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Fifth Third Announces Fourth Quarter 2021 Results

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·11-min read
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Reported diluted earnings per share of $0.90

Reported results included a negative $0.03 impact from certain items on page 2 of the 4Q21 earnings release

CINCINNATI, January 20, 2022--(BUSINESS WIRE)--Fifth Third Bancorp (NASDAQ ®: FITB):

Key Highlights
(fourth quarter 2021 except where noted)

Select Business Highlights:

  • Generated record commercial loan production of $8.2BN (up nearly 50% compared to 3Q21) reflecting strength in corporate and middle market banking

  • Record commercial banking revenue

  • Record assets under management net inflows

  • Generated consumer household growth of 3% vs. 4Q20

  • Made special COVID staffing bonus to front-line employees ($10MM noninterest expense)

  • Issued inaugural Green Bond ($500MM); first Category IV firm to issue ESG bond of any type

  • Announced strategic acquisition of Dividend Finance, a point-of-sale consumer lender focused on sustainable energy solutions (~30 bps of CET1 capital; expect to close in 2Q22)

Select Financial Highlights:

  • FY21 ROTCE(a) of 16.6%; adjusted ROTCE(a) of 19.1% excl. AOCI

  • Average C&I loan growth ex. PPP of 7% compared to 3Q21 (end of period growth of 11%)

  • Average securities balances increased just 1% compared to 3Q21

  • NCO ratio of 0.14%; NPL ratio of 0.44%; commercial criticized assets declined 13% compared to 3Q21

  • Repurchased shares totaling $316 million as part of capital plan; targeting 9.0% CET1

Key Financial Data

$ millions for all balance sheet and income statement items

4Q21

3Q21

4Q20

Income Statement Data

Net income available to common shareholders

$627

$684

$569

Net interest income (U.S. GAAP)

1,197

1,189

1,182

Net interest income (FTE)(a)

1,200

1,192

1,185

Noninterest income

791

836

787

Noninterest expense

1,206

1,172

1,236

Per Share Data

Earnings per share, basic

$0.91

$0.98

$0.79

Earnings per share, diluted

0.90

0.97

0.78

Book value per share

29.43

29.59

29.46

Tangible book value per share(a)

22.58

22.79

23.28

Balance Sheet & Credit Quality

Average portfolio loans and leases

$109,487

$107,970

$109,360

Average deposits

167,541

162,647

158,626

Net charge-off ratio(b)

0.14

%

0.08

%

0.43

%

Nonperforming asset ratio(c)

0.47

0.52

0.79

Financial Ratios

Return on average assets

1.25

%

1.36

%

1.18

%

Return on average common equity

12.2

13.0

10.8

Return on average tangible common equity(a)

16.1

16.9

13.9

CET1 capital(d)(e)

9.53

9.86

10.34

Net interest margin(a)

2.55

2.59

2.58

Efficiency(a)

60.6

57.8

62.7

Other than the Quarterly Financial Review tables beginning on page 14 of the 4Q21 earnings release, commentary is on a fully taxable-equivalent (FTE) basis unless otherwise noted. Consistent with SEC guidance in Regulation S-K that contemplates the calculation of tax-exempt income on a taxable-equivalent basis, net interest income, net interest margin, net interest rate spread, total revenue and the efficiency ratio are provided on an FTE basis.

CEO Commentary

"Fifth Third has continued to deliver strong financial results while fully supporting our customers, communities, and employees. Results for the quarter reflected strong business momentum in most of our businesses, resulting in improved and diversified revenues. Net interest income excluding the impact of PPP increased 2% sequentially, benefiting from robust C&I loan growth while continuing to be disciplined in managing our excess cash position. We generated record commercial banking and wealth and asset management revenue, while mortgage revenue was impacted by environmental factors and our decision to retain a portion of our salable production. We expect the positive momentum in our businesses to carry forward into 2022 and beyond.

We had yet another quarter of benign credit results, resulting in a full year net charge-off ratio of just 16 basis points. Additionally, non-performing loans and commercial criticized assets continued to improve.

We took action in recognition of the extraordinary efforts made by our front-line employees throughout the pandemic by making a special COVID staffing bonus totaling $10 million in the fourth quarter.

We continue to focus on growing strong relationships and managing the balance sheet with a through-the-cycle perspective to generate sustainable long-term value and continue our position as a top performing regional bank."

-Greg D. Carmichael, Chairman and CEO

Income Statement Highlights

($ in millions, except per share data)

For the Three Months Ended

% Change

December

September

December

2021

2021

2020

Seq

Yr/Yr

Condensed Statements of Income

Net interest income (NII)(a)

$1,200

$1,192

$1,185

1%

1%

Benefit from credit losses

(47)

(42)

(13)

12%

262%

Noninterest income

791

836

787

(5)%

1%

Noninterest expense

1,206

1,172

1,236

3%

(2)%

Income before income taxes(a)

$832

$898

$749

(7)%

11%

Taxable equivalent adjustment

$3

$3

$3

Applicable income tax expense

167

191

142

(13)%

18%

Net income

$662

$704

$604

(6)%

10%

Dividends on preferred stock

35

20

35

75%

Net income available to common shareholders

$627

$684

$569

(8)%

10%

Earnings per share, diluted

$0.90

$0.97

$0.78

(7)%

15%

Fifth Third Bancorp (NASDAQ®: FITB) today reported fourth quarter 2021 net income of $662 million compared to net income of $704 million in the prior quarter and $604 million in the year-ago quarter. Net income available to common shareholders in the current quarter was $627 million, or $0.90 per diluted share, compared to $684 million, or $0.97 per diluted share, in the prior quarter and $569 million, or $0.78 per diluted share, in the year-ago quarter.

Diluted earnings per share impact of certain items - 4Q21

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

Valuation of Visa total return swap (noninterest income)

$(14)

Special COVID staffing bonus to front-line employees (noninterest expense)

(8)

After-tax impact(f) of certain items

$(22)

Diluted earnings per share impact of certain items1

$(0.03)

1Diluted earnings per share impact reflects 697.532 million average diluted shares outstanding

Reported full year 2021 net income was $2.8 billion compared to full year 2020 net income of $1.4 billion. Full year 2021 net income available to common shareholders was $2.7 billion, or $3.73 per diluted share, compared to 2020 full year net income available to common shareholders of $1.3 billion, or $1.83 per diluted share.

Net Interest Income

(FTE; $ in millions)(a)

For the Three Months Ended

% Change

December

September

December

2021

2021

2020

Seq

Yr/Yr

Interest Income

Interest income

$1,297

$1,295

$1,318

(2)%

Interest expense

97

103

133

(6)%

(27)%

Net interest income (NII)

$1,200

$1,192

$1,185

1%

1%

Average Yield/Rate Analysis

bps Change

Yield on interest-earning assets

2.75%

2.81%

2.87%

(6)

(12)

Rate paid on interest-bearing liabilities

0.33%

0.36%

0.45%

(3)

(12)

Ratios

Net interest rate spread

2.42%

2.45%

2.42%

(3)

Net interest margin (NIM)

2.55%

2.59%

2.58%

(4)

(3)

Compared to the prior quarter, NII increased $8 million, or 1%, primarily due to higher commercial & industrial (C&I) loan balances, seasonal mutual fund dividends and elevated prepayment penalties received in the investment portfolio, and a reduction in long-term debt, partially offset by lower yields on C&I loan balances due to continued spread compression and lower PPP-related income. PPP-related interest income was $36 million compared to $47 million in the prior quarter. Excluding the impact of PPP-related income, NII increased $19 million, or 2%, sequentially. Compared to the prior quarter, reported NIM decreased 4 bps, primarily due to a $2.6 billion increase in other short-term investments (primarily interest-bearing cash) and lower yields on C&I loans, partially offset by the aforementioned seasonal mutual fund dividends and elevated prepayment penalties received in the investment portfolio. Underlying NIM(g) decreased 1 bp sequentially. Excess liquidity and PPP had a negative impact on reported NIM of approximately 47 bps in the current quarter, compared to 44 bps in the prior quarter.

Compared to the year-ago quarter, NII increased $15 million, or 1%, primarily reflecting the benefit of GNMA forbearance loan buyout purchases, a reduction in long-term debt, higher indirect secured consumer loan balances, and lower deposit costs, partially offset by lower home equity, C&I, and construction balances as well as the impact of lower market rates. Compared to the year-ago quarter, reported NIM decreased 3 bps, primarily reflecting loan spread compression and lower market rates, partially offset by PPP-related income and lower long-term debt and deposit costs.

Noninterest Income

($ in millions)

For the Three Months Ended

% Change

December

September

December

2021

2021

2020

Seq

Yr/Yr

Noninterest Income

Service charges on deposits

$156

$152

$146

3%

7%

Commercial banking revenue

171

152

141

13%

21%

Mortgage banking net revenue

35

86

25

(59)%

40%

Wealth and asset management revenue

150

147

133

2%

13%

Card and processing revenue

104

102

92

2%

13%

Leasing business revenue

74

78

69

(5)%

7%

Other noninterest income

120

120

168

(29)%

Securities (losses) gains, net

(19)

(1)

14

NM

NM

Securities losses, net - non-qualifying hedges

on mortgage servicing rights

(1)

NM

(100)%

Total noninterest income

$791

$836

$787

(5)%

1%

Reported noninterest income decreased $45 million, or 5%, from the prior quarter, and increased $4 million, or 1%, from the year-ago quarter. The reported results reflect the impact of certain items in the table below. Reported results include securities gains and losses, including a $17 million loss attributable to market value changes on Fifth Third's 1.7 million shares of AvidXchange Holdings, Inc. that have occurred since its initial public offering.

Noninterest Income excluding certain items

($ in millions)

For the Three Months Ended

December

September

December

2021

2021

2020

Noninterest Income excluding certain items

Noninterest income (U.S. GAAP)

$791

$836

$787

Valuation of Visa total return swap

19

17

30

Net disposition charges/(gain)

(60)

11

Securities losses/(gains), net

19

1

(14)

Noninterest income excluding certain items(a)

$829

$794

$814

Compared to the prior quarter, noninterest income excluding certain items increased $35 million, or 4%. Compared to the year-ago quarter, noninterest income excluding certain items increased $15 million, or 2%.

Compared to the prior quarter, service charges on deposits increased $4 million, or 3%, reflecting an increase in both commercial treasury management and consumer deposit fees. Record commercial banking revenue increased $19 million, or 13%, primarily driven by an increase in M&A advisory revenue, partially offset by lower corporate bond fees. Mortgage banking net revenue decreased $51 million, or 59%, reflecting a $41 million decrease in origination fees and gains on loan sales (including a $12 million unfavorable impact from the retention of certain mortgages originated during the quarter), and a $14 million decrease from MSR net valuation adjustments, partially offset by an increase in servicing fees. Current quarter mortgage originations of $4.3 billion decreased $0.7 billion, or 14%, compared to the prior quarter. Wealth and asset management revenue increased $3 million, or 2%, driven primarily by increased high net worth insurance and personal asset management revenue. Card and processing revenue increased $2 million, or 2%, primarily driven by higher spend volume. Leasing business revenue decreased $4 million, or 5%, primarily driven by a decrease in business solutions revenue, partially offset by an increase in lease remarketing revenue. Other noninterest income results were driven by the recognition of tax receivable agreement revenue of $46 million as well as private equity income.

Compared to the year-ago quarter, service charges on deposits increased $10 million, or 7%, reflecting an increase in both commercial treasury management and consumer deposit fees. Commercial banking revenue increased $30 million, or 21%, primarily driven by increases in M&A advisory revenue and loan syndication revenue, partially offset by lower corporate bond fees. Mortgage banking net revenue increased $10 million, or 40%, reflecting an $11 million decrease in MSR asset decay reflecting slower prepayment speeds and an $8 million improvement from MSR net valuation adjustments, partially offset by a $10 million decrease in origination fees and gains on loan sales. Wealth and asset management revenue increased $17 million, or 13%, primarily driven by higher personal asset management revenue and brokerage fees. Card and processing revenue increased $12 million, or 13%, primarily driven by higher spend volumes, partially offset by higher rewards. Leasing business revenue increased $5 million, or 7%, primarily reflecting increases in lease remarketing revenue.

Noninterest Expense

($ in millions)

For the Three Months Ended

% Change

December

September

December

2021

2021

2020

Seq

Yr/Yr

Noninterest Expense

Compensation and benefits

$655

$627

$679

4%

(4)%

Net occupancy expense

77

79

98

(3)%

(21)%

Technology and communications

103

98

90

5%

14%

Equipment expense

36

34

34

6%

6%

Card and processing expense

19

19

31

(39)%

Leasing business expense

36

33

37

9%

(3)%

Marketing expense

35

29

30

21%

17%

Other noninterest expense

245

253

237

(3)%

3%

Total noninterest expense

$1,206

$1,172

$1,236

3%

(2)%

Reported noninterest expense increased $34 million, or 3%, from the prior quarter, and decreased $30 million, or 2%, from the year-ago quarter. The reported results reflect the impact of certain items in the table below.

Noninterest Expense excluding certain items

($ in millions)

For the Three Months Ended

December

September

December

2021

2021

2020

Noninterest Expense excluding certain items

Noninterest expense (U.S. GAAP)

$1,206

$1,172

$1,236

Special COVID staffing bonus to front-line employees

(10)

Fifth Third Foundation contribution

(15)

(25)

Branch and non-branch real estate charges

(21)

Business acquisition charges

(16)

Noninterest expense excluding certain items(a)

$1,196

$1,157

$1,174

Compared to the prior quarter, noninterest expense excluding certain items increased $39 million, or 3%, primarily reflecting an increase in compensation and benefits, driven by higher performance-based compensation expense reflecting strong business results as well as elevated medical benefits, increased marketing expense associated with Fifth Third Momentum Banking, and an increase in technology and communications expense related to continued modernization investments.

Compared to the year-ago quarter, noninterest expense excluding certain items increased $22 million, or 2%, primarily driven by an increase in technology and communications expense related to continued modernization investments, expenses associated with the aforementioned GNMA forbearance loan buyout purchases, and an increase in travel and entertainment expense. These items were partially offset by lower card and processing expense due to contract renegotiations and a decrease in compensation and benefits expense, primarily reflecting a decline in full-time equivalent employees.

Average Interest-Earning Assets

($ in millions)

For the Three Months Ended

% Change

December

September

December

2021

2021

2020

Seq

Yr/Yr

Average Portfolio Loans and Leases

Commercial loans and leases:

Commercial and industrial loans

$49,566

$47,766

$50,385

4%

(2)%

Commercial mortgage loans

10,247

10,317

10,727

...

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