both absolute and comparative purposes. These ratios are not formally defined by U.S. GAAP or codified in the federal banking regulations and, therefore, are considered to be Non-GAAP financial measures. Management believes that providing the tangible common equity ratio excluding AOCI on certain assets and liabilities enables investors and others to assess the Bancorps use of equity without the effects of changes in AOCI some of which are uncertain and providing the tangible common equity ratio including AOCI enables investors and others to assess the Bancorps use of equity if components of AOCI, such as unrealized gains or losses, were to be monetized.
Please note that although Non-GAAP financial measures provide useful insight, they should not be considered in isolation or relied upon as a substitute for analysis using GAAP measures.
Please see Reg. G reconciliations of all historical Non-GAAP measures used in this release to the most directly comparable GAAP measures, beginning on the following page.
18
Fifth Third Bancorp and Subsidiaries | ||||||||||||||||||||
Regulation G Non-GAAP Reconciliation | ||||||||||||||||||||
$ and shares in millions | For the Three Months Ended | |||||||||||||||||||
(unaudited) | September | June | March | December | September | |||||||||||||||
2019 | 2019 | 2019 | 2018 | 2018 | ||||||||||||||||
Net interest income |
$1,242 | $1,245 | $1,082 | $1,081 | $1,043 | |||||||||||||||
Add: Taxable equivalent adjustment |
4 | 5 | 4 | 4 | 4 | |||||||||||||||
Net interest income (FTE) (a) |
1,246 | 1,250 | 1,086 | 1,085 | 1,047 | |||||||||||||||
Net interest income (annualized) (b) |
4,928 | 4,994 | 4,388 | 4,289 | 4,138 | |||||||||||||||
Net interest income (FTE) (annualized) (c) |
4,943 | 5,014 | 4,404 | 4,305 | 4,154 | |||||||||||||||
Net interest income (FTE) |
1,246 | 1,250 | 1,086 | 1,085 | 1,047 | |||||||||||||||
Less: Net interest income impact from purchase accounting accretion |
28 | 18 | 1 | - | - | |||||||||||||||
Adjusted net interest income (FTE) (d) |
1,218 | 1,232 | 1,085 | 1,085 | 1,047 | |||||||||||||||
Adjusted net interest income (FTE) (annualized) (e) |
4,832 | 4,942 | 4,400 | 4,305 | 4,154 | |||||||||||||||
Interest income |
1,625 | 1,636 | 1,433 | 1,393 | 1,315 | |||||||||||||||
Add: Taxable equivalent adjustment |
4 | 5 | 4 | 4 | 4 | |||||||||||||||
Interest income (FTE) |
1,629 | 1,641 | 1,437 | 1,397 | 1,319 | |||||||||||||||
Interest income (FTE) (annualized) (f) |
6,463 | 6,582 | 5,828 | 5,542 | 5,233 | |||||||||||||||
Interest expense (annualized) (g) |
1,520 | 1,568 | 1,424 | 1,238 | 1,079 | |||||||||||||||
Average interest-earning assets (h) |
148,854 | 148,790 | 134,463 | 131,072 | 128,799 | |||||||||||||||
Average interest-bearing liabilities (i) |
107,633 | 106,340 | 97,137 | 93,176 | 89,772 | |||||||||||||||
Net interest margin (b) / (h) |
3.31% | 3.36% | 3.26% | 3.27% | 3.21% | |||||||||||||||
Net interest margin (FTE) (c) / (h) |
3.32% | 3.37% | 3.28% | 3.29% | 3.23% | |||||||||||||||
Adjusted net interest margin (e) / (h) |
3.25% | 3.32% | 3.28% | 3.29% | 3.23% | |||||||||||||||
Net interest rate spread (FTE) (f) / (h) - (g) / (i) |
2.93% | 2.95% | 2.87% | 2.90% | 2.87% | |||||||||||||||
Income before income taxes |
$689 | $577 | $996 | $584 | $550 | |||||||||||||||
Add: Taxable equivalent adjustment |
4 | 5 | 4 | 4 | 4 | |||||||||||||||
Income before income taxes (FTE) |
$693 | $582 | $1,000 | $588 | $554 | |||||||||||||||
Net income available to common shareholders |
$530 | $427 | $760 | $432 | $421 | |||||||||||||||
Add: Intangible amortization, net of tax |
11 | 11 | 2 | 1 | 1 | |||||||||||||||
Tangible net income available to common shareholders (j) |
541 | 438 | 762 | 433 | 422 | |||||||||||||||
Tangible net income available to common shareholders (annualized) (k) |
2,146 | 1,757 | 3,090 | 1,718 | 1,674 | |||||||||||||||
Average Bancorp shareholders equity |
21,087 | 20,135 | 17,025 | 15,794 | 15,994 | |||||||||||||||
Less: Average preferred stock |
(1,445 | ) | (1,331 | ) | (1,331 | ) | (1,331 | ) | (1,331 | ) | ||||||||||
Average goodwill |
(4,286 | ) | (4,301 | ) | (2,682 | ) | (2,468 | ) | (2,462 | ) | ||||||||||
Average intangible assets |
(208 | ) | (215 | ) | (58 | ) | (32 | ) | (29 | ) | ||||||||||
Average tangible common equity, including accumulated other comprehensive income (AOCI) (l) |
15,148 | 14,288 | 12,954 | 11,963 | 12,172 | |||||||||||||||
Less: Average AOCI |
(1,444 | ) | (619 | ) | - | 719 | 610 | |||||||||||||
Average tangible common equity, excluding AOCI (m) |
13,704 | 13,669 | 12,954 | 12,682 | 12,782 | |||||||||||||||
Total Bancorp shareholders equity |
21,404 | 20,474 | 19,647 | 16,250 | 15,681 | |||||||||||||||
Less: Preferred stock |
(1,770 | ) | (1,331 | ) | (1,331 | ) | (1,331 | ) | (1,331 | ) | ||||||||||
Goodwill |
(4,290 | ) | (4,284 | ) | (4,321 | ) | (2,478 | ) | (2,462 | ) | ||||||||||
Intangible assets |
(201 | ) | (215 | ) | (218 | ) | (40 | ) | (28 | ) | ||||||||||
Tangible common equity, including AOCI (n) |
15,143 | 14,644 | 13,777 | 12,401 | 11,860 | |||||||||||||||
Less: AOCI |
(1,635 | ) | (1,178 | ) | (409 | ) | 112 | 775 | ||||||||||||
Tangible common equity, excluding AOCI (o) |
13,508 | 13,466 | 13,368 | 12,513 | 12,635 | |||||||||||||||
Add: Preferred stock |
1,770 | 1,331 | 1,331 | 1,331 | 1,331 | |||||||||||||||
Tangible equity (p) |
15,278 | 14,797 | 14,699 | 13,844 | 13,966 | |||||||||||||||
Total assets |
171,079 | 168,802 | 167,853 | 146,069 | 141,590 | |||||||||||||||
Less: Goodwill |
(4,290 | ) | (4,284 | ) | (4,321 | ) | (2,478 | ) | (2,462 | ) | ||||||||||
Intangible assets |
(201 | ) | (215 | ) | (218 | ) | (40 | ) | (28 | ) | ||||||||||
Tangible assets, including AOCI (q) |
166,588 | 164,303 | 163,314 | 143,551 | 139,100 | |||||||||||||||
Less: AOCI, before tax |
(2,070 | ) | (1,491 | ) | (518 | ) | 142 | 981 | ||||||||||||
Tangible assets, excluding AOCI (r) |
$164,518 | $162,812 | $162,796 | $143,693 | $140,081 | |||||||||||||||
Common shares outstanding (s) |
719 | 731 | 739 | 647 | 661 | |||||||||||||||
Tangible equity (p) / (r) |
9.29% | 9.09% | 9.03% | 9.63% | 9.97% | |||||||||||||||
Tangible common equity (excluding AOCI) (o) / (r) |
8.21% | 8.27% | 8.21% | 8.71% | 9.02% | |||||||||||||||
Tangible common equity (including AOCI) (n) / (q) |
9.09% | 8.91% | 8.44% | 8.64% | 8.53% | |||||||||||||||
Tangible book value per share (n) / (s) |
$21.06 | $20.03 | $18.64 | $19.17 | $17.94 |
19
Fifth Third Bancorp and Subsidiaries |
||||||||||||
Regulation G Non-GAAP Reconciliation |
||||||||||||
$ in millions |
For the Three Months Ended | |||||||||||
(unaudited) |
September | June | September | |||||||||
2019 | 2019 | 2018 | ||||||||||
Net income attributable to Bancorp (t) |
$549 | $453 | $436 | |||||||||
Net income attributable to Bancorp (annualized) (u) |
2,178 | 1,817 | 1,730 | |||||||||
Adjustments (pre-tax items) |
||||||||||||
Merger-related expense |
28 | 109 | 1 | |||||||||
Valuation of Visa total return swap |
11 | 22 | 17 | |||||||||
GreenSky securities losses (gains) |
- | - | 8 | |||||||||
Adjustments, after-tax (v)(a) |
30 | 101 | 20 | |||||||||
Noninterest income (w) |
740 | 660 | 563 | |||||||||
Valuation of Visa total return swap |
11 | 22 | 17 | |||||||||
GreenSky securities losses (gains) |
- | - | 8 | |||||||||
Adjusted noninterest income (x) |
751 | 682 | 588 | |||||||||
Noninterest expense (y) |
1,159 | 1,243 | 972 | |||||||||
Merger-related expense |
(28 | ) | (109 | ) | (1 | ) | ||||||
Adjusted noninterest expense (z) |
1,131 | 1,134 | 971 | |||||||||
Intangible amortization expense |
14 | 14 | 2 | |||||||||
Adjusted noninterest expense excluding intangible amortization expense (aa) |
1,117 | 1,120 | 969 | |||||||||
Adjusted net income attributable to Bancorp (t) + (v) |
579 | 554 | 456 | |||||||||
Adjusted net income attributable to Bancorp (annualized) (ab) |
2,297 | 2,222 | 1,809 | |||||||||
Adjusted tangible net income available to common shareholders (j) + (v) |
571 | 539 | 442 | |||||||||
Adjusted tangible net income available to common shareholders (annualized) (ac) |
2,265 | 2,162 | 1,754 | |||||||||
Average assets (ad)
|
|
$169,585
|
|
|
$167,578
|
|
|
$141,654
|
|
|||
Return on average tangible common equity (k) / (l) |
14.2% | 12.3% | 13.8% | |||||||||
Adjusted return on average tangible common equity, including AOCI (ac) / (l) |
15.0% | 15.1% | 14.4% | |||||||||
Adjusted return on average tangible common equity, excluding AOCI (ac) / (m) |
16.5% | 15.8% | 13.7% | |||||||||
Return on average assets (u) / (ad) |
|
1.28% |
|
|
1.08% |
|
|
1.22% |
|
|||
Adjusted return on average assets (ab) / (ad) |
1.35% | 1.33% | 1.28% | |||||||||
Efficiency ratio (y) / [(a) + (x)] |
58.4% | 65.1% | 60.4% | |||||||||
Adjusted efficiency ratio (aa) / [(d) + (x)] |
56.7% | 58.5% | 59.3% | |||||||||
Total revenue (FTE) (a) + (w) |
$1,986 | $1,910 | $1,610 | |||||||||
Pre-provision net revenue (PPNR) (a) + (w) - (y) |
$827 | $667 | $638 | |||||||||
Adjusted pre-provision net revenue (PPNR) (d) + (x) - (aa) |
$852 | $794 | $666 |
(a) |
Assumes a 23% tax rate, except for merger-related expenses impacted by certain non-deductible items. |
20