EX-99.1 2 d694068dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

 

Key Financial Data

 

        
                           
  $ millions for all balance sheet and income statement items  

 

      3Q19

     2Q19     3Q18        
 

 

 

    

 

 

    

 

 

    

 

Income Statement Data

        

 

Net income available to common shareholders

 

    

 

 $530

 

  

 

    

 

 $427

 

  

 

    

 

 $421

 

  

 

  

Net interest income (U.S. GAAP)

 

    

 

 1,242

 

  

 

    

 

 1,245

 

  

 

    

 

 1,043

 

  

 

  

Net interest income (FTE)(a)

 

    

 

 1,246

 

  

 

    

 

 1,250

 

  

 

    

 

 1,047

 

  

 

  

Noninterest income

 

    

 

 740

 

  

 

    

 

 660

 

  

 

    

 

 563

 

  

 

  

Noninterest expense

 

    

 

 1,159

 

  

 

    

 

 1,243

 

  

 

    

 

 972

 

  

 

  

Per Share Data

 

  

 

Earnings per share, basic

 

    

 

 $0.72

 

  

 

    

 

 $0.57

 

  

 

    

 

 $0.62

 

  

 

  

Earnings per share, diluted

 

    

 

 0.71

 

  

 

    

 

 0.57

 

  

 

    

 

 0.61

 

  

 

  

Book value per share

 

    

 

 27.32

 

  

 

    

 

 26.17

 

  

 

    

 

 21.70

 

  

 

  

Tangible book value per share(a)

 

    

 

 21.06

 

  

 

    

 

 20.03

 

  

 

    

 

 17.94

 

  

 

  

Balance Sheet & Credit Quality

 

  

 

Average portfolio loans and leases

 

    

 

 $109,541

 

  

 

    

 

 $110,095

 

  

 

    

 

 $93,192

 

  

 

  

Average deposits

 

    

 

 125,206

 

  

 

    

 

 124,345

 

  

 

    

 

 104,666

 

  

 

  

Net charge-off ratio(b)

 

    

 

 0.36

 

   % 

 

    

 

 0.29

 

   % 

 

    

 

 0.30

 

   % 

 

  

Nonperforming asset ratio(c)

 

    

 

 0.47

 

  

 

    

 

 0.51

 

  

 

    

 

 0.48

 

  

 

  

Financial Ratios

 

  

 

Return on average assets

 

    

 

 1.28

 

   % 

 

    

 

 1.08

 

   % 

 

    

 

 1.22

 

   % 

 

  

Return on average common equity

 

    

 

 10.7

 

  

 

    

 

 9.1

 

  

 

    

 

 11.4

 

  

 

  

Return on average tangible common equity(a)

 

    

 

 14.2

 

  

 

    

 

 12.3

 

  

 

    

 

 13.8

 

  

 

  

CET1 capital(d)(e)

 

    

 

 9.56

 

  

 

    

 

 9.57

 

  

 

    

 

 10.67

 

  

 

  

Net interest margin(a)

 

    

 

 3.32

 

  

 

    

 

 3.37

 

  

 

    

 

 3.23

 

  

 

  

Efficiency(a)

     58.4       65.1       60.4    

 

Other than the Quarterly Financial Review tables 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.

(1)Adjusted return metrics are non-GAAP measures; see discussion on non-GAAP and Reg G. reconciliation beginning on page 18; ROTCE excludes accumulated other comprehensive income (“AOCI”).

 

 

  
 

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.

 

Noninterest Income excluding certain items                         
                          
($ in millions)    For the Three Months Ended  
     September     June       September  
     2019     2019       2018  

Noninterest Income excluding certain items

       

Noninterest income (U.S. GAAP)

      $740       $660       $563  

Valuation of Visa total return swap

      11       22       17  

GreenSky equity securities losses

      -       -       8  

Securities (gains), net (excluding GreenSky)

      (5 )      (8 )      (2 ) 

Noninterest income excluding certain items(a)

      $746       $674       $586  

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  

 

 Noninterest Expense excluding Merger-Related Expenses(a)  
 ($ in millions)      For the Three Months Ended        % Change  
     September        June        September         
         2019              2019              2018          Seq          Yr/Yr      

Noninterest Expense excluding Merger-Related Expenses

               

Compensation and benefits

      $570        $600        $503        (5%)        13%  

Net occupancy expense

      81        82        70        (1%)        16%  

Technology and communications

      92        87        71        6%        30%  

Equipment expense

      33        32        31        3%        6%  

Card and processing expense

      33        33        31        -        6%  

Intangible amortization expense

      14        14        2        -        NM  

Other noninterest expense

      308        286        263        8%        17%  

Total noninterest expense excluding merger-related expenses

      $1,131        $1,134        $971        -        16%  

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 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 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 Bancorp’s 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 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.

# # #

 

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

Fifth Third Bancorp and Subsidiaries                                   

Consolidated Balance Sheets

               

$ in millions, except per share data

      As of        % Change  

(unaudited)

      September            June            September            
       2019            2019            2018            Seq            Yr/Yr      

Assets

               

Cash and due from banks

      $3,261        $2,764        $2,100        18%        55%  

Other short-term investments

      3,235        3,357        1,429        (4%)        126%  

Available-for-sale debt and other securities(a)

     37,178        35,753        31,808        4%        17%  

Held-to-maturity securities(b)

     18        21        18        (14%)        -  

Trading debt securities

      297        322        269        (8%)        10%  

Equity securities

      459        485        500        (5%)        (8%)  

Loans and leases held for sale

      1,223        1,205        663        1%        84%  

Portfolio loans and leases:

               

Commercial and industrial loans

      50,768        51,104        42,631        (1%)        19%  

Commercial mortgage loans

      10,822        10,717        6,695        1%        62%  

Commercial construction loans

      5,281        5,264        4,892        -        8%  

Commercial leases

      3,495        3,677        3,697        (5%)        (5%)  

Total commercial loans and leases

      70,366        70,762        57,915        (1%)        21%  

Residential mortgage loans

      16,675        16,777        15,585        (1%)        7%  

Home equity

      6,218        6,325        6,485        (2%)        (4%)  

Indirect secured consumer loans

      11,026        10,403        9,002        6%        22%  

Credit card

      2,467        2,436        2,325        1%        6%  

Other consumer loans

      2,657        2,580        2,131        3%        25%  

Total consumer loans

      39,043        38,521        35,528        1%        10%  

Portfolio loans and leases

      109,409        109,283        93,443        -        17%  

Allowance for loan and lease losses

      (1,143 )       (1,115 )       (1,091 )       3%        5%  

Portfolio loans and leases, net

      108,266        108,168        92,352        -        17%  

Bank premises and equipment

      2,053        2,074        1,896        (1%)        8%  

Operating lease equipment

      869        894        546        (3%)        59%  

Goodwill

      4,290        4,284        2,462        -        74%  

Intangible assets

      201        215        28        (7%)        618%  

Servicing rights

      910        1,039        1,010        (12%)        (10%)  

Other assets

      8,819        8,221        6,509        7%        35%  

Total Assets

      $171,079        $168,802        $141,590        1%        21%  

Liabilities

               

Deposits:

               

Demand

      $35,893        $35,589        $31,803        1%        13%  

Interest checking

      36,965        37,491        30,288        (1%)        22%  

Savings

      14,354        14,484        13,027        (1%)        10%  

Money market

      27,370        26,465        21,977        3%        25%  

Foreign office

      226        175        298        29%        (24%)  

Other time

      5,662        5,759        4,249        (2%)        33%  

Certificates $100,000 and over

      4,377        5,429        2,700        (19%)        62%  

Other deposits

      500        -        -        NM        NM  

Total deposits

      125,347        125,392        104,342        -        20%  

Federal funds purchased

      876        179        2,316        389%        (62%)  

Other short-term borrowings

      4,046        957        1,114        323%        263%  

Accrued taxes, interest and expenses

      2,507        2,397        1,209        5%        107%  

Other liabilities

      2,425        3,422        2,448        (29%)        (1%)  

Long-term debt

      14,474        15,784        14,460        (8%)        -  

Total Liabilities

      149,675        148,131        125,889        1%        19%  

Equity

               

Common stock(c)

     2,051        2,051        2,051        -        -  

Preferred stock

      1,770        1,331        1,331        33%        33%  

Capital surplus

      3,589        3,572        2,856        -        26%  

Retained earnings

      17,786        17,431        16,291        2%        9%  

Accumulated other comprehensive income (loss)

      1,635        1,178        (775 )       39%        (311%)  

Treasury stock

      (5,427 )       (5,089 )       (6,073 )       7%        (11%)  

Total Bancorp shareholders’ equity

      21,404        20,474        15,681        5%        36%  

Noncontrolling interests

      -        197        20        (100%)        (100%)  

Total Equity

      21,404        20,671        15,701        4%        36%  

Total Liabilities and Equity

      $171,079        $168,802        $141,590        1%        21%  

(a)    Amortized cost

      $35,662        $34,731        $32,707        3%        9%  

(b)    Market values

      18        21        18        (14%)        -  

(c)    Common shares, stated value $2.22 per share (in thousands):

               

      Authorized

      2,000,000        2,000,000        2,000,000        -        -  

      Outstanding, excluding treasury

      718,583        731,474        661,373        (2%)        9%  

      Treasury

      205,309        192,419        262,520        7%        (22%)  

 

14

Fifth Third Bancorp and Subsidiaries

               

Consolidated Balance Sheets

               

$ in millions, except per share data

      As of  

(unaudited)

      September            June            March            December            September      
       2019            2019            2019            2018            2018      

Assets

               

Cash and due from banks

      $3,261        $2,764        $2,749        $2,681        $2,100  

Other short-term investments

      3,235        3,357        3,556        1,825        1,429  

Available-for-sale debt and other securities(a)

      37,178        35,753        35,048        32,830        31,808  

Held-to-maturity securities(b)

      18        21        21        18        18  

Trading debt securities

      297        322        325        287        269  

Equity securities

      459        485        426        452        500  

Loans and leases held for sale

      1,223        1,205        692        607        663  

Portfolio loans and leases:

               

Commercial and industrial loans

      50,768        51,104        51,862        44,340        42,631  

Commercial mortgage loans

      10,822        10,717        10,686        6,974        6,695  

Commercial construction loans

      5,281        5,264        5,231        4,657        4,892  

Commercial leases

      3,495        3,677        3,909        3,600        3,697  

Total commercial loans and leases

      70,366        70,762        71,688        59,571        57,915  

Residential mortgage loans

      16,675        16,777        16,811        15,504        15,585  

Home equity

      6,218        6,325        6,435        6,402        6,485  

Indirect secured consumer loans

      11,026        10,403        10,031        8,976        9,002  

Credit card

      2,467        2,436        2,388        2,470        2,325  

Other consumer loans

      2,657        2,580        2,489        2,342        2,131  

Total consumer loans

      39,043        38,521        38,154        35,694        35,528  

Portfolio loans and leases

      109,409        109,283        109,842        95,265        93,443  

Allowance for loan and lease losses

      (1,143 )       (1,115 )       (1,115 )       (1,103 )       (1,091 ) 

Portfolio loans and leases, net

      108,266        108,168        108,727        94,162        92,352  

Bank premises and equipment

      2,053        2,074        2,092        1,861        1,896  

Operating lease equipment

      869        894        908        518        546  

Goodwill

      4,290        4,284        4,321        2,478        2,462  

Intangible assets

      201        215        218        40        28  

Servicing rights

      910        1,039        1,141        938        1,010  

Other assets

      8,819        8,221        7,629        7,372        6,509  

Total Assets

      $171,079        $168,802        $167,853        $146,069        $141,590  

Liabilities

               

Deposits:

               

Demand

      $35,893        $35,589        $35,963        $32,116        $31,803  

Interest checking

      36,965        37,491        35,746        34,058        30,288  

Savings

      14,354        14,484        14,451        12,907        13,027  

Money market

      27,370        26,465        25,942        22,597        21,977  

Foreign office

      226        175        154        240        298  

Other time

      5,662        5,759        5,539        4,490        4,249  

Certificates $100,000 and over

      4,377        5,429        5,569        2,427        2,700  

Other deposits

      500        -        300        -        -  

Total deposits

      125,347        125,392        123,664        108,835        104,342  

Federal funds purchased

      876        179        2,630        1,925        2,316  

Other short-term borrowings

      4,046        957        1,329        573        1,114  

Accrued taxes, interest and expenses

      2,507        2,397        2,242        1,562        1,209  

Other liabilities

      2,425        3,422        2,661        2,498        2,448  

Long-term debt

      14,474        15,784        15,483        14,426        14,460  

Total Liabilities

      149,675        148,131        148,009        129,819        125,889  

Equity

               

Common stock(c)

      2,051        2,051        2,051        2,051        2,051  

Preferred stock

      1,770        1,331        1,331        1,331        1,331  

Capital surplus

      3,589        3,572        3,444        2,873        2,856  

Retained earnings

      17,786        17,431        17,184        16,578        16,291  

Accumulated other comprehensive income (loss)

      1,635        1,178        409        (112 )       (775 ) 

Treasury stock

      (5,427 )       (5,089 )       (4,772 )       (6,471 )       (6,073 ) 

Total Bancorp shareholders’ equity

      21,404        20,474        19,647        16,250        15,681  

Noncontrolling interests

      -        197        197        -        20  

Total Equity

      21,404        20,671        19,844        16,250        15,701  

Total Liabilities and Equity

      $171,079        $168,802        $167,853        $146,069        $141,590  

(a)    Amortized cost

      $35,662        $34,731        $34,784        $33,128        $32,707  

(b)    Market values

      18        21        21        18        18  

(c)    Common shares, stated value $2.22 per share (in thousands):

               

     Authorized

      2,000,000        2,000,000        2,000,000        2,000,000        2,000,000  

     Outstanding, excluding treasury

      718,583        731,474        739,406        646,631        661,373  

     Treasury

      205,309        192,419        184,486        277,262        262,520  

 

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 Bancorp’s 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 Bancorp’s 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 Bancorp’s 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.

 

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