Announces accelerated Tax Receivable Agreement
(TRA) and extended operating agreement with Vantiv
- 2Q16 net income available to common
shareholders of $310 million, or $0.40 per diluted common share
- Reported results included the following
items which had a negative $0.01 impact on reported 2Q16 EPS:
- A $50 million pre-tax (~$33 million
after-tax) charge related to the valuation of the Visa total return
swap primarily reflecting the rejection of the merchant litigation
settlement
- A $19 million pre-tax (~$12 million
after-tax) positive valuation adjustment on the Vantiv warrant
- An $11 million pre-tax (~$7 million
after-tax) gain on the previously announced sale of Pennsylvania
branches
- An $11 million pre-tax (~$7 million
after-tax) gain on the sale of the non-strategic agented bankcard
loan portfolio
- A $9 million pre-tax (~$6 million
after-tax) compensation-related expense due to retirement
eligibility changes
- 2Q16 return on average assets (ROA) of
0.94%; return on average common equity of 8.2%; return on average
tangible common equity** of 9.7%
- Pre-tax income of $427 million and
pre-provision net revenue (PPNR)** of $518 million in 2Q16
- Net interest income (on a fully taxable
equivalent basis) of $908 million, flat sequentially and up 2
percent from 2Q15; net interest margin of 2.88%, down 3 bps
sequentially
- Average portfolio loans and leases of
$93.9 billion, up $656 million sequentially and up $1.8 billion
from 2Q15; Period end portfolio loans and leases of $93.9 billion
increased $304 million sequentially and $1.2 billion, or 1 percent,
from 2Q15; the sequential and year over year increases were
primarily driven by increases in C&I, residential mortgage, and
commercial construction loans
- Noninterest income of $599 million
compared with $637 million in the prior quarter; primarily driven
by the items mentioned above, partially offset by an increase in
corporate banking net revenue
- Noninterest expense of $983 million was
$3 million lower than the prior quarter and primarily reflected
seasonally lower compensation expenses partially offset by $9
million in expenses related to changes in retirement
eligibility
- Credit trends
- 2Q16 net charge-offs of $87 million
(0.37% of loans and leases) decreased from 1Q16 NCOs of $96 million
(0.42% of loans and leases)
- Portfolio NPA ratio of 0.86% down 2 bps
from 1Q16, NPL ratio of 0.74% down 1 bp from 1Q16; total
nonperforming assets (NPAs) of $825 million, including loans
held-for-sale (HFS), decreased $5 million sequentially
- 2Q16 provision expense of $91 million;
$119 million in 1Q16 and $79 million in 2Q15
- Strong capital ratios*
- Common equity Tier 1 (CET1) ratio
9.94%; fully phased-in CET1 ratio of 9.86%
- Tier 1 risk-based capital ratio 11.03%,
Total risk-based capital ratio 14.66%, Leverage ratio 9.64%
- Tangible common equity ratio** of
9.18%; 8.64% excluding securities portfolio unrealized
gains/losses
- 4 million reduction in common shares
outstanding during the quarter
- Book value per share of $20.09 up 3%
from 1Q16 and up 14% from 2Q15; tangible book value per share** of
$16.93
* Capital ratios estimated; presented under current U.S. capital
regulations.** Non-GAAP measure; see discussion of non-GAAP and
Reg. G reconciliation beginning on page 33 in Exhibit 99.1 of 8-K
filing dated 7/28/16.
Fifth Third Bancorp (Nasdaq: FITB) today reported second quarter
2016 net income of $333 million versus net income of $327 million
in the first quarter of 2016 and $315 million in the second quarter
of 2015. After preferred dividends, net income available to common
shareholders was $310 million, or $0.40 per diluted share, in the
second quarter of 2016, compared with $312 million, or $0.40 per
diluted share, in the first quarter of 2016, and $292 million, or
$0.36 per diluted share, in the second quarter of 2015.
Second quarter 2016 included:
Income
- $19 million positive valuation
adjustment on the Vantiv warrant
- $11 million gain on sale of
Pennsylvania branches as part of the previously announced branch
consolidation and sales plan
- $11 million gain on the sale of the
non-strategic agented bankcard loan portfolio
- ($50 million) charge related to the
valuation of the Visa total return swap, primarily reflecting the
rejection of the merchant litigation settlement
Expense
- ($9 million) in compensation-related
expenses due to retirement eligibility changes
- ($3 million) in severance expense
First quarter 2016 included:
Income
- $47 million positive valuation
adjustment on the Vantiv warrant
- $8 million gain on sale of certain St.
Louis branches as part of the previously announced branch
consolidation and sales plan
- $1 million benefit related to the
valuation of the Visa total return swap
Expense
- ($15 million) in severance expense,
primarily consisting of $14 million related to the voluntary early
retirement program
Second quarter 2015 included:
Income
- $14 million positive valuation
adjustment on the Vantiv warrant
- ($2 million) charge related to the
valuation of the Visa total return swap
- ($97 million) non-cash impairment
charge related to previously announced changes in the branch
network
Expense
- ($2 million) in severance expense
Earnings Highlights
For the Three Months Ended % Change June March December
September June 2016 2016 2015 2015 2015 Seq Yr/Yr
Earnings ($ in millions) Net income attributable to Bancorp
$ 333 $ 327 $ 657 $ 381 $ 315 2 % 6 % Net income available to
common shareholders $ 310 $ 312 $ 634 $ 366 $ 292 (1 %) 6 %
Common Share Data Earnings per share, basic $ 0.40 $ 0.40 $
0.80 $ 0.46 $ 0.36 - 11 % Earnings per share, diluted 0.40 0.40
0.79 0.45 0.36 - 11 % Cash dividends per common share 0.13 0.13
0.13 0.13 0.13 - -
Financial Ratios Return on average
assets 0.94 % 0.93 % 1.83 % 1.07 % 0.90 % 1 % 4 % Return on average
common equity 8.2 8.3 17.2 10.0 8.1 (1 %) 1 % Return on average
tangible common equity(b) 9.7 9.9 20.6 12.0 9.7 (2 %) - CET1
capital(c) 9.94 9.81 9.82 9.40 9.42 1 % 6 % Tier I risk-based
capital(c) 11.03 10.91 10.93 10.49 10.51 1 % 5 % CET1 capital
(fully-phased in)(b)(c) 9.86 9.72 9.72 9.30 9.31 1 % 6 % Net
interest margin(a) 2.88 2.91 2.85 2.89 2.90 (1 %) (1 %)
Efficiency(a) 65.3 63.8 48.0 58.2 65.4 2 % - Common shares
outstanding (in thousands) 766,346 770,471 785,080 795,439 810,054
(1 %) (5 %) Average common shares outstanding (in thousands): Basic
759,105 773,564 784,855 795,793 803,965 (2 %) (6 %) Diluted 765,080
778,392 794,481 805,023 812,843 (2 %) (6 %) (a) Presented on
a fully taxable equivalent basis. (b) These ratios have been
included herein to facilitate a greater understanding of the
Bancorp's capital structure and financial condition. See the
Regulation G Non-GAAP Reconciliation table for a reconciliation of
these ratios to U.S. GAAP. (c) Under the banking agencies' Basel
III Final Rule, assets and credit equivalent amounts of off-balance
sheet exposures are calculated according to the standardized
approach for risk-weighted assets. The resulting values are added
together resulting in the Bancorp's total risk-weighted assets used
in the calculation of the tier I risk-based capital and common
equity tier 1 ratios. Current period regulatory capital ratios are
estimated. NA: Not applicable.
“Operating leverage continues to be our top priority in this
extended low growth, low rate environment”, said Greg D.
Carmichael, President and CEO of Fifth Third Bancorp. “With a
balanced focus on revenue growth and expense management we are
making good progress even as we continue to make strategic
investments.”
“With disciplined loan pricing and targeted relationship
management, we generated positive momentum in our core business
despite a challenging economic backdrop. We are very pleased with
our growth in corporate banking fees and are also are taking share
in capital markets with a broader offering of products and
services. Additionally, we had strong growth in mortgage
originations with a 17 percent increase in purchase volumes
year-over-year.
“During the quarter we continued to make strategic investments
in our core business, streamlining processes, and further enhancing
our information technology, risk and compliance management
infrastructure. We are also pleased with the regulatory response to
our CCAR submission, enabling us to continue to focus on returning
a significant amount of capital to our shareholders through
dividends and share repurchases.
“Lastly, I am pleased to announce that we recently entered into
a couple of significant transactions with Vantiv. We extended our
processing agreement through 2024, which will generate revenue
benefits and cost savings for Fifth Third. Additionally, we agreed
to terminate and settle certain future TRA cash flows for an
upfront payment of $116 million with the option to terminate and
settle additional future cash flows. These agreements will enable
us to repurchase shares using the realized gains, creating
additional value for our shareholders.”
Income Statement Highlights
For the
Three Months Ended % Change June March December September
June 2016 2016 2015
2015 2015 Seq Yr/Yr
Condensed
Statements of Income ($ in millions) Net interest income
(taxable equivalent)
$
908
$
909
$
904
$
906
$
892
- 2 % Provision for loan and lease losses 91 119 91 156
79
(24 %) 15 % Total noninterest income 599 637 1,104 713 556 (6 %) 8
% Total noninterest expense 983
986 963 943 947
- 4 % Income before income taxes
(taxable equivalent)
$
433
$
441
$
954
$
520
$
422
(2 %) 3 % Taxable equivalent adjustment
6 6 5 5 5 - 20 % Applicable income tax expense 98
108 292 134
108 (9 %) (9 %) Net income
$
329
$
327
$
657
$
381
$
309
1 % 6 % Less: Net income attributable to noncontrolling interests
(4 ) - -
- (6 ) 100 % (33 %) Net income
attributable to Bancorp
$
333
$
327
$
657
$
381
$
315
2 % 6 % Dividends on preferred stock 23
15 23 15 23
53 % - Net income available to common
shareholders
$
310
$
312
$
634
$
366
$
292
(1 %) 6 % Earnings per share, diluted
$
0.40
$
0.40
$
0.79
$
0.45
$
0.36
- 11 %
Net Interest Income
For the Three Months Ended % Change June March
December September June 2016 2016 2015 2015
2015 Seq Yr/Yr
Interest Income ($ in
millions) Total interest income (taxable equivalent) $ 1,052 $
1,044 $ 1,035 $ 1,031 $ 1,008 1 % 4 % Total interest expense
144 135
131 125
116 7 % 24 % Net interest income
(taxable equivalent) $ 908 $ 909
$ 904 $ 906
$ 892 - 2 %
Average
Yield bps Change Yield on interest-earning assets (taxable
equivalent) 3.34 % 3.34 % 3.26 % 3.29 % 3.28 % - 6 Rate paid on
interest-bearing liabilities 0.67 %
0.64 % 0.61 % 0.58
% 0.56 % 3 11
Net interest rate spread (taxable equivalent)
2.67 % 2.70 % 2.65 %
2.71 % 2.72 %
(3 ) (5 ) Net interest margin (taxable equivalent)
2.88 % 2.91 % 2.85 % 2.89 % 2.90 % (3 ) (2 )
Average
Balances ($ in millions) % Change Loans and leases, including
held for sale $ 94,807 $ 94,078 $ 94,587 $ 94,329 $ 92,739 1 % 2 %
Total securities and other short-term investments 32,040 31,573
31,256 30,102 30,563 1 % 5 % Total interest-earning assets 126,847
125,651 125,843 124,431 123,302 1 % 3 % Total interest-bearing
liabilities 86,145 85,450 85,381 85,171 83,480 1 % 3 % Bancorp
shareholders' equity 16,584
16,376 15,982
15,815 15,841
1 % 5 %
Net interest income of $908 million on a fully taxable
equivalent basis decreased $1 million from the first quarter,
primarily driven by the full quarter impact of $1.5 billion of
unsecured debt issued in the first quarter of 2016 and from lower
average consumer loan balances, partially offset by growth in
commercial loans and securities.
The net interest margin was 2.88 percent, a decrease of 3 bps
from the previous quarter. The decrease was primarily driven by the
full quarter impact of the aforementioned debt issuance in the
first quarter of 2016.
Compared to the second quarter of 2015, net interest income
increased by $16 million and the net interest margin decreased by 2
bps. The increase in net interest income was driven by the impact
of higher investment securities and loan balances, as well as
short-term market rate improvements from the December 2015 Fed
funds rate increase. The decrease in the net interest margin from
the prior year was primarily driven by increased long-term debt
balances, lower commercial loan yields, and reduced cash flow
hedges, partially offset by lower cash balances held at the Fed as
well as the December 2015 Fed funds rate increase.
Securities
Average securities and other short-term investments were $32.0
billion in the second quarter of 2016 compared to $31.6 billion in
the previous quarter and $30.6 billion in the second quarter of
2015. Average balances of other short-term investments increased by
$77 million sequentially to $2.0 billion.
Loans
For the Three Months Ended % Change June March
December September June 2016 2016 2015 2015
2015 Seq Yr/Yr
Average Portfolio Loans and
Leases ($ in millions) Commercial: Commercial and industrial
loans $ 43,876 $ 43,089 $ 43,154 $ 43,149 $ 42,550 2 % 3 %
Commercial mortgage loans 6,831 6,886 7,032 7,023 7,148 (1 %) (4 %)
Commercial construction loans 3,551 3,297 3,141 2,965 2,549 8 % 39
% Commercial leases 3,898 3,874
3,839 3,846
3,776 1 % 3 % Total commercial loans
and leases $ 58,156 $ 57,146 $
57,166 $ 56,983 $ 56,023
2 % 4 % Consumer: Residential mortgage loans $ 14,046 $
13,788 $ 13,504 $ 13,144 $ 12,831 2 % 9 % Home equity 8,054 8,217
8,360 8,479 8,654 (2 %) (7 %) Automobile loans 10,887 11,283 11,670
11,877 11,902 (4 %) (9 %) Credit card 2,134 2,179 2,218 2,277 2,296
(2 %) (7 %) Other consumer loans and leases 654
662 676
613 467 (1 %) 40 %
Total consumer loans and leases $ 35,775 $
36,129 $ 36,428 $ 36,390
$ 36,150 (1 %) (1 %) Total average portfolio
loans and leases $ 93,931 $ 93,275 $ 93,594 $ 93,373 $ 92,173 1 % 2
% Average loans held for sale $ 876 $
803 $ 993 $ 956 $ 566
9 % 55 %
Average loan and lease balances (excluding loans held-for-sale)
increased $656 million sequentially and increased $1.8 billion, or
2 percent, from the second quarter of 2015. The sequential and
year-over-year increases in average loans and leases were driven by
increased commercial and industrial (C&I), residential mortgage
and commercial construction loans. Period end loans and leases
(excluding loans held-for-sale) of $93.9 billion increased $304
million sequentially and $1.2 billion, or 1 percent, from a year
ago. The increase year-over-year was primarily due to an increase
in residential mortgage and commercial construction loans,
partially offset by a decrease in automobile loans.
Average commercial portfolio loan and lease balances increased
$1.0 billion, or 2 percent, sequentially and increased $2.1
billion, or 4 percent, from the second quarter of 2015. Average
C&I loans increased $787 million, or 2 percent, from the prior
quarter and increased $1.3 billion, or 3 percent, from the second
quarter of 2015. Average commercial real estate loans increased
$199 million, or 2 percent, from the prior quarter and increased
$685 million, or 7 percent, from the second quarter of 2015. Within
commercial real estate, average commercial mortgage balances
decreased $55 million and average commercial construction balances
increased $254 million sequentially. Commercial line usage, on an
end of period basis, was relatively stable from the first quarter
of 2016 and decreased 54 bps from the second quarter of 2015.
Average consumer portfolio loan and lease balances decreased
$354 million, or 1 percent, sequentially and decreased $375
million, or 1 percent, from the second quarter of 2015. This was
primarily driven by average automobile loans which decreased 4
percent sequentially and 9 percent from a year ago. Average
residential mortgage loans increased 2 percent sequentially and 9
percent from the previous year. Average home equity loans declined
2 percent sequentially and 7 percent from the second quarter of
2015. Average credit card loans decreased 2 percent sequentially
and 7 percent from the second quarter of 2015.
Deposits
For the Three Months Ended %
Change June March December September June 2016 2016
2015 2015 2015 Seq Yr/Yr
Average
Deposits ($ in millions) Demand $ 35,912 $ 35,201 $ 36,254 $
35,231 $ 35,384 2 % 1 % Interest checking 24,714 25,740 25,296
25,590 26,894 (4 %) (8 %) Savings 14,576 14,601 14,615 14,868
15,156 - (4 %) Money market 19,243 18,655 18,775 18,253 18,071 3 %
6 % Foreign office(a) 484 483
736 718
955 - (49 %) Total transaction
deposits $ 94,929 $ 94,680 $ 95,676 $ 94,660 $ 96,460 - (2 %) Other
time 4,044 4,035
4,052 4,057 4,074
- (1 %) Total core deposits $ 98,973 $
98,715 $ 99,728 $ 98,717 $ 100,534 - (2 %) Certificates - $100,000
and over 2,819 2,815 3,305 2,924 2,558 - 10 % Other
467 - 7
222 - 100 % 100 %
Total average deposits $ 102,259 $ 101,530
$ 103,040 $ 101,863 $
103,092 1 % (1 %)
(a) Includes commercial customer
Eurodollar sweep balances for which the Bancorp pays rates
comparable to other commercial deposit accounts.
Average core deposits increased $258 million sequentially but
decreased $1.6 billion, or 2 percent, from the second quarter of
2015. Average transaction deposits increased $249 million from the
first quarter of 2016 and decreased $1.5 billion, or 2 percent,
from the second quarter of 2015. Sequential performance was
primarily driven by higher demand deposit and money market account
balances, partially offset by lower interest checking account
balances. The year-over-year decline was primarily driven by lower
interest checking, savings and foreign office account balances,
partially offset by higher demand deposit and money market account
balances. Other time deposits were flat sequentially and decreased
1 percent compared with the second quarter of 2015. Average deposit
balances were impacted by approximately $201 million due to the
previously noted sale of branches in Pennsylvania. This sale
included $302 million of primarily core consumer deposit balances.
Additionally, average deposit balances were affected by the full
quarter impact of $228 million in deposits from the sale of St.
Louis branches in the first quarter of 2016.
Average commercial transaction deposits were down 2 percent
sequentially and decreased 6 percent from the previous year. The
sequential decline was primarily driven by lower interest checking
account balances, partially offset by an increase in demand deposit
account and money market account balances. The year-over-year
decline reflected lower interest checking and foreign office
account balances, partially offset by higher demand deposit and
money market account balances.
Average consumer transaction deposits increased 2 percent
sequentially and 3 percent from the second quarter of 2015. The
sequential performance reflected broad-based growth across all
deposit products. Year-over-year growth was driven by higher money
market, interest checking, and demand deposit account balances,
partially offset by lower savings account balances.
Wholesale
Funding
For the Three Months Ended
% Change June March December September June 2016 2016
2015 2015 2015 Seq Yr/Yr
Average Wholesale Funding ($ in millions) Certificates -
$100,000 and over $ 2,819 $ 2,815 $ 3,305 $ 2,924 $ 2,558 - 10 %
Other deposits 467 - 7 222 - 100 % 100 % Federal funds purchased
693 608 1,182 1,978 326 14 % NM Other short-term borrowings 3,754
3,564 1,675 1,897 1,705 5 % NM Long-term debt 15,351
14,949 15,738
14,664 13,741 3 %
12 % Total average wholesale funding $ 23,084
$ 21,936 $ 21,907 $ 21,685
$ 18,330 5 % 26 %
Average wholesale funding of $23.1 billion increased $1.1
billion, or 5 percent, sequentially, and increased $4.8 billion, or
26 percent, compared with the second quarter of 2015. The
sequential increase in average wholesale funding was primarily
driven by a $1.25 billion debt issuance to take advantage of
favorable capital market conditions. The year-over-year increase
reflected the impact of funding higher securities balances and
replacing LCR punitive deposits with wholesale borrowings.
Noninterest
Income
For the Three
Months Ended % Change June March December September June
2016 2016 2015 2015 2015 Seq
Yr/Yr
Noninterest Income ($ in millions) Service
charges on deposits $ 138 $ 137 $ 144 $ 145 $ 139 1 % (1 %)
Corporate banking revenue 117 102 104 104 113 15 % 4 % Mortgage
banking net revenue 75 78 74 71 117 (4 %) (36 %) Wealth and asset
management revenue 101 102 102 103 105 (1 %) (4 %) Card and
processing revenue 82 79 77 77 77 4 % 6 % Other noninterest income
80 136 602 213 1 (41 %) NM Securities gains, net 6
3 1 - 4
100 % 50 % Total noninterest income $ 599
$ 637 $ 1,104 $ 713 $ 556 (6 %)
8 %
Noninterest income of $599 million decreased $38 million
sequentially and increased $43 million compared with prior year
results. The sequential and year-over-year comparisons reflect the
impacts described below.
Noninterest Income excluding certain items
For the Three Months Ended % Change June March
June 2016 2016 2015 Seq
Yr/Yr
Noninterest Income excluding certain items ($ in
millions) Noninterest income (U.S. GAAP) $ 599 $ 637 $ 556
Vantiv warrant valuation (19 ) (47 ) (14 ) Gain on sale of certain
branches (11 ) (8 ) - Gain on sale of the non-strategic agented
bankcard loan portfolio (11 ) - - Valuation of Visa total return
swap 50 (1 ) 2 Branch / land valuation adjustments - - 97
Securities (gains) / losses (6 ) (3 )
(4 ) Noninterest income
excluding certain items $ 602 $ 578
$ 637 4 % (5 %)
Excluding the items in the table above, noninterest income of
$602 million increased $24 million, or 4 percent, from the previous
quarter and decreased $35 million, or 5 percent, from the second
quarter of 2015. The sequential increase was primarily due to
increases in corporate banking revenue. The year-over-year decrease
was driven by a decrease in mortgage banking net revenue due to a
significant positive MSR valuation adjustment in the second quarter
of 2015.
Service charges on deposits of $138 million increased 1 percent
from the first quarter of 2016, and decreased 1 percent compared
with the same quarter last year. The sequential increase reflected
a 3 percent increase in retail service charges. The decrease from
the second quarter of 2015 was due to a 6 percent decrease in
retail service charges.
Corporate banking revenue of $117 million increased $15 million
compared to the first quarter of 2016 and increased $4 million from
the second quarter of 2015. The sequential comparison reflects
increases in loan syndication revenue and institutional sales
revenue. The year-over-year increase was primarily driven by higher
loan syndication revenue, partially offset by lower business
lending fees and institutional sales revenue.
Mortgage banking net revenue was $75 million in the second
quarter of 2016, down $3 million from the first quarter of 2016 and
down $42 million from the second quarter of 2015. Originations were
$2.7 billion in the current quarter, $1.8 billion in the previous
quarter and $2.5 billion in the second quarter of 2015. Second
quarter 2016 originations resulted in gains of $54 million on
mortgages sold, compared with gains of $42 million during the
previous quarter and $43 million during the second quarter of 2015.
Mortgage servicing fees were $50 million this quarter, $52 million
in the first quarter of 2016, and $56 million in the second quarter
of 2015. Mortgage banking net revenue is also affected by net
servicing asset valuation adjustments, which include mortgage
servicing rights (MSR) amortization and MSR valuation adjustments
(including mark-to-market adjustments on free-standing derivatives
used to economically hedge the MSR portfolio). These net servicing
asset valuation adjustments were negative $29 million in the second
quarter of 2016 (reflecting MSR amortization of $35 million and MSR
valuation adjustments of positive $6 million); negative $16 million
in the first quarter of 2016 (MSR amortization of $27 million and
MSR valuation adjustments of positive $11 million); and positive
$18 million in the second quarter of 2015 (MSR amortization of $39
million and MSR valuation adjustments of positive $57 million). The
mortgage servicing asset, net of the valuation reserve, was $621
million at quarter end on a servicing portfolio of $56 billion.
Wealth and asset management revenue of $101 million decreased 1
percent from the first quarter of 2016 due to seasonally lower
tax-related private client services revenue, partially offset by an
increase in personal asset management fees. The decrease of 4
percent from the prior year was primarily due to lower securities
and brokerage fees.
Card and processing revenue of $82 million in the second quarter
of 2016 increased 4 percent sequentially and increased 6 percent
from the second quarter of 2015. The sequential increase reflected
higher transaction volumes compared with seasonally weak first
quarter volumes. The year-over-year increase reflected an increase
in customer transactions and spend volume.
Other noninterest income totaled $80 million in the second
quarter of 2016, compared with $136 million in the previous quarter
and $1 million in the second quarter of 2015. As previously
described, the results included the adjustments in the table on
page 9 with the exception of securities gains in all comparable
periods. Excluding these items, other noninterest income of $89
million increased approximately $9 million, or 11 percent, from the
first quarter of 2016 and increased approximately $3 million, or 3
percent, from the second quarter of 2015.
Net gains on investment securities were $6 million in the second
quarter of 2016, compared with $3 million in the previous quarter
and $4 million in the second quarter of 2015.
Noninterest Expense
For the
Three Months Ended % Change June March December
September June 2016 2016 2015
2015 2015 Seq Yr/Yr
Noninterest Expense ($ in millions) Salaries, wages and
incentives $ 407 $ 403 $ 386 $ 387 $ 383 1 % 6 % Employee benefits
85 100 74 72 78 (15 %) 9 % Net occupancy expense 75 77 83 77 83 (3
%) (10 %) Technology and communications 60 56 59 56 54 7 % 11 %
Equipment expense 30 30 32 31 31 - (3 %) Card and processing
expense 37 35 40 40 38 6 % (3 %) Other noninterest expense
289 285 289
280 280 1 %
3 % Total noninterest expense $ 983 $ 986
$ 963 $ 943 $ 947
- 4 %
Noninterest expense of $983 million was down $3 million compared
with the first quarter of 2016 and increased 4 percent compared
with the second quarter of 2015. The sequential comparison
reflected a seasonal decrease in FICA and unemployment tax expense
recorded in employee benefits, partially offset by a $9 million
compensation-related expense due to retirement eligibility changes.
The year-over-year increase reflected higher compensation expense
as a result of personnel additions primarily in risk and compliance
and information technology.
Credit Quality
For the Three Months Ended June
March December September June 2016 2016 2015
2015 2015
Total net losses charged-off ($ in
millions) Commercial and industrial loans ($39 ) ($46 ) ($30 )
($128 ) ($34 ) Commercial mortgage loans (6 ) (6 ) (3 ) (11 ) (11 )
Commercial construction loans - - - (3 ) - Commercial leases (1 )
(2 ) (1 ) - - Residential mortgage loans (2 ) (2 ) (3 ) (3 ) (5 )
Home equity (6 ) (8 ) (9 ) (9 ) (9 ) Automobile loans (8 ) (9 ) (9
) (7 ) (4 ) Credit card (21 ) (20 ) (19 ) (21 ) (21 ) Other
consumer loans and leases (4 ) (3 )
(6 ) (6 ) (2 ) Total net losses
charged-off ($87 ) ($96 ) ($80 ) ($188 ) ($86 ) Total losses
charged-off ($105 ) ($116 ) ($105 ) ($209 ) ($112 ) Total
recoveries of losses previously charged-off 18
20 25 21
26 Total net losses charged-off ($87 ) ($96 )
($80 ) ($188 ) ($86 )
Ratios (annualized)
Net losses charged-off as a percent of
average portfolio loans and leases (excluding held for sale)
0.37 % 0.42 % 0.34 % 0.80 % 0.37 % Commercial 0.32 % 0.38 % 0.24 %
0.99 % 0.32 % Consumer 0.45 % 0.48 %
0.49 % 0.51 % 0.46 %
Net charge-offs were $87 million, or 37 bps of average portfolio
loans and leases on an annualized basis, in the second quarter of
2016 compared with net charge-offs of $96 million, or 42 bps, in
the first quarter of 2016 and $86 million, or 37 bps, in the second
quarter of 2015.
Commercial net charge-offs were $46 million, or 32 bps, and were
down $8 million sequentially. The decrease was primarily due to
lower charge-offs of C&I loans, which decreased by $7 million
from the first quarter of 2016. Commercial real estate net
charge-offs were flat from the previous quarter.
Consumer net charge-offs were $41 million, or 45 bps, and were
down $1 million sequentially. Compared with the previous quarter,
net charge-offs on residential mortgage loans in the portfolio were
flat and net charge-offs on the home equity portfolio decreased $2
million. Net charge-offs on the auto portfolio were down $1 million
and net charge-offs on credit card loans were up $1 million from
the first quarter of 2016. Net charge-offs on other consumer loans
were $4 million, up $1 million from the previous quarter.
For the Three Months Ended June March December
September June 2016 2016 2015
2015 2015
Allowance for Credit Losses ($ in millions)
Allowance for loan and lease losses, beginning $ 1,295 $ 1,272 $
1,261 $ 1,293 $ 1,300 Total net losses charged-off (87 ) (96 ) (80
) (188 ) (86 ) Provision for loan and lease losses 91
119 91
156 79
Allowance for loan and lease losses, ending $ 1,299 $ 1,295
$ 1,272 $ 1,261 $ 1,293 Reserve for unfunded commitments,
beginning $ 144 $ 138 $ 134 $ 132 $ 130 Provision for unfunded
commitments 7 6
4 2
2 Reserve for unfunded commitments, ending $
151 $ 144 $ 138 $ 134 $ 132 Components of allowance for
credit losses: Allowance for loan and lease losses $ 1,299 $ 1,295
$ 1,272 $ 1,261 $ 1,293 Reserve for unfunded commitments
151 144
138 134
132 Total allowance for credit losses $ 1,450 $ 1,439
$ 1,410 $ 1,395 $ 1,425
Allowance for loan and lease losses
ratio As a percent of portfolio loans and leases 1.38 % 1.38 %
1.37 % 1.35 % 1.39 % As a percent of nonperforming loans and
leases(a) 188 % 185 % 252 % 275 % 272 % As a percent of
nonperforming assets(a) 161 % 157 % 197 % 208 % 206 % (a)
Excludes nonaccrual loans in loans held for sale.
Provision for loan and lease losses totaled $91 million in the
second quarter of 2016. The allowance represented 1.38 percent of
total portfolio loans and leases outstanding as of quarter end,
compared with 1.38 percent last quarter, and represented 188
percent of nonperforming loans and leases, and 161 percent of
nonperforming assets.
The provision decreased $28 million from the first quarter of
2016 and increased $12 million from the second quarter of 2015. The
allowance for loan and lease losses increased $4 million
sequentially. As of June 30, the reserve allocated to the energy
portfolio was approximately 5.97%, down from approximately 6.20%
last quarter.
As of June March December September June
Nonperforming
Assets and Delinquent Loans ($ in millions) 2016 2016 2015 2015
2015 Nonaccrual portfolio loans and leases: Commercial and
industrial loans $ 254 $ 278 $ 82 $ 47 $ 61 Commercial mortgage
loans 39 51 56 60 49 Commercial construction loans - - - - -
Commercial leases 4 4 - 2 2 Residential mortgage loans 27 25 28 31
35 Home equity 61 61
62 65 70
Total nonaccrual portfolio loans and leases (excludes
restructured loans) $ 385 $ 419 $ 228 $ 205 $ 217 Nonaccrual
restructured portfolio commercial loans and leases(b) 242 210 203
177 175 Nonaccrual restructured portfolio consumer loans and leases
66 72 75
76 83 Total
nonaccrual portfolio loans and leases $ 693 $ 701 $ 506 $ 458 $ 475
Repossessed property 15 17 18 17 16 OREO 97
107 i 123 i 131 i
135 i Total nonperforming portfolio assets(a) $ 805 $ 825 $
647 $ 606 $ 626 Nonaccrual loans held for sale 20 3 1 1 1
Nonaccrual restructured loans held for sale -
2 11 1
- Total nonperforming assets $ 825
$ 830 $ 659 $ 608
$ 627 Restructured Portfolio Consumer
loans and leases (accrual) $ 982 $ 998 $ 979 $ 973 $ 970
Restructured Portfolio Commercial loans and leases (accrual)(b) $
431 $ 461 $ 491 $ 571 $ 769 Total loans and leases 90 days
past due $ 65 $ 73 $ 75 $ 70 $ 70 Nonperforming loans and leases as
a percent of portfolio loans, leases and other assets, including
OREO(a) 0.74 % 0.75 % 0.55 % 0.49 % 0.51 % Nonperforming portfolio
assets as a percent of portfolio loans and leases and OREO(a) 0.86
% 0.88 % 0.70 % 0.65 % 0.67 % (a) Does not include
nonaccrual loans held for sale. (b) Excludes $20 million of
restructured nonaccrual loans and $7 million of restructured
accruing loans as of June 30, 2016, March 31, 2016 and December 31,
2015. Excludes $21 million of restructured nonaccrual loans and $7
million of restructured accruing loans as of September 30, 2015 and
June 30, 2015.
Total nonperforming assets, including loans held-for-sale,
decreased $5 million, or 1 percent, from the previous quarter to
$825 million. Nonperforming loans (NPLs) at quarter-end decreased
$8 million, or 1 percent, from the previous quarter to $693 million
or 0.74 percent of total loans, leases and OREO.
Commercial NPAs decreased $9 million from the first quarter to
$602 million, or 1.04 percent of commercial loans, leases and OREO.
Commercial NPLs decreased $4 million from last quarter to $539
million, or 0.93 percent of commercial loans and leases. C&I
NPAs increased $5 million from the prior quarter to $477 million.
This increase primarily reflected non-energy NPAs which resulted in
a stable reserve coverage of both NPLs and NPAs compared with those
coverage levels in the first quarter of 2016. Energy NPLs were flat
sequentially. Commercial mortgage NPAs decreased $12 million from
the previous quarter to $114 million. Commercial construction NPAs
decreased $1 million from the previous quarter to $7 million.
Commercial lease NPAs were $4 million, down $1 million from the
previous quarter. Commercial NPAs included $242 million of
nonaccrual troubled debt restructurings (TDRs), compared with $210
million last quarter.
Consumer NPAs decreased $11 million from the first quarter to
$203 million, or 0.57 percent of consumer loans, leases and OREO.
Consumer NPLs decreased $4 million from last quarter to $154
million, or 0.43 percent of consumer loans and leases. Residential
mortgage NPAs decreased $8 million from the second quarter to $69
million. Home equity NPAs decreased $1 million, sequentially, to
$94 million. Consumer nonaccrual TDRs were $66 million in the
second quarter of 2016, compared with $72 million in the first
quarter of 2016.
Second quarter OREO balances included in NPA balances were down
$10 million from the first quarter to $97 million, and included $56
million in commercial OREO and $41 million in consumer OREO.
Repossessed personal property decreased $2 million from the prior
quarter to $15 million.
Loans over 90 days past due and still accruing decreased $7
million from the first quarter of 2016 to $65 million. Commercial
balances over 90 days past due were $2 million compared with $3
million in the prior quarter, and consumer balances 90 days past
due decreased $7 million from the previous quarter to $63 million.
Loans 30-89 days past due of $196 million were down $12 million
from the previous quarter. Commercial balances 30-89 days past due
decreased $17 million sequentially to $17 million and consumer
balances 30-89 days past due were up $5 million from the first
quarter at $179 million. The above delinquency figures exclude
nonaccruals described previously.
Capital and Liquidity
Position
For the
Three Months Ended June March December September June 2016
2016 2015 2015 2015
Capital Position
Average total Bancorp shareholders' equity to average assets 11.60
% 11.57 % 11.26 % 11.24 % 11.32 % Tangible equity(a) 9.59 % 9.51 %
9.55 % 9.29 % 9.29 % Tangible common equity (excluding unrealized
gains/losses)(a) 8.64 % 8.55 % 8.59 % 8.33 % 8.33 % Tangible common
equity (including unrealized gains/losses)(a) 9.18 % 8.97 % 8.71 %
8.65 % 8.51 % Tangible common equity as a percent of risk-weighted
assets (excluding unrealized gains/losses)(a)(b) 9.92 % 9.78 % 9.80
% 9.37 % 9.39 %
Regulatory capital
ratios:
Basel III Transitional CET1 capital(b) 9.94 % 9.81 % 9.82 %
9.40 % 9.42 % Tier I risk-based capital(b) 11.03 % 10.91 % 10.93 %
10.49 % 10.51 % Total risk-based capital(b) 14.66 % 14.66 % 14.13 %
13.68 % 13.69 % Tier I leverage 9.64 % 9.57 % 9.54 % 9.38 % 9.44 %
CET1 capital (fully phased-in)(a)(b) 9.86 % 9.72 % 9.72 %
9.30 % 9.31 % Book value per share $ 20.09 $ 19.46 $ 18.48 $
18.22 $ 17.62 Tangible book value per share(a) $ 16.93 $ 16.32 $
15.39 $ 15.18 $ 14.62 Modified liquidity coverage ratio
(LCR)(c)(d) 110 % 118 % N/A N/A N/A (a) These ratios have
been included herein to facilitate a greater understanding of the
Bancorp's capital structure and financial condition. See the
Regulation G Non-GAAP Reconciliation table for a reconciliation of
these ratios to U.S. GAAP. (b) Under the banking agencies Basel III
Final Rule, assets and credit equivalent amounts of off-balance
sheet exposures are calculated based upon the standardized approach
for risk-weighted assets. The resulting values are added together
resulting in the Bancorp's total risk-weighted assets. (c) Current
period regulatory capital and liquidity ratios are estimated. (d)
The Bancorp became subject to the Modified LCR regulations
effective January 1, 2016.
Capital ratios remained strong during the quarter. The common
equity Tier 1 ratio was 9.94 percent, the tangible common equity to
tangible assets ratio* was 8.64 percent (excluding unrealized
gains/losses), and 9.18 percent (including unrealized
gains/losses). The Tier 1 risk-based capital ratio was 11.03
percent, the total risk-based capital ratio was 14.66 percent, and
the Leverage ratio was 9.64 percent.
Book value per share at June 30, 2016 was $20.09 and tangible
book value per share* was $16.93, compared with the March 31, 2016
book value per share of $19.46 and tangible book value per share*
of $16.32.
Fifth Third entered into or completed multiple share repurchases
during the quarter. Below is a summary of those share
repurchases.
- On April 11, 2016, Fifth Third settled
the forward contract related to the March 4, 2016 $240 million
share repurchase agreement. An additional 1.87 million shares were
repurchased in connection with the completion of this
agreement.
- On June 14, 2016, Fifth Third executed
open market share repurchases totaling $26 million, which reduced
the second quarter share count by 1.44 million shares.
In total, common shares outstanding decreased by approximately 4
million shares in the second quarter of 2016 from the first quarter
of 2016.
On June 29, 2016, Fifth Third announced that the Board of
Governors of the Federal Reserve System did not object to Fifth
Third’s 2016 CCAR capital plan for the period beginning July 1,
2016 and ending June 30, 2017. Our capital plan included the
following components:
- An increase in the quarterly common
stock dividend to $0.14 in 4Q16
- The repurchase of common shares in an
amount up to $660 million, which includes $84 million in
repurchases related to share issuances under employee benefit
plans
- The additional ability to repurchase
shares in the amount of any realized after-tax gains from the sale
of Vantiv stock, if executed
- The additional ability to repurchase
shares in the amount of any realized after-tax gains from the sale
of any portion of the tax receivable agreement with Vantiv, if
executed
* Non-GAAP measure; see discussion of non-GAAP measures and Reg.
G reconciliation beginning on page 33 in Exhibit 99.1 of 8-K filing
dated 7/28/16.
Tax Rate
The effective tax rate was 22.8 percent in the second quarter of
2016 compared with 25.0 percent in the first quarter of 2016 and
26.1 percent in the second quarter of 2015. The tax rate in the
current period reflected an $8 million tax benefit related to a
change in the estimated deductibility of a prior expense.
Other
On July 27, 2016, Fifth Third Bancorp entered into an agreement
with Vantiv, Inc. under which a portion of its Tax Receivable
Agreement (“TRA”) with Vantiv was terminated and settled in full
for consideration of a cash payment in the amount of $116 million
from Vantiv. Under the agreement, Fifth Third Bancorp sold certain
TRA cash flows totaling an estimated $331 million. These cash flows
were originally payable to Fifth Third from 2019 - 2035. This sale
does not impact the TRA payment expected to be recognized in the
fourth quarter of 2016 and the fourth quarter of 2017. Fifth Third
will also have the ability to terminate and settle another $394
million of future cash flows for a total of $171 million dollars
payable to Fifth Third in 2017 and 2018 in 8 separate quarterly
optional executions. For more detail, see the 8-K dated July 28,
2016. Additionally, Fifth Third Bancorp announced a 5.5 year
extension to the existing operating agreement with Vantiv. The new
agreement will reflect reduced expenses for Fifth Third and
enhanced revenue opportunities for both parties.
Fifth Third Bank owns approximately 35 million units
representing an 18.3 percent interest in Vantiv Holding, LLC,
convertible into shares of Vantiv, Inc., a publicly traded firm.
Based upon Vantiv’s closing price of $56.60 on June 30, 2016, our
interest in Vantiv was valued at approximately $2.0 billion. Next
month in our 10-Q, we will update our disclosure of the carrying
value of our interest in Vantiv stock, which was $374 million as of
March 31, 2016. The difference between the market value and the
book value of Fifth Third’s interest in Vantiv’s shares is not
recognized in Fifth Third’s equity or capital. Additionally, Fifth
Third has a warrant to purchase approximately 7.8 million
additional shares in Vantiv which is carried as a derivative asset
at a fair value of $327 million as of June 30, 2016.
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 by Thomson Financial and may
be accessed through the Fifth Third Investor Relations website at
www.53.com (click on “About Fifth Third” then “Investor
Relations”). Institutional investors can access the call via
Thomson Financial’s password-protected event management site,
StreetEvents (www.streetevents.com).
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. Additionally, a telephone replay of the
conference call will be available beginning approximately two hours
after the conference call until Thursday, August 11, 2016 by
dialing 855-859-2056 for domestic access or 404-537-3406 for
international access (passcode 30557082#).
Corporate Profile
Fifth Third Bancorp is a diversified financial services company
headquartered in Cincinnati, Ohio. As of June 30, 2016, the Company
had $144 billion in assets and operates 1,191 full-service Banking
Centers, including 94 Bank Mart® locations, most open seven days a
week, inside select grocery stores and 2,514 ATMs in Ohio,
Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West
Virginia, Georgia and North Carolina. Fifth Third operates four
main businesses: Commercial Banking, Branch Banking, Consumer
Lending, and Wealth & Asset Management. Fifth Third also has an
18.3% interest in Vantiv Holding, LLC. Fifth Third is among the
largest money managers in the Midwest and, as of June 30, 2016, had
$305 billion in assets under care, of which it managed $26 billion
for individuals, corporations and not-for-profit organizations.
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.”
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. These statements
relate to our financial condition, results of operations, plans,
objectives, future performance or business. They usually can be
identified by the use of forward-looking language such as “will
likely result,” “may,” “are expected to,” “anticipates,”
“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 from time to time by our Quarterly Reports on Form
10-Q. When considering these forward-looking statements, you should
keep in mind these risks and uncertainties, as well as any
cautionary statements we may make. 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. There is a risk that
additional information may become known during the company’s
quarterly closing process or as a result of subsequent events that
could affect the accuracy of the statements and financial
information contained herein.
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) general economic
conditions or real estate market conditions, either nationally or
in the states in which Fifth Third, one or more acquired entities
and/or the combined company do business, weaken or are less
favorable than expected; (2) deteriorating credit quality; (3)
political developments, wars or other hostilities may disrupt or
increase volatility in securities markets or other economic
conditions; (4) changes in the interest rate environment reduce
interest margins; (5) prepayment speeds, loan origination and sale
volumes, charge-offs and loan loss provisions; (6) Fifth Third’s
ability to maintain required capital levels and adequate sources of
funding and liquidity; (7) maintaining capital requirements and
adequate sources of funding and liquidity may limit Fifth Third’s
operations and potential growth; (8) changes and trends in capital
markets; (9) problems encountered by larger or similar financial
institutions may adversely affect the banking industry and/or Fifth
Third; (10) competitive pressures among depository institutions
increase significantly; (11) effects of critical accounting
policies and judgments; (12) changes in accounting policies or
procedures as may be required by the Financial Accounting Standards
Board (FASB) or other regulatory agencies; (13) legislative or
regulatory changes or actions, or significant litigation, adversely
affect Fifth Third, one or more acquired entities and/or the
combined company or the businesses in which Fifth Third, one or
more acquired entities and/or the combined company are engaged,
including the Dodd-Frank Wall Street Reform and Consumer Protection
Act; (14) ability to maintain favorable ratings from rating
agencies; (15) fluctuation of Fifth Third’s stock price; (16)
ability to attract and retain key personnel; (17) ability to
receive dividends from its subsidiaries; (18) potentially dilutive
effect of future acquisitions on current shareholders’ ownership of
Fifth Third; (19) effects of accounting or financial results of one
or more acquired entities; (20) difficulties from Fifth Third’s
investment in, relationship with, and nature of the operations of
Vantiv, LLC; (21) loss of income from any sale or potential sale of
businesses; (22) difficulties in separating the operations of any
branches or other assets divested; (23) inability to achieve
expected benefits from branch consolidations and planned sales
within desired timeframes, if at all; (24) ability to secure
confidential information and deliver products and services through
the use of computer systems and telecommunications networks; and
(25) the impact of reputational risk created by these developments
on such matters as business generation and retention, funding and
liquidity.
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160728005350/en/
Fifth Third BancorpSameer Gokhale (Investors)513-534-2219orSean
Parker (Media)513-534-6791
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