Fifth Third Announces Second Quarter 2022 Results

Reported diluted earnings per share of $0.76

Reported results included a negative $0.03 impact from certain item(s) on page 2

Fifth Third Bancorp (NASDAQ: FITB):

Key Highlights

Select Business Highlights:

• Generated consumer household growth of 2% compared to 2Q21
• Announced stress capital buffer requirement of 2.5% (regulatory minimum)
• Closed acquisition of Dividend Finance, a national point-of-sale consumer lender
• Announced $100 billion environmental and social finance target to be achieved through 2030

Select Financial Highlights:

• ROTCE^(a) of 17.5%; adjusted ROTCE^(a) of 15.2% excl. AOCI
• Compared to 2Q21, PPNR^(a) increased 13% (adjusted PPNR^(a) increased 11%)
• Efficiency ratio^(a) of 55%, a 4 point improvement from 2Q21
• Net interest income^(a) increased 12% compared to 1Q22; NIM^(a) up 33 basis points compared to 1Q22
• ACL of 1.85%, an increase of 5 bps from 1Q22 (includes 4 bps from Dividend Finance); Net charge-off ratio of 0.21% and NPA ratio of 0.47%

CEO Commentary

Fifth Third has been deliberately built to perform well through-the-cycle. Our focus on maintaining discipline across the Company while growing and diversifying our revenues should ultimately result in sustainable outperformance relative to peers regardless of the economic environment. This outcome is evident in our second quarter financial performance. NIM expanded, net interest income increased, and expenses decreased compared to the prior quarter, resulting in an efficiency ratio of 55% despite softer fee revenue due to the macro environment. As a result, PPNR increased 13% compared to the year-ago quarter. We generated broad-based growth of relationships across our businesses. Our key credit quality metrics also remain well-behaved, reflecting our disciplined approach to client selection. Additionally, we added $10 billion in forward-starting swaps during the quarter to provide rate protection over the next decade.

Fifth Third continues to navigate the dynamic environment and generate strong financial results while fully supporting customers, communities, and employees. I am very proud that in addition to consistently producing strong financial results, we have also extended our ESG leadership position. Whether it's the 8 million meals we recently provided to fight hunger or our new $100 billion environmental and social finance target, we continue to live our purpose every day to improve the lives of our customers and the well-being of our communities.

-Tim Spence, President and CEO

Fifth Third Bancorp (NASDAQ^®: FITB) today reported second quarter 2022 net income of $562 million compared to net income of $494 million in the prior quarter and $709 million in the year-ago quarter. Net income available to common shareholders in the current quarter was $526 million, or $0.76 per diluted share, compared to $474 million, or $0.68 per diluted share, in the prior quarter and $674 million, or $0.94 per diluted share, in the year-ago quarter.

Compared to the prior quarter, NII increased $144 million, or 12%, primarily reflecting higher market rates, as well as growth in investment portfolio balances and commercial & industrial (C&I) loan balances, partially offset by a reduction in prepayment penalties received in the investment portfolio (approximately $5 million in the current quarter compared to $24 million in the prior quarter) as well as lower interest income from government guaranteed mortgage buyouts. PPP-related income was $12 million in the current quarter compared to $20 million in the prior quarter. Compared to the prior quarter, NIM increased 33 bps, reflecting the benefit of higher market rates as well as a decrease in other short-term investments (primarily interest-bearing cash), partially offset by a reduction in prepayment penalties received in the investment portfolio.

Compared to the year-ago quarter, NII increased $131 million, or 11%, reflecting the recent benefits of higher market rates, as well as growth in investment portfolio balances and C&I loan balances, partially offset by lower PPP-related income and lower interest income from government guaranteed mortgage buyouts. Compared to the year-ago quarter, NIM increased 29 bps, reflecting the benefit of higher market rates as well as a decrease in other short-term investments (primarily interest-bearing cash).

Reported noninterest income decreased $8 million, or 1%, from the prior quarter, and decreased $65 million, or 9%, from the year-ago quarter. The reported results reflect the impact of certain items in the table below. Reported current quarter results included $32 million of net securities losses, which included $26 million in net losses attributable to mark-to-market impacts related to investments supporting non-qualified deferred compensation plans, as well as a $3 million loss attributable to market value changes on Fifth Third's shares of AvidXchange Holdings, Inc.

Compared to the prior quarter, noninterest income excluding certain items increased $23 million, or 3%. Compared to the year-ago quarter, noninterest income excluding certain items decreased $36 million, or 5%.

Compared to the prior quarter, service charges on deposits increased $2 million, or 1%, primarily reflecting an increase in consumer deposit fees, as an increase in gross commercial treasury management revenue was offset by earnings credits. Commercial banking revenue increased $2 million, or 1%, primarily driven by M&A advisory revenue and higher customer financial risk management revenue, partially offset by a decrease in corporate bond fees. Mortgage banking net revenue decreased $21 million, or 40%, primarily reflecting a $28 million decrease from MSR net valuation adjustments, partially offset by a $10 million increase in mortgage servicing revenue. Wealth and asset management revenue decreased $9 million, or 6%, driven by the impact of lower market values and seasonally strong tax-related private client service revenue from the prior quarter. Card and processing revenue increased $8 million, or 8%, primarily driven by higher spend volumes, partially offset by higher rewards. Leasing business revenue decreased $6 million, or 10%, reflecting the disposition of LaSalle Solutions. The increase in other noninterest income was primarily attributable to higher private equity income.

Compared to the year-ago quarter, service charges on deposits increased $5 million, or 3%, primarily reflecting an increase in commercial treasury management fees. Commercial banking revenue decreased $23 million, or 14%, primarily driven by decreases in corporate bond fees and loan syndication revenue, partially offset by an increase in customer financial risk management revenue. Mortgage banking net revenue decreased $33 million, or 52%, reflecting a $58 million decrease in origination fees and gains on loan sales and a $16 million reduction from MSR net valuation adjustments, partially offset by a $22 million increase in mortgage servicing revenue and a $19 million decrease in MSR asset decay reflecting slower prepayment speeds. Wealth and asset management revenue decreased $5 million, or 3%, reflecting lower personal asset management revenue. Card and processing revenue increased $3 million, or 3%, primarily driven by higher spend volumes, partially offset by higher rewards. Leasing business revenue decreased $5 million, or 8%, reflecting the disposition of LaSalle Solutions, partially offset by an increase in lease syndication revenue. The increase in other noninterest income was primarily attributable to higher private equity income.

Compared to the prior quarter, noninterest expense decreased $110 million, or 9%, driven by a decrease in compensation and benefits expense, reflecting seasonally-higher compensation in the prior quarter, lower incentive-based compensation due to the current market dynamics, and overall expense discipline throughout the firm. Noninterest expense in the current quarter included a $27 million benefit related to the impact of non-qualified deferred compensation mark-to-market (compared to a $12 million benefit in the prior quarter). Excluding the non-qualified deferred compensation impacts from both periods, total noninterest expense decreased $95 million, or 8%.

Compared to the year-ago quarter, noninterest expense decreased $41 million, or 4%, reflecting a decrease in compensation and benefits expense. This was partially offset by higher marketing expense and an increase in technology and communications expense related to continued modernization investments.

Compared to the prior quarter, total average portfolio loans and leases increased 4%, reflecting an increase in both commercial and consumer portfolios. Average commercial portfolio loans and leases increased 4%, primarily reflecting C&I loan growth of 6%. Average consumer portfolio loans increased 3%, reflecting higher residential mortgage and other consumer loans (primarily from the Dividend Finance acquisition), partially offset by lower home equity balances.

Compared to the year-ago quarter, total average portfolio loans and leases increased 8%, reflecting an increase in both commercial and consumer portfolios. Average commercial portfolio loans and leases increased 9%, primarily reflecting C&I loan growth of 14%, partially offset by lower commercial construction loans. Average consumer portfolio loans increased 8%, as higher indirect secured consumer and residential mortgage loans were partially offset by lower home equity balances.

Average loans and leases held for sale were $3 billion in the current quarter compared to $4 billion in the prior quarter and $6 billion in the year-ago quarter. Current quarter average loans and leases held for sale were impacted by a decline in residential mortgage balances (primarily from a decline in government guaranteed mortgage buyouts).

Average securities (taxable and tax-exempt) of $55 billion in the current quarter increased $12 billion, or 29%, compared to the prior quarter and increased $18 billion, or 48%, compared to the year-ago quarter. Average other short-term investments (including interest-bearing cash) of $10 billion in the current quarter decreased $19 billion, or 66%, compared to the prior quarter and decreased $24 billion, or 71%, compared to the year-ago quarter.

Total period-end commercial portfolio loans and leases of $75 billion increased 3% compared to the prior quarter, primarily reflecting C&I loan growth of 4%. Compared to the year-ago quarter, total period-end commercial portfolio loans increased 12%, primarily reflecting C&I loan growth of 18%, partially offset by lower commercial construction loan balances. Period-end commercial revolving line utilization was 37%, compared to 36% in the prior quarter and 31% in the year-ago quarter.

Period-end consumer portfolio loans of $44 billion increased 2% compared to the prior quarter, primarily reflecting higher other consumer loans (primarily from the Dividend Finance acquisition) and residential mortgage loans, partially offset by a decline in indirect secured consumer loan balances. Compared to the year-ago quarter, total period-end consumer portfolio loans increased 8%, reflecting an increase in indirect secured consumer loans and residential mortgage loans, partially offset by lower home equity balances.

Total period-end securities (taxable and tax-exempt; amortized cost) of $57 billion in the current quarter increased $6 billion, or 12%, compared to the prior quarter and increased $20 billion, or 54%, compared to the year-ago quarter. Period-end other short-term investments of $7 billion in the current quarter decreased $13 billion, or 64%, compared to the prior quarter and decreased $25 billion, or 77%, compared to the year-ago quarter.

Compared to the prior quarter, average core deposits decreased 4% as decreases in interest checking, demand deposit and money market balances (primarily reflecting runoff of excess and higher cost commercial deposits) were partially offset by increases in savings deposit balances. Average demand deposits represented 39% of total core deposits in the current quarter, relatively stable with the prior quarter. Average commercial transaction deposits decreased 8% and average consumer transaction deposits increased 1%.

Compared to the year-ago quarter, average core deposits were flat, as ongoing success in generating consumer household growth was offset by runoff of excess and higher cost commercial deposits. Average commercial transaction deposits decreased 5% and average consumer transaction deposits increased 7%.

The period end portfolio loan-to-core deposit ratio was 75% in the current quarter, compared to 68% in the prior quarter and 67% in the year-ago quarter.

Compared to the prior quarter, average wholesale funding increased 26%, reflecting increases in other short-term borrowings, jumbo CD balances, and federal funds purchased. During the quarter, $700 million in long-term debt was retired and $1 billion in long-term debt was issued. Compared to the year-ago quarter, average wholesale funding increased 1%, reflecting increases in other short-term borrowings, jumbo CD balances, and federal funds purchased, partially offset by decreases in long-term debt.

Nonperforming portfolio loans and leases were $539 million in the current quarter, with the resulting NPL ratio of 0.45%. Compared to the prior quarter, NPLs increased $5 million with the NPL ratio decreasing 1 bp. Compared to the year-ago quarter, NPLs decreased $82 million with the NPL ratio decreasing 13 bps.

Nonperforming portfolio assets were $559 million in the current quarter, with the resulting NPA ratio of 0.47%. Compared to the prior quarter, NPAs decreased $7 million with the NPA ratio decreasing 2 bps. Compared to the year-ago quarter, NPAs decreased $98 million with the NPA ratio decreasing 14 bps.

The provision for credit losses totaled $179 million in the current quarter, including approximately $53 million for the provision expense for loans and unfunded commitments associated with the Dividend Finance acquisition. The allowance for credit loss ratio represented 1.85% of total portfolio loans and leases at quarter end, compared with 1.80% for the prior quarter end and 2.06% for the year-ago quarter end. In the current quarter, the allowance for credit losses represented 408% of nonperforming portfolio loans and leases and 394% of nonperforming portfolio assets.

Net charge-offs were $62 million in the current quarter, with the resulting NCO ratio of 0.21%. Compared to the prior quarter, net charge-offs increased $28 million and the NCO ratio increased 9 bps, reflecting higher charge-offs in the commercial portfolio. Compared to the year-ago quarter, net charge-offs increased $18 million and the NCO ratio increased 5 bps, reflecting higher commercial net charge-offs, offset by slightly lower consumer net charge-offs.

The CET1 capital ratio was 8.96%, the tangible common equity to tangible assets ratio was 7.01% excluding AOCI, and 5.82% including AOCI. The Tier 1 risk-based capital ratio was 10.24%, the Total risk-based capital ratio was 12.48%, and the Leverage ratio was 8.30%.

On June 27, 2022, Fifth Third released its indicative stress capital buffer requirement resulting from the Federal Reserve Board’s 2022 annual bank stress test, incorporating the supervisory severely adverse scenario published in February 2022. Fifth Third’s indicative stress capital buffer under this scenario is 2.5%, effective October 1, 2022. The stress capital buffer of 2.5% is the floor under the regulatory capital rules.

Tax Rate

The effective tax rate was 22.4% compared with 19.2% in the prior quarter and 22.1% in the year-ago quarter.

Conference Call

Fifth Third will host a conference call to discuss these financial results at 9:00 a.m. (Eastern Time) today. This conference call will be webcast live and may be accessed through the Fifth Third Investor Relations website at www.53.com (click on “About Us” then “Investor Relations”). Those unable to listen to the live webcast may access a webcast replay through the Fifth Third Investor Relations website at the same web address, which will be available for 30 days.

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio, and the indirect parent company of Fifth Third Bank, National Association, a federally chartered institution. As of June 30, 2022, the Company had $207 billion in assets and operates 1,080 full-service Banking Centers, and 2,153 Fifth Third branded ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia, North Carolina and South Carolina. In total, Fifth Third provides its customers with access to approximately 56,000 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 June 30, 2022, had $512 billion in assets under care, of which it managed $54 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

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. All statements other than statements of historical fact are forward-looking statements. These statements relate to our financial condition, results of operations, plans, objectives, future performance, capital actions 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 filings with the U.S. Securities and Exchange Commission (“SEC”).

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) effects of the global COVID-19 pandemic; (2) deteriorating credit quality; (3) loan concentration by location or industry of borrowers or collateral; (4) problems encountered by other financial institutions; (5) inadequate sources of funding or liquidity; (6) unfavorable actions of rating agencies; (7) inability to maintain or grow deposits; (8) limitations on the ability to receive dividends from subsidiaries; (9) cyber-security risks; (10) Fifth Third’s ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; (11) failures by third-party service providers; (12) inability to manage strategic initiatives and/or organizational changes; (13) inability to implement technology system enhancements; (14) failure of internal controls and other risk management systems; (15) losses related to fraud, theft, misappropriation or violence; (16) inability to attract and retain skilled personnel; (17) adverse impacts of government regulation; (18) governmental or regulatory changes or other actions; (19) failures to meet applicable capital requirements; (20) regulatory objections to Fifth Third’s capital plan; (21) regulation of Fifth Third’s derivatives activities; (22) deposit insurance premiums; (23) assessments for the orderly liquidation fund; (24) replacement of LIBOR; (25) weakness in the national or local economies; (26) global political and economic uncertainty or negative actions; (27) changes in interest rates; (28) changes and trends in capital markets; (29) fluctuation of Fifth Third’s stock price; (30) volatility in mortgage banking revenue; (31) litigation, investigations, and enforcement proceedings by governmental authorities; (32) breaches of contractual covenants, representations and warranties; (33) competition and changes in the financial services industry; (34) changing retail distribution strategies, customer preferences and behavior; (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, other natural disasters, or health emergencies (including pandemics); (43) the impact of reputational risk created by these or other developments on such matters as business generation and retention, funding and liquidity; (44) changes in law or requirements imposed by Fifth Third’s regulators impacting our capital actions, including dividend payments and stock repurchases; and (45) Fifth Third's ability to meet its sustainability targets, goals and commitments.

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. 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 expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations or any changes in events, conditions or circumstances on which any such statement is based, except as may be required by law, and we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The information contained herein is intended to be reviewed in its totality, and any stipulations, conditions or provisos that apply to a given piece of information in one part of this press release should be read as applying mutatis mutandis to every other instance of such information appearing herein.

Category: Earnings

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