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Fifth Third Announces Third Quarter 2021 Results

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·11-min read
In this article:
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Reported diluted earnings per share of $0.97

Reported results included a positive $0.03 impact from certain items on page 2 of the 3Q21 earnings release

CINCINNATI, October 19, 2021--(BUSINESS WIRE)--Fifth Third Bancorp (NASDAQ ®: FITB):

Key Highlights

Select Business Highlights:

  • Closed acquisition of Provide, a leading fintech company serving healthcare practices

  • Finalized HSA deposit sale, generating a pre-tax gain of $60 million (noninterest income)

  • Made $15 million pre-tax contribution to accelerate racial equality, equity and inclusion in our communities

  • Generated consumer household growth of 3% vs. 3Q20

  • Commercial loan production increased 5% compared to 2Q21; strongest production quarter since 4Q19

Select Financial Highlights:

  • ROTCE(a) of 16.9%; adjusted ROTCE(a) of 18.7% excl. AOCI

  • PPNR(a) increased 17% and adjusted PPNR(a) increased 4% compared to 3Q20

  • Period-end C&I loan growth of 1% (or 4% excl. impact of PPP loans) compared to 2Q21

  • Historically low NCO ratio of 0.08% reflecting improvements in both commercial and consumer

  • Repurchased shares totaling $550 million; capital plans support repurchase of shares totaling approximately $300 million in 4Q21; continue to target 9.5% CET1 by June 2022

Key Financial Data

$ millions for all balance sheet and income statement items

3Q21

2Q21

3Q20

Income Statement Data

Net income available to common shareholders

$684

$674

$562

Net interest income (U.S. GAAP)

1,189

1,208

1,170

Net interest income (FTE)(a)

1,192

1,211

1,173

Noninterest income

836

741

722

Noninterest expense

1,172

1,153

1,161

Per Share Data

Earnings per share, basic

$0.98

$0.95

$0.78

Earnings per share, diluted

0.97

0.94

0.78

Book value per share

29.59

29.57

29.25

Tangible book value per share(a)

22.79

23.34

23.06

Balance Sheet & Credit Quality

Average portfolio loans and leases

$107,970

$108,534

$113,362

Average deposits

162,647

162,619

155,911

Net charge-off ratio(b)

0.08

%

0.16

%

0.35

%

Nonperforming asset ratio(c)

0.52

0.61

0.84

Financial Ratios

Return on average assets

1.36

%

1.38

%

1.14

%

Return on average common equity

13.0

13.0

10.7

Return on average tangible common equity(a)

16.9

16.6

13.8

CET1 capital(d)(e)

9.85

10.37

10.14

Net interest margin(a)

2.59

2.63

2.58

Efficiency(a)

57.8

59.1

61.3

Other than the Quarterly Financial Review tables beginning on page 14 of the 3Q21 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

"Fifth Third has continued to deliver strong and steady financial results throughout the pandemic while fully supporting our customers, communities, and employees. Our performance this quarter once again reflected strong business outcomes across our franchise, resulting in improved and diversified revenues. This was combined with disciplined balance sheet management, expense management, and yet another quarter of benign credit results. As a result of our continued momentum, we generated positive operating leverage on a year-over-year basis.

Excluding the impact of the Paycheck Protection Program (PPP), loan growth this quarter reflected robust production, with even better growth on an end-of-period basis. We expect this positive momentum to carry forward in the fourth quarter and beyond.

I am very proud that, in addition to producing strong financial results, we have also continued to take deliberate actions to improve the lives of our customers and the well-being of our communities. We made a $15 million contribution in the third quarter to accelerate racial equality, equity and inclusion in our communities.

We closed two transactions during the third quarter to improve growth and profitability. The acquisition of Provide – a leading fintech company serving healthcare practices – will further accelerate profitable relationship growth. Additionally, we finalized the sale of HSA deposits as part of our multi-year strategy to simplify the organization and prioritize investments in order to generate differentiated outcomes for customers and shareholders. We continue to focus on growing strong relationships and managing the balance sheet with a through-the-cycle perspective in order to generate sustainable long-term value."

-Greg D. Carmichael, Chairman and CEO

Income Statement Highlights

($ in millions, except per share data)

For the Three Months Ended

% Change

September

June

September

2021

2021

2020

Seq

Yr/Yr

Condensed Statements of Income

Net interest income (NII)(a)

$1,192

$1,211

$1,173

(2)%

2%

Benefit from credit losses

(42)

(115)

(15)

(63)%

180%

Noninterest income

836

741

722

13%

16%

Noninterest expense

1,172

1,153

1,161

2%

1%

Income before income taxes(a)

$898

$914

$749

(2)%

20%

Taxable equivalent adjustment

$3

$3

$3

Applicable income tax expense

191

202

165

(5)%

16%

Net income

$704

$709

$581

(1)%

21%

Dividends on preferred stock

20

35

19

(43)%

5%

Net income available to common shareholders

$684

$674

$562

1%

22%

Earnings per share, diluted

$0.97

$0.94

$0.78

3%

24%

Fifth Third Bancorp (NASDAQ®: FITB) today reported third quarter 2021 net income of $704 million compared to net income of $709 million in the prior quarter and $581 million in the year-ago quarter. Net income available to common shareholders in the current quarter was $684 million, or $0.97 per diluted share, compared to $674 million, or $0.94 per diluted share, in the prior quarter and $562 million, or $0.78 per diluted share, in the year-ago quarter.

Diluted earnings per share impact of certain items - 3Q21

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

Valuation of Visa total return swap (noninterest income)

$(13)

Fifth Third Foundation contribution expense

(12)

HSA disposition gain (noninterest income)

46

After-tax impact(f) of certain items

$21

Diluted earnings per share impact of certain items1

$0.03

1Diluted earnings per share impact reflects 706.090 million average diluted shares outstanding

Net Interest Income

(FTE; $ in millions)(a)

For the Three Months Ended

% Change

September

June

September

2021

2021

2020

Seq

Yr/Yr

Interest Income

Interest income

$1,295

$1,326

$1,332

(2)%

(3)%

Interest expense

103

115

159

(10)%

(35)%

Net interest income (NII)

$1,192

$1,211

$1,173

(2)%

2%

Average Yield/Rate Analysis

bps Change

Yield on interest-earning assets

2.81%

2.88%

2.93%

(7)

(12)

Rate paid on interest-bearing liabilities

0.36%

0.40%

0.51%

(4)

(15)

Ratios

Net interest rate spread

2.45%

2.48%

2.42%

(3)

3

Net interest margin (NIM)

2.59%

2.63%

2.58%

(4)

1

Compared to the prior quarter, NII decreased $19 million, or 2%, primarily due to lower PPP-related income, lower yields on commercial loan balances (excluding PPP), and a reduction in prepayment penalties received in the investment portfolio, partially offset by higher day count and reductions in long-term debt. PPP-related interest income was $47 million compared to $53 million in the prior quarter. Compared to the prior quarter, NIM decreased 4 bps, primarily due to lower yields on commercial loan balances (excluding PPP), a reduction in prepayment penalties received in the investment portfolio, and higher day count, partially offset by reductions in long-term debt. Underlying NIM(g) decreased 9 bps sequentially. Excess liquidity and PPP had a negative impact on reported NIM of approximately 44 bps in the current quarter, compared to 49 bps in the prior quarter.

Compared to the year-ago quarter, NII increased $19 million, or 2%, primarily reflecting the benefit of GNMA forbearance loan buyout purchases, lower deposit costs, a reduction in long-term debt, and higher interest income from PPP loans, partially offset by lower C&I, home equity, and credit card balances and the impact of lower market rates. Compared to the year-ago quarter, reported NIM increased 1 bp, primarily reflecting lower deposit costs, PPP-related income, and a reduction in long-term debt, partially offset by lower market rates, loan spread compression, and the impact of excess liquidity.

Noninterest Income

($ in millions)

For the Three Months Ended

% Change

September

June

September

2021

2021

2020

Seq

Yr/Yr

Noninterest Income

Service charges on deposits

$152

$149

$144

2%

6%

Commercial banking revenue

152

160

125

(5)%

22%

Mortgage banking net revenue

86

64

76

34%

13%

Wealth and asset management revenue

147

145

132

1%

11%

Card and processing revenue

102

102

92

11%

Leasing business revenue

78

61

77

28%

1%

Other noninterest income

120

49

26

145%

362%

Securities (losses) gains, net

(1)

10

51

NM

NM

Securities (losses) gains, net - non-qualifying hedges on mortgage servicing rights

1

(1)

(100)%

(100)%

Total noninterest income

$836

$741

$722

13%

16%

Reported noninterest income increased $95 million, or 13%, from the prior quarter, and increased $114 million, or 16%, from the year-ago quarter. The reported results reflect the impact of certain items in the table below, including securities gains and losses.

Noninterest Income excluding certain items

($ in millions)

For the Three Months Ended

September

June

September

2021

2021

2020

Noninterest Income excluding certain items

Noninterest income (U.S. GAAP)

$836

$741

$722

Valuation of Visa total return swap

17

37

22

HSA disposition gain

(60)

Branch and non-branch real estate charges

10

Securities losses/(gains), net

1

(10)

(51)

Noninterest income excluding certain items(a)

$794

$768

$703

Compared to the prior quarter, noninterest income excluding certain items increased $26 million, or 3%. Compared to the year-ago quarter, noninterest income excluding certain items increased $91 million, or 13%.

Compared to the prior quarter, service charges on deposits increased $3 million, or 2%, reflecting an increase in both commercial and consumer deposit fees. Commercial banking revenue decreased $8 million, or 5%, primarily driven by lower financial risk management revenue and corporate bond fees, partially offset by an increase in M&A advisory revenue. Mortgage banking net revenue increased $22 million, or 34%, reflecting an incremental $12 million favorable impact from MSR net valuation adjustments and a $9 million decrease in MSR asset decay reflecting slower prepayment speeds. This was partially offset by a $3 million decrease in origination fees and gains on loan sales. Current quarter mortgage originations of $5.0 billion were flat compared to the prior quarter. Wealth and asset management revenue increased $2 million, or 1%, driven primarily by higher personal asset management revenue. Leasing business revenue increased $17 million, or 28%, primarily driven by an increase in business solutions revenue and lease syndication revenue.

Compared to the year-ago quarter, service charges on deposits increased $8 million, or 6%, reflecting an increase in both commercial treasury management and consumer deposit fees. Commercial banking revenue increased $27 million, or 22%, primarily driven by increases in loan syndication revenue and M&A advisory revenue, partially offset by lower corporate bond fees. Mortgage banking net revenue increased $10 million, or 13%, reflecting an incremental $17 million favorable impact from MSR net valuation adjustments and an $11 million decrease in MSR asset decay reflecting slower prepayment speeds. This was partially offset by a $15 million decrease in origination fees and gains on loan sales. Wealth and asset management revenue increased $15 million, or 11%, primarily driven by higher personal asset management revenue and brokerage fees. Card and processing revenue increased $10 million, or 11%, primarily driven by higher spend volumes, partially offset by higher rewards. Leasing business revenue increased $1 million, or 1%, primarily reflecting increases in lease syndication revenue. Other noninterest income excluding certain items increased $19 million, primarily reflecting higher private equity income in the current quarter compared to the year-ago quarter.

Noninterest Expense

($ in millions)

For the Three Months Ended

% Change

September

June

September

2021

2021

2020

Seq

Yr/Yr

Noninterest Expense

Compensation and benefits

$627

$638

$637

(2)%

(2)%

Net occupancy expense

79

77

90

3%

(12)%

Technology and communications

98

94

89

4%

10%

Equipment expense

34

34

33

3%

Card and processing expense

19

20

29

(5)%

(34)%

Leasing business expense

33

33

35

(6)%

Marketing expense

29

20

23

45%

26%

Other noninterest expense

253

237

225

7%

12%

Total noninterest expense

$1,172

$1,153

$1,161

2%

1%

Reported noninterest expense increased $19 million, or 2%, from the prior quarter, and increased $11 million, or 1%, from the year-ago quarter. The reported results reflect the impact of certain items in the table below.

Noninterest Expense excluding certain items

($ in millions)

For the Three Months Ended

September

June

September

2021

2021

2020

Noninterest Expense excluding certain items

Noninterest expense (U.S. GAAP)

$1,172

$1,153

$1,161

Fifth Third Foundation contribution

(15)

Restructuring severance expense

(19)

Branch and non-branch real estate charges

(9)

Noninterest expense excluding certain items(a)

$1,157

$1,153

$1,133

Compared to the prior quarter, noninterest expense excluding certain items increased $4 million, primarily reflecting an increase in marketing expense associated with Fifth Third Momentum Banking, and an increase in travel and entertainment expense. This was partially offset by a decrease in compensation and benefits expense, primarily reflecting a decline in full-time equivalent employees compared to the prior quarter.

Compared to the year-ago quarter, noninterest expense excluding certain items increased $24 million, or 2%, primarily driven by an increase in performance-based compensation expense reflecting strong business results, expenses associated with the aforementioned GNMA forbearance loan buyout purchases, and an increase in travel and entertainment expense. This was partially offset by lower card and processing expense due to contract renegotiations and lower net occupancy expense. Full-time equivalent employees declined 5% compared to the year-ago quarter.

Average Interest-Earning Assets

($ in millions)

For the Three Months Ended

% Change

September

June

September

2021

2021

2020

Seq

Yr/Yr

Average Portfolio Loans and Leases

Commercial loans and leases:

Commercial and industrial loans

$47,766

$48,773

$54,004

(2)%

(12)%

Commercial mortgage loans

10,317

10,459

11,069

(1)%

(7)%

Commercial construction loans

5,728

6,043

5,534

(5)%

4%

Commercial leases

3,158

3,174

2,966

(1)%

6%

Total commercial loans and leases

$66,969

$68,449

$73,573

(2)%

(9)%

Consumer loans:

Residential mortgage loans

$16,223

$15,883

$16,618

2%

(2)%

Home equity

4,409

4,674

5,581

(6)%

(21)%

Indirect secured consumer loans

15,590

14,702

12,599

6%

24%

Credit card

1,748

1,770

2,134

(1)%

(18)%

Other consumer loans

3,031

3,056

2,857

(1)%

6%

Total consumer loans

$41,001

$40,085

$39,789

2%

3%

Total average portfolio loans and leases

$107,970

...

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