10-QPeriod: Q1 FY2020

FIFTH THIRD BANCORP Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 8, 2020For Securities:FITBFITBOFITBPFITB-PIFITB-PMFITB-PAFITBIFITB-PK

Summary

Fifth Third Bancorp (FITB) reported its first quarter 2020 financial results on May 8, 2020, highlighting a significant impact from the COVID-19 pandemic. Net income available to common shareholders dramatically decreased to $29 million ($0.04 per diluted share) from $760 million ($1.12 per diluted share) in the prior year's first quarter. This decline was primarily driven by a substantial increase in the provision for credit losses, which rose to $640 million from $90 million year-over-year. This increase reflects the deteriorating macroeconomic environment due to the pandemic, alongside the adoption of the Current Expected Credit Loss (CECL) methodology. Despite the challenging economic backdrop, the bank saw growth in total loans and leases, up 8% from the end of 2019, with commercial and industrial loans increasing by 15%. Core deposits also increased by 7% from the prior year-end, indicating a stable funding base. The bank maintained strong regulatory capital ratios, exceeding "well-capitalized" guidelines. However, investors should note the significant impact of the pandemic on credit quality and the substantial increase in the provision for credit losses, which will likely continue to weigh on profitability in the near term.

Financial Highlights

40 data points
Beta

Revenue

$148.00M

Net Income

$46.00M

31.1% Net Margin

EPS (Diluted)

$0.04

Total Assets

$185.39B

Cash & Equivalents

$3.28B

Free Cash Flow

$359.00M

Financial Statements
Beta
Revenue$148.00M
Interest Expense$296.00M
Net Income$46.00M
EPS (Basic)$0.04
EPS (Diluted)$0.04
Shares Outstanding (Basic)713.56M
Shares Outstanding (Diluted)720.36M

Key Highlights

  • 1Net income available to common shareholders significantly declined to $29 million ($0.04/share) from $760 million ($1.12/share) in Q1 2019.
  • 2Provision for credit losses surged to $640 million, a substantial increase from $90 million in Q1 2019, reflecting the impact of COVID-19 and the adoption of CECL.
  • 3Total loans and leases increased by 8% from December 31, 2019, to $119.7 billion, driven by an 11% rise in commercial loans and leases.
  • 4Core deposits grew by 7% from December 31, 2019, to $132.2 billion, indicating a stable funding source.
  • 5Net interest income (FTE basis) increased by 14% to $1.23 billion, benefiting from loan growth and lower funding costs.
  • 6Noninterest income decreased by 39% to $671 million, primarily due to a large gain on the sale of Worldpay, Inc. shares in the prior year's quarter.
  • 7Noninterest expense increased by 9% to $1.2 billion, impacted by merger-related expenses from the MB Financial acquisition and increased investments in technology.

Frequently Asked Questions

The primary driver of the substantial decrease in net income available to common shareholders was the significant increase in the provision for credit losses. This rose to $640 million in Q1 2020, compared to $90 million in Q1 2019, primarily due to the deteriorating macroeconomic environment caused by the COVID-19 pandemic and the adoption of the CECL accounting standard.

The COVID-19 pandemic led to a significantly weaker economic outlook, higher credit loss expectations, and a substantial increase in the provision for credit losses. The bank also implemented hardship relief programs for customers, such as payment deferrals and forbearances, which are expected to impact revenue in the near term. Additionally, government actions like interest rate cuts and stimulus packages have influenced the financial markets and the bank's operations.

Fifth Third Bancorp adopted the CECL methodology on January 1, 2020. This change, along with the macroeconomic conditions, contributed to a $653 million increase in the Allowance for Credit Losses (ACL) upon adoption. The provision for credit losses in Q1 2020 also reflects this new methodology, leading to a higher expense compared to the prior year's incurred loss methodology.

Fifth Third Bancorp maintained strong regulatory capital ratios, exceeding 'well-capitalized' guidelines. The bank also reported a strong liquidity profile, driven by core deposit funding and significant contingent funding sources, allowing it to meet obligations without accessing capital markets for at least 24 months. The company announced the temporary suspension of share repurchases in March 2020 to preserve capital and liquidity for customer support during the pandemic.