Fifth Third Bancorp · NASDAQ:FITB
Fifth Third Bancorp — Q3 2020 Earnings Presentation
31 slides from Fifth Third Bancorp's earnings presentation, Oct 22, 2020
Slide 1: Fifth Third Bancorp 3Q20 Earnings Presentation
Fifth Third Bancorp 3Q20 Earnings Presentation October 22, 2020 Refer to earnings release dated October 22, 2020 for further information. Classification: Internal Use 1 Fifth Third Bancorp | All Rights Reserved
Slide 2: Cautionary statement
Cautionary statement This presentation 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 3
Slide 3: 3Q20 highlights
3Q20 highlights • Very strong reported and adjusted return metrics, Reported 1 Adjusted 1 reflecting strong operating results EPS$0.78 $0.85 • PPNR exceeded previous guidance, led by strong ROA 1.14% 1.24% fees and better-than-expected NII performance ROE10.7% 11.6% • Credit losses well below previo
Slide 4: Interest earning assets
Interest earning assets Average loan & lease balances Average securities 1 and short-term investments $ in billions; loan & lease balances exclude HFS $ in billions $118.5 $65.2 $109.5 $113.4 $55.9 $39.6 $38.8 $39.8 $29.8 4.75% $19.8 ~$3.8BN in PPP ~$5.2BN $37.3 3.76% loans 3.64% in PPP loans $2.5 3
Slide 5: Core deposits and wholesale funding
Core deposits and wholesale funding Average core deposit balances Average wholesale funding balances $ in billions $ in billions $146.5 $152.3 $120.4 $71.6 $73.0 $23.7 $22.5 $21.8 $66.4 2.95% $74.9 $53.9 $79.3 2.27% 2.26% 1.01% 0.27% 0.13% 3Q19 2Q20 3Q20 3Q19 2Q20 3Q20 Total IB core Commercial Consu
Slide 6: Aggressively reducing interest expense given the rate environment
Aggressively reducing interest expense given the rate environment Proactively managing deposit costs given the rate environment IB core deposit rate 1.03% 0.99% 1.01% 2020 0.82% 0.77% 0.74% 0.54% 0.35% 0.27% 0.21% 0.16% 0.13% 0.11% 1Q19 2Q19 3Q19 4Q19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20
Slide 7: Net interest income
Net interest income 1 2Q20 to 3Q20 NII & NIM Walk NII $ in millions; NIM change in bps NII NIM $1,246 $1,218 2Q20 $1,188 2.71% $1,203 $1,188 $1,173 $1,160 Excluding PAA Elevated Cash - (15) Balances PPP Impact 8 - Wholesale Funding 8 2 Actions 3.25% Incremental Cash Flow 2.71% 10 2 Hedge Benefit 2.5
Slide 8: Noninterest income
Noninterest income $740 $746 3Q20 vs. 2Q20 $722 $703 • Adjusted noninterest income 1 up $33 million, or 5% $670 $650 • Primary drivers: ‒ Service charges on deposits (up 18%) ‒ Leasing business revenue (up 35%) ‒ Wealth and asset management revenue (up 10%) ‒ Partially offset by mortgage banking rev
Slide 9: Noninterest expense
Noninterest expense 3Q20 vs. 2Q20 1 $1,159 $1,161 • Adjusted noninterest expense up $34 million, or 3% $1,117 $1,121 $1,116 $1,082 • Primary drivers: ‒ Marketing expense (up 15%) ‒ Technology and communications (up 3%) ‒ Other noninterest expense (up 18%) 3Q20 vs. 3Q19 • Adjusted noninterest expense
Slide 10: Well diversified commercial portfolio with several potential risk mitigants
Well diversified commercial portfolio with several potential risk mitigants to recent stresses Commercial portfolio by industry sectors Uneven recovery impacting clients differently $s in billions; excludes PPP loans 2Q20 3Q20 • ~68% of portfolio in QSR, mostly to top-tier brands and national chains
Slide 11: Consumer portfolios are well positioned
Consumer portfolios are well positioned Portfolio Consumer loan % of Total Portfolio WA LTV portfolio credit metrics Loans WA FICO 1 at Orig. FICO score distribution 1 Residential mortgage 14% 757 74% 4% 21% Indirect secured 11% 756 92% >=750 Predominantly auto 756 720-749 WA FICO for total Home equ
Slide 12: Credit quality overview
Credit quality overview Early stage delinquencies and NPAs 1 ACL as % of portfolio loans and leases 2.76% 2.75% Ex. PPP Including MB 2.64% 2.62% unamortized 2.49% loan discount 2.30% 2.50% 0.84% 2.13% 0.65% 0.60% 1.19% 1.23% 0.47% 0.48% 0.37% 0.33% 0.27% 0.29% 0.29% 3Q17 3Q18 3Q19 3Q20 3Q19 4Q19 1Q2
Slide 13: Current expected credit losses (CECL) allowance
Current expected credit losses (CECL) allowance Allocation of allowance by product 2Q20 3Q20 $s in millions % of portfolio % of portfolio Allowance for loan & lease losses Amount loans & leases Amount loans & leases Commercial and industrial loans 988 1.78% 1,024 1.98% Commercial mortgage loans 375
Slide 14: Strong capital and liquidity position
Strong capital and liquidity position Regulatory capital position Common equity tier 1 ratio ~16 bps ~35 bps ~5 bps 10.14% 9.72% ~(14 bps) • Risk-based capital ratios have meaningfully improved (CET1 up ~40 bps since end of 2019) • Common dividends account for ~55 bps of CET1 per year 2Q20 Net Incom
Slide 15: Current expectations
Current expectations Fourth quarter 2020 Loans & leases Down ~2% sequentially (average balances, incl. HFS) NII & NIM (FTE) 1 Stable, assuming no accelerated PPP fee benefit (excluding PAA) (3Q20 baselines: $1.160BN; 2.55%) Noninterest income 1 Up 7 - 8% sequentially (includes ~$70MM impact from TRA
Slide 16: Well-positioned
1 Well-positioned Balance Sheet Remain well-positioned Diversified to navigate the 2 Revenue Mix uncertain economic environment Proactive focus 3 on maintaining strong returns Classification: Internal Use 16 Fifth Third Bancorp | All Rights Reserved
Slide 17: Appendix
Appendix Classification: Internal Use 17 Fifth Third Bancorp | All Rights Reserved
Slide 18: COVID-19 hardship relief summary
COVID-19 hardship relief summary Payment deferrals % of Total loans As of: In payment deferral programs 1 6/30/20 8/31/20 9/30/20 All percentages shown represent balances rather Commercial loans & leases: 5% 1% 1% than accounts Commercial and industrial loans 3% 0% 0% Commercial mortgage 15% 4% 3% C
Slide 19: Oil & gas portfolio remains well positioned
Oil & gas portfolio remains well positioned $2.3BN I 2.1% of total loans Oil & Gas Balance Mix RBL 64% utilization 7% Oil & Gas Oil / Gas Mix 56% / 44% Production Reserve-Based Structure 96% 9% 4% $0.3BN I 0.3% of total loans 98% 2% Midstream 22% utilization Refining Midstream Oil / Gas Mix 60% / 40
Slide 20: Cash flow hedges continue to protect NIM
Cash flow hedges continue to protect NIM for next 4 years Cash flow hedges projection Notional value of cash flow hedges ($ Billions) $11 $11 $11 $11 $11 $11 $11 $11 $11 $10 $10 $10 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $6 $6 $5 $3 $3 $4 $8 $8 $8 $8 $8 $8 $8 $8 $8 $7 $7 $7 $3 $3 $3 $3 $2 $1 $1 4Q20 1Q
Slide 21: Balance sheet positioning
Balance sheet positioning Commercial loans 1,2,3 Consumer loans 1 Investment portfolio Long-term debt 4 $21.5BN fixed 3 | $44.3BN variable 1,2 $31.0BN fixed | $8.5BN variable 1 $12.2BN fixed | $2.9BN variable 4 • 1ML based: 54% 6 • 1ML based: 2% 7 • 59% allocation to bullet/ • 1ML based: 8% 8 locked
Slide 22: Interest rate risk management
Interest rate risk management NII is asset sensitive in year 1 and year 2 to rising Estimated NII sensitivity profile and ALCO policy limits rates. % Change in NII (FTE) ALCO policy limit • As of September 30, 2020, 50% of HFI loans were 13 to 24 13 to 24 variable rate net of existing hedges (67% of
Slide 23: Strong liquidity profile
Strong liquidity profile Holding company: Unsecured debt maturities • Holding Company cash as of September 30, 2020: $4.6B $ millions – excl. Retail Brokered & Institutional CDs $5,487 • Cash currently sufficient to satisfy all fixed obligations in a stressed environment for ~31 months (debt maturit
Slide 24: Mortgage banking results
Mortgage banking results Mortgage banking net revenue $ millions $120 $99 $76 $95 $19 • Mortgage banking revenue $10 $73 $63 $66 $4 $67 decreased $23 million from prior $71 $72 quarter and decreased $19 million from year-ago quarter $95 $81 $93 $64 $49 ($1) • $4.5BN in originations, up 35% ($8) ($50
Slide 25: Remaining TRA income schedule
Remaining TRA income schedule Estimated potential GAAP noninterest income recognition 1,2 $ Millions; pre-tax Includes $73 deferred 2019 benefit 3 $44 $45 $22 $11 4Q20 4Q21 4Q22 4Q23 4Q24 1Assumes FIS will have sufficient taxable income to utilize TRA related deductions and have a marginal tax rate
Slide 26: Expected impacts of MB purchase accounting
Expected impacts of MB purchase accounting 1 Net Core Deposit Intangible Amortization Purchase Accounting Accretion 6 $38 5 5 4 4 4 3 (4) (4) (5) (5) (5) (5) (5) ($ in($ millions) (7) (9) (9) (9) (9) (10) (11) 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 • Reflects purchase accounting impacts exclusively rela
Slide 27: Balance and credit loss trends
Balance and credit loss trends 1 Commercial & industrial Residential mortgage $59.0 $54.0 $51.2 $50.9 $51.6 $16.7 $16.7 $16.7 $16.6 $16.6 0.39% 0.45% 0.31% 0.22% 0.28% 0.07% 0.03% 0.02% 0.02% (0.02%) 3Q19 4Q19 1Q20 2Q20 3Q20 3Q19 4Q19 1Q20 2Q20 3Q20 Commercial mortgage Home equity $10.7 $10.8 $11.0
Slide 28: NPL rollforward
NPL rollforward 1 Commercial $ millions 3Q19 4Q19 1Q20 2Q20 3Q20 Balance, beginning of period $ 390 $ 349 $ 397 $ 445 $ 487 Transfers to nonaccrual status 32 165 176 173 299 Transfers to accrual status - - (31) - (3) Transfers to held for sale - (17) (6) (4) (1) Loan paydowns/payoffs (44) (60) (31)
Slide 29: 3Q20 adjustments and notable items
3Q20 adjustments and notable items Adjusted EPS of $0.85 1 3Q20 reported EPS of $0.78 included a negative $0.07 impact from the following notable items: • $22 million pre-tax (~$17 million after-tax 2) charge related to the valuation of the Visa total return swap • $19 million pre-tax (~$15 million
Slide 30: Regulation G non-GAAP reconciliation
Regulation G non-GAAP reconciliation Fifth Third Bancorp and Subsidiaries Regulation G Non-GAAP Reconciliation For the Three Months Ended $ and shares in millions September June March December September (unaudited) 2020 2020 2020 2019 2019 Net income (U.S. GAAP) (a) $581 $195 $46 $734 $549 Net incom
Slide 31: Regulation G non-GAAP reconciliation
Regulation G non-GAAP reconciliation Fifth Third Bancorp and Subsidiaries Regulation G Non-GAAP Reconciliation For the Three Months Ended $ and shares in millions September June March December September (unaudited) 2020 2020 2020 2019 2019 Average interest-earning assets (a) $180,704 $176,224 $151,2