Fifth Third Bancorp provides commercial and branch banking, consumer lending, and investment advisory services in the Midwestern and Southeastern regions of the U.S.
|Most recent||Growth rate (CAGR)|
|1 year||5 years||10 years|
|Book value of equity per share||$21.67||7.7%||7%||2.1%|
|BV including aggregate dividends||10.8%||9.6%||3.8%|
|1 year||5 years||10 years|
|Most recent||Growth rate (CAGR)|
|1 year||5 years||10 years|
|1 year||5 years||10 years|
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Fifth Third Bancorp is a financial company. Financial companies, by their nature, typically have high debt to equity leverage, which is not a meaningful analytical metric. We suggest you use the equity to assets ratio instead.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
On July 21, 1995, the Registrant completed its acquisition of Falls Financial, Inc., a thrift holding company with approximately $600 million in assets headquartered in Akron, Ohio. As a result, the Registrant issued 1,479,388 new common shares and paid cash of $48,900[K] to the selling stockholders of Falls Financial, Inc.
On March 15, 1996, the Registrant acquired Kentucky Enterprise Bancorp, Inc., with assets of $276 million in a stock-for-stock exchange accounted for as a pooling of interests. The Consolidated Financial Statements for prior periods have not been restated due to immateriality.
Financial data for all prior periods have been restated to reflect the second quarter 1998 mergers with CitFed Bancorp, Inc., a publicly-traded savings and loan holding company headquartered in Dayton, Ohio with $3.1 billion in assets, and State Savings Company, a privately-owned thrift holding company headquartered in Columbus, Ohio with $2.7 billion in assets. Both transactions were tax-free, stock-for-stock exchanges accounted for as poolings-of-interest. The Registrant exchanged 13,219,085 and 16,625,271 shares of Fifth Third Common Stock for all outstanding shares of CitFed Bancorp, Inc. and State Savings Company, respectively.
On October 29, 1999, the Registrant completed the acquisition of CNB Bancshares, Inc. ("CNB") a bank holding company based in Evansville, Indiana which owns Civitas Bank. As of September 30, 1999, CNB had total assets of $7.9 billion and deposits of $4.9 billion. In connection with this acquisition, the Registrant exchanged approximately 30.4 million shares of Fifth Third common stock with the shareholders of CNB.
In the fourth quarter of 2000, the Registrant entered into a merger agreement with Old Kent Financial Corporation ("Old Kent"), a publicly-traded financial holding company headquartered in Grand Rapids, Michigan. At December 31, 2000, Old Kent had total assets of $23.8 billion and total deposits of $17.4 billion. This transaction was subsequently completed on April 2, 2001 and the Registrant issued 103,716,638 shares of Fifth Third common stock, 7,250 shares of Fifth Third series D perpetual preferred stock and 2,000 shares of Fifth Third series E perpetual preferred stock to the shareholders of Old Kent. The accompanying Consolidated Financial Statements of the Registrant as of and for the period ending March 31, 2001, excludes the financial results of Old Kent.
On January 1, 2005, the Registrant acquired in a merger 100% of the outstanding stock of First National, a bank holding company headquartered in Naples, Florida. First National operated 77 full-service banking centers located primarily in Orlando, Tampa, Sarasota, Naples and Fort Myers. The acquisition of First National allows the Registrant to expand its presence in the rapidly expanding Florida market. Under the terms of the transaction, each share of First National common stock was exchanged for .5065 shares of the Registrants common stock, resulting in the issuance of 30.6 million shares of common stock. The common stock issued to effect the transaction was valued at $47.30 per share, the closing price of the Registrants common stock on the previous trading day, for a total transaction value of $1.5 billion. The total purchase price also includes the fair value of stock awards issued in exchange for stock awards held by First National employees, for which the aggregate fair value was $52 million. The assets and liabilities of First National were recorded on the Condensed Consolidated Balance Sheet at their respective fair values as of the closing date.
On June 6, 2008, the Bancorp completed its acquisition of First Charter Corporation, a regional financial services company with assets of $4.8 billion and that operates 57 branches in North Carolina and 2 in suburban Atlanta, paying $31.00 per First Charter share, or approximately $1.1 billion.
Bancorp performed a goodwill impairment test as of December 31, 2008. Based on the results of the Step 1 test as defined in SFAS No. 142, the Commercial Banking, Consumer Lending, and Branch Banking reporting units carrying amounts, including goodwill, exceeded their related fair values. Upon completion of the Step 2 test, the Bancorp determined that the Commercial Banking and Consumer Lending reporting units goodwill carrying amounts exceeded their associated implied fair values by $750 million and $215 million, respectively. The resulting $965 million goodwill impairment charge was recorded in the fourth quarter of 2008.
On June 4, 2009, the Bancorp completed an at-the-market offering resulting in the sale of $1 billion of its common shares. As a result, the Bancorp issued approximately 158 million common shares at an average share price of $6.33. In addition, on June 17, 2009, the Bancorp completed its offer to exchange 2,158.8272 shares of its common stock, no par value, and $8,250 in cash, for each set of 250 validly tendered and accepted depositary shares of its Series G convertible preferred stock. As a result of this exchange, the Bancorp issued approximately 60 million common shares and $230 million in cash for 63% of the outstanding Series G preferred shares. Based upon the difference in the carrying value of the Series G preferred shares and the fair value of the common shares and cash issued, the Bancorp recognized an increase to net income available to common shareholders of $35 million.
On January 25, 2011, the Bancorp raised $1.7 billion in new common equity through the issuance of 121,428,572 shares of common stock in an underwriting offering at an initial price of $14.00 per share. On January 24, 2011, the underwriters exercised their option to purchase an additional 12,142,857 shares at the offering price of $14.00 per share. In connection with this exercise, the Bancorp entered into a forward sale agreement which resulted in a final net payment of 959,821 shares on February 4, 2011. On January 25, 2011, the Bancorp issued $1.0 billion of senior notes to third party investors, and entered into a Supplemental Indenture dated January 25, 2011 with Wilmington Trust Company, as Trustee, which modified the existing Indenture for Senior Debt Securities dated April 30, 2008 between the Bancorp and the Trustee. The Supplemental Indenture and the Indenture define the rights of the Senior Notes, which Senior Notes are represented by Global Securities dated as of January 25, 2011. The Senior Notes bear a fixed rate of interest of 3.625% per annum. The notes are unsecured, senior obligations of the Bancorp. Payment of the full principal amount of the notes will be due upon maturity on January 25, 2016. The notes will not be subject to redemption at the Bancorp's option at any time prior to maturity.
On February 2, 2011, the Bancorp redeemed all 136,320 shares of its Series F Preferred Stock held by the U.S. Treasury under the U.S. Treasury's CPP. The net proceeds from the Bancorp's January 2011 common stock and Senior Notes offerings previously discussed, and other funds were used to redeem the $3.4 billion of Series F Preferred Stock. In connection with the redemption of the Series F Preferred Stock, the Bancorp accelerated the accretion of the remaining issuance discount on the Series F Preferred Stock and recorded a corresponding reduction in retained earnings of $153 million. This resulted in a one-time, noncash reduction in net income available to common shareholders and related basic and diluted earnings per share in the first quarter of 2011. In addition, dividends of $15 million were paid on February 2, 2011, when the Series F Preferred Stock was redeemed. On March 16, 2011, the Bancorp repurchased the warrant issued to the U.S. Treasury in connection with the CPP preferred stock investment at an agreed upon price of $280 million, which was recorded as a reduction to capital surplus in the Bancorp's Condensed Consolidated Financial Statements. The warrant gave the U.S Treasury the right to purchase 43,617,747 shares of the Bancorp's common stock at $11.72 per share.