- 3Q16 net income available to common
shareholders of $501 million, or $0.65 per diluted common share
- Reported results included the following
items which had a net positive $0.22 impact on reported 3Q16 EPS:
- A $280 million pre-tax (~$182 million
after-tax) gain from the termination and settlement of gross cash
flows from existing Vantiv tax receivable agreements (TRA) and the
expected obligation to terminate and settle the remaining TRA cash
flows upon the exercise of put or call options
- A $28 million pre-tax (~$18 million
after-tax) non-cash impairment charge related to previously
announced plans to sell or consolidate certain bank branches and
land acquired for future branch expansion
- A $12 million pre-tax (~$8 million
after-tax) charge related to the valuation of the Visa total return
swap
- An $11 million pre-tax (~$7 million
after-tax) gain on the sale of a non-branch facility
- A $9 million pre-tax (~$6 million
after-tax) charge from the transfer of certain nonconforming
investments affected by the Volcker Rule to held-for-sale
- An $8 million beneficial tax impact in
connection with certain commercial lease terminations
- 3Q16 return on average assets (ROA) of
1.44%; return on average common equity of 12.8%; return on average
tangible common equity** of 15.2%
- Pre-tax income of $694 million and
pre-provision net revenue (PPNR)** of $774 million in 3Q16
- Net interest income (NII) of $907
million and NII on a fully taxable equivalent (FTE) basis** of $913
million, up 1 percent from both 2Q16 and 3Q15; net interest margin
(on an FTE basis)** of 2.88%, flat sequentially and down 1 bp
year-over-year
- Average portfolio loans and leases of
$93.5 billion, down $420 million sequentially and up $138 million
from 3Q15; Period end portfolio loans and leases of $93.2 billion
decreased $758 million sequentially and $423 million from 3Q15
primarily driven by decreases in automobile, C&I, and home
equity loans
- Noninterest income of $840 million
compared with $599 million in the prior quarter; primarily driven
by the gain from the termination and settlement of the Vantiv tax
receivable agreement and other items previously mentioned
- Noninterest expense of $973 million was
$10 million, or 1 percent, lower than the prior quarter primarily
driven by lower compensation and benefit-related expenses and lower
card and processing expense
- Credit trends
- 3Q16 net charge-offs of $107 million
(0.45% of loans and leases) increased from 2Q16 NCOs of $87 million
(0.37% of loans and leases)
- Portfolio nonperforming asset (NPA)
ratio of 0.73% down 13 bps from 2Q16, nonperforming loan (NPL)
ratio of 0.63% down 11 bps from 2Q16; total NPAs of $783 million,
including loans held-for-sale (HFS), decreased $42 million
sequentially
- 3Q16 provision expense of $80 million;
$91 million in 2Q16 and $156 million in 3Q15
- Strong capital ratios*
- Common equity Tier 1 (CET1) ratio
10.16%; fully phased-in CET1 ratio** of 10.08%
- Tier 1 risk-based capital ratio 11.26%,
Total risk-based capital ratio 14.87%, Leverage ratio 9.80%
- Tangible common equity ratio of
9.24%**; 8.78%** excluding unrealized gains/losses
- 11 million reduction in common shares
outstanding during the quarter due to the $240 million accelerated
share repurchase transaction initially settled on August 5,
2016
- Book value per share of $20.44 up 2%
from 2Q16 and up 12% from 3Q15; tangible book value per share** of
$17.22 up 2% from 2Q16 and up 13% from 3Q15
* 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 10/20/16.
Fifth Third Bancorp (Nasdaq: FITB) today reported third quarter
2016 net income of $516 million versus net income of $333 million
in the second quarter of 2016 and $381 million in the third quarter
of 2015. After preferred dividends, net income available to common
shareholders was $501 million, or $0.65 per diluted share, in the
third quarter of 2016, compared with $310 million, or $0.40 per
diluted share, in the second quarter of 2016, and $366 million, or
$0.45 per diluted share, in the third quarter of 2015.
Third quarter 2016 included:
Income
- $280 million gain from the termination
and settlement of gross cash flows from existing Vantiv tax
receivable agreements (TRA) and the expected obligation to
terminate and settle the remaining TRA cash flows upon the exercise
of put or call options
- $11 million gain on the sale of a
non-branch facility
- ($28 million) non-cash impairment
charge related to previously announced plans to sell or consolidate
certain bank branches and land acquired for future branch
expansion
- ($12 million) charge related to the
valuation of the Visa total return swap
- ($9 million) charge from the transfer
of certain nonconforming investments affected by the Volcker Rule
to held-for-sale
- ($2 million) negative valuation
adjustment on the Vantiv warrant
Expense
- ($4 million) in severance expense
Results also included an $8 million beneficial tax impact in
connection with certain commercial lease terminations
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
Third quarter 2015 included:
Income
- $130 million positive valuation
adjustment on the Vantiv warrant
- ($8 million) charge related to the
valuation of the Visa total return swap
Expense
- ($9 million) charge associated with
executive retirement and severance costs
Results also included $35 million of provision expense related
to the restructuring of a student loan backed commercial credit
originally extended in 2007.
Earnings Highlights
For the Three Months Ended %
Change September June March December September 2016 2016
2016 2015 2015 Seq Yr/Yr
Earnings ($ in millions) Net income attributable to Bancorp
$ 516 $ 333 $ 327 $ 657 $ 381 55 % 35 % Net income available to
common shareholders $ 501 $ 310 $ 312 $ 634 $ 366 62 % 37 %
Common Share Data Earnings per share, basic $ 0.66 $ 0.40 $
0.40 $ 0.80 $ 0.46 65 % 43 % Earnings per share, diluted 0.65 0.40
0.40 0.79 0.45 63 % 44 % Cash dividends per common share 0.13 0.13
0.13 0.13 0.13 - -
Financial Ratios Return on average
assets 1.44 % 0.94 % 0.93 % 1.83 % 1.07 % 53 % 35 % Return on
average common equity 12.8 8.2 8.3 17.2 10.0 56 % 28 % Return on
average tangible common equity(b) 15.2 9.7 9.9 20.6 12.0 57 % 27 %
CET1 capital(c) 10.16 9.94 9.81 9.82 9.40 2 % 8 % Tier I risk-based
capital(c) 11.26 11.03 10.91 10.93 10.49 2 % 7 % CET1 capital
(fully-phased in)(b)(c) 10.08 9.86 9.72 9.72 9.30 2 % 8 % Net
interest margin(a)(b) 2.88 2.88 2.91 2.85 2.89 - - Efficiency(a)(b)
55.5 65.3 63.8 48.0 58.2 (15 %) (5 %) Common shares
outstanding (in thousands) 755,582 766,346 770,471 785,080 795,439
(1 %) (5 %) Average common shares outstanding (in thousands): Basic
750,886 759,105 773,564 784,855 795,793 (1 %) (6 %) Diluted 757,456
765,080 778,392 794,481 805,023 (1 %) (6 %)
(a) Presented on a fully taxable
equivalent basis.
(b) Non-GAAP measure; see discussion of
non-GAAP and Reg. G reconciliation beginning on page 33.
(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.
“Our third quarter results were strong despite the tepid
economic environment. Higher net interest income, stable underlying
fee revenue, and lower expenses helped us achieve improved returns
for our shareholders,” said Greg D. Carmichael, President and CEO
of Fifth Third Bancorp.
“During the quarter, we executed on several initiatives which
will help us continue to drive improved shareholder returns. While
we continue to invest in areas like technology, we plan to improve
our operating leverage through an ongoing review of expenses in all
business units and staff functions and renegotiations of key vendor
contracts. In September, we announced the plan to sell and
consolidate certain bank branches which will generate additional
operating efficiency.
“We remain focused on improving our profitability without
relying on the expectation that economic conditions will improve.
We recently launched Project North Star, which has aligned the
entire organization toward reaching this objective. Through Project
North Star, controlled expenses, opportunities to enhance fee
revenue, and actions to optimize the balance sheet should help us
achieve our long-term financial targets.”
Income Statement Highlights
For
the Three Months Ended % Change September June March
December September 2016 2016 2016 2015
2015 Seq Yr/Yr
Condensed Statements of Income ($
in millions) Net interest income (taxable equivalent)(a) $ 913
$ 908 $ 909 $ 904 $ 906 1 % 1 % Provision for loan and lease losses
80 91 119 91 156 (12 %) (49 %) Total noninterest income 840 599 637
1,104 713 40 % 18 % Total noninterest expense 973
983 986 963
943 (1 %) 3 % Income before income taxes
(taxable equivalent)(a) $ 700 $ 433 $
441 $ 954 $ 520 62 % 35 %
Taxable equivalent adjustment 6 6 6 5 5 - 20 % Applicable income
tax expense 178 98
108 292 134 82 % 33 % Net
income $ 516 $ 329 $ 327 $ 657 $ 381 57 % 35 % Less: Net income
attributable to noncontrolling interests -
(4 ) - - -
100 % - Net income attributable to Bancorp $ 516 $
333 $ 327 $ 657 $ 381 55 % 35 % Dividends on preferred stock
15 23 15 23
15 (35 %) - Net income available
to common shareholders $ 501 $ 310 $
312 $ 634 $ 366 62 % 37 % Earnings per
share, diluted $ 0.65 $ 0.40 $ 0.40
$ 0.79 $ 0.45 63 % 44 % (a) Non-GAAP
measure; see discussion of non-GAAP and Reg. G reconciliation
beginning on page 33.
Net Interest Income
For the Three Months Ended % Change
September June March December September 2016 2016
2016 2015 2015 Seq Yr/Yr
Interest
Income ($ in millions) Total interest income (taxable
equivalent)(a) $ 1,063 $ 1,052 $ 1,044 $ 1,035 $ 1,031 1 % 3 %
Total interest expense 150 144
135 131
125 4 % 20 % Net interest income
(taxable equivalent)(a) $ 913 $ 908
$ 909 $ 904 $ 906
1 % 1 %
Average Yield bps Change Yield on
interest-earning assets (taxable equivalent) 3.36 % 3.34 % 3.34 %
3.26 % 3.29 % 2 7 Rate paid on interest-bearing liabilities
0.70 % 0.67 % 0.64 %
0.61 % 0.58 % 3 12
Net interest rate spread (taxable equivalent) 2.66 %
2.67 % 2.70 % 2.65 %
2.71 % (1 ) (5 ) Net interest margin
(taxable equivalent)(a) 2.88 % 2.88 % 2.91 % 2.85 % 2.89 % - (1 )
Average Balances ($ in millions) % Change Loans and
leases, including held for sale $ 94,417 $ 94,807 $ 94,078 $ 94,587
$ 94,329 - - Total securities and other short-term investments
31,675 32,040 31,573 31,256 30,102 (1 %) 5 % Total interest-earning
assets 126,092 126,847 125,651 125,843 124,431 (1 %) 1 % Total
interest-bearing liabilities 85,193 86,145 85,450 85,381 85,171 (1
%) - Bancorp shareholders' equity 16,883
16,584 16,376
15,982 15,815 2 %
7 % (a) Non-GAAP measure; see discussion of non-GAAP and Reg. G
reconciliation beginning on page 33.
Net interest income of $907 million and net interest income
(FTE)* of $913 million both increased $5 million from the second
quarter of 2016, primarily driven by improving investment portfolio
yields, an increase in 1-month LIBOR, and day count, partially
offset by the full quarter impact of $1.25 billion of unsecured
debt issued in the second quarter and lower average C&I loan
balances.
The net interest margin (FTE)* was 2.88 percent, stable from the
previous quarter, as the impact of higher yielding investments and
an increase in 1-month LIBOR were offset by the full quarter impact
of the debt issuance and day count.
Compared to the third quarter of 2015, net interest income and
net interest income (FTE)* increased by $6 million and $7 million,
respectively. The net interest margin (FTE)* decreased by 1 bp
year-over-year. The increase in net interest income was driven by
the impact of higher investment securities 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 an increase in long-term
debt, lower commercial loan yields, and a decrease in cash flow
hedges, partially offset by the December 2015 Fed funds rate
increase.
* 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 10/20/16.
Securities
Average securities and other short-term investments were $31.7
billion in the third quarter of 2016 compared to $32.0 billion in
the previous quarter and $30.1 billion in the third quarter of
2015. Average balances of other short-term investments decreased by
$126 million sequentially to $1.8 billion.
Loans
For the Three Months
Ended % Change September June March December September 2016
2016 2016 2015 2015 Seq
Yr/Yr
Average Portfolio Loans and Leases ($ in millions)
Commercial: Commercial and industrial loans $ 43,116 $ 43,876 $
43,089 $ 43,154 $ 43,149 (2 %) - Commercial mortgage loans 6,888
6,831 6,886 7,032 7,023 1 % (2 %) Commercial construction loans
3,848 3,551 3,297 3,141 2,965 8 % 30 % Commercial leases
3,962 3,898 3,874
3,839 3,846 2 % 3 % Total commercial
loans and leases $ 57,814 $ 58,156 $ 57,146
$ 57,166 $ 56,983 (1 %) 1 % Consumer:
Residential mortgage loans $ 14,455 $ 14,046 $ 13,788 $ 13,504 $
13,144 3 % 10 % Home equity 7,918 8,054 8,217 8,360 8,479 (2 %) (7
%) Automobile loans 10,508 10,887 11,283 11,670 11,877 (3 %) (12 %)
Credit card 2,165 2,134 2,179 2,218 2,277 1 % (5 %) Other consumer
loans and leases 651 654
662 676 613 - 6 %
Total consumer loans and leases $ 35,697 $ 35,775
$ 36,129 $ 36,428 $ 36,390 -
(2 %) Total average portfolio loans and leases $ 93,511 $
93,931 $ 93,275 $ 93,594 $ 93,373 - - Average loans held for
sale $ 906 $ 876 $ 803 $ 993 $
956 3 % (5 %)
Average loan and lease balances (excluding loans held-for-sale)
decreased $420 million sequentially and increased $138 million from
the third quarter of 2015. The sequential decrease was primarily
driven by declines in commercial and industrial (C&I) and
automobile loans, partially offset by an increase in residential
mortgage and commercial construction loans. The year-over-year
increase in average loans and leases was driven by increased
residential mortgage and commercial construction, partially offset
by decreases in automobile and home equity loans. Period end loans
and leases (excluding loans held-for-sale) of $93.2 billion
decreased $758 million sequentially and $423 million from a year
ago. The decrease sequentially was primarily due to decreases in
automobile and C&I loans, partially offset by increases in
residential mortgage and commercial construction loans. The
year-over-year decline was primarily driven by decreases in
automobile and home equity loans, partially offset by increases in
residential mortgage and commercial construction loans.
Average commercial portfolio loan and lease balances decreased
$342 million, or 1 percent, sequentially and increased $831
million, or 1 percent, from the third quarter of 2015. Average
C&I loans decreased $760 million, or 2 percent, from the prior
quarter and were flat from the third quarter of 2015. Average
commercial real estate loans increased $354 million, or 3 percent,
from the prior quarter and increased $748 million, or 7 percent,
from the third quarter of 2015. Within commercial real estate,
average commercial mortgage balances increased $57 million and
average commercial construction balances increased $297 million
sequentially. Commercial line usage, on an end of period basis,
decreased 57 bps from the second quarter of 2016 and decreased 69
bps from the third quarter of 2015.
Average consumer portfolio loan and lease balances decreased $78
million, sequentially and decreased $693 million, or 2 percent,
from the third quarter of 2015. This was primarily driven by
average automobile loans which decreased 3 percent sequentially and
12 percent from a year ago. Average residential mortgage loans
increased 3 percent sequentially and 10 percent from the previous
year. Average home equity loans declined 2 percent sequentially and
7 percent from the third quarter of 2015. Average credit card loans
increased 1 percent sequentially and decreased 5 percent from the
third quarter of 2015.
Deposits
For the
Three Months Ended % Change September June March December
September 2016 2016 2016 2015 2015
Seq Yr/Yr
Average Deposits ($ in millions)
Demand $ 35,918 $ 35,912 $ 35,201 $ 36,254 $ 35,231 - 2 % Interest
checking 24,475 24,714 25,740 25,296 25,590 (1 %) (4 %) Savings
14,232 14,576 14,601 14,615 14,868 (2 %) (4 %) Money market 19,706
19,243 18,655 18,775 18,253 2 % 8 % Foreign office(a)
524 484 483 736
718 8 % (27 %) Total transaction deposits $
94,855 $ 94,929 $ 94,680 $ 95,676 $ 94,660 - - Other time
4,020 4,044 4,035
4,052 4,057 (1 %) (1 %) Total core
deposits $ 98,875 $ 98,973 $ 98,715 $ 99,728 $ 98,717 - -
Certificates - $100,000 and over 2,768 2,819 2,815 3,305 2,924 (2
%) (5 %) Other 749 467 -
7 222 60 % NM Total
average deposits $ 102,392 $ 102,259 $ 101,530
$ 103,040 $ 101,863 - 1 %
(a) Includes commercial
customer Eurodollar sweep balances for which the Bancorp pays rates
comparable to other commercial deposit accounts.
Average core deposits decreased $98 million sequentially but
increased $158 million from the third quarter of 2015. Average
transaction deposits decreased $74 million from the second quarter
of 2016 and increased $195 million from the third quarter of 2015.
Sequential performance was primarily driven by lower savings and
interest checking account balances, partially offset by higher
money market account balances. The year-over-year increase was
primarily driven by higher money market and demand deposit account
balances, partially offset by lower interest checking, savings and
foreign office account balances. Other time deposits decreased 1
percent sequentially and year-over-year. Average deposit balances
were affected by the full quarter impact of $302 million in
deposits from the sale of Pennsylvania branches in April of 2016.
Excluding the impact of the branch sales in Pennsylvania and St.
Louis, average core deposits were flat sequentially and up 1
percent from the third quarter of 2015.
Average commercial transaction deposits of $44 billion were flat
sequentially and decreased 4 percent from the third quarter of
2015. The year-over-year decline reflected lower interest checking,
savings, and foreign office account balances, partially offset by
higher demand deposit account balances.
Average consumer transaction deposits of $51 billion were flat
sequentially and increased 4 percent from the third quarter of
2015. Year-over-year growth was driven by higher money market and
interest checking account balances, partially offset by lower
savings account balances.
Wholesale Funding
For
the Three Months Ended % Change September June March
December September 2016 2016 2016 2015
2015 Seq Yr/Yr
Average Wholesale Funding ($ in
millions) Certificates - $100,000 and over $ 2,768 $ 2,819 $
2,815 $ 3,305 $ 2,924 (2 %) (5 %) Other deposits 749 467 - 7 222 60
% NM Federal funds purchased 446 693 608 1,182 1,978 (36 %) (77 %)
Other short-term borrowings 2,171 3,754 3,564 1,675 1,897 (42 %) 14
% Long-term debt 16,102 15,351
14,949 15,738 14,664 5 %
10 % Total average wholesale funding $ 22,236
$ 23,084 $ 21,936 $ 21,907 $ 21,685 (4
%) 3 %
Average wholesale funding of $22.2 billion decreased $848
million, or 4 percent, sequentially, and increased $551 million, or
3 percent, compared with the third quarter of 2015. The sequential
decrease in average wholesale funding was primarily driven by the
declines in short-term borrowings reflecting the decline in
interest-earning assets. The year-over-year increase reflected an
increase in long-term debt to fund the growth in interest-earning
assets.
Noninterest Income
For the Three
Months Ended % Change September June March December
September 2016 2016 2016 2015 2015
Seq Yr/Yr
Noninterest Income ($ in millions)
Service charges on deposits $ 143 $ 138 $ 137 $ 144 $ 145 4 % (1 %)
Corporate banking revenue 111 117 102 104 104 (5 %) 7 % Mortgage
banking net revenue 66 75 78 74 71 (12 %) (7 %) Wealth and asset
management revenue 101 101 102 102 103 - (2 %) Card and processing
revenue 79 82 79 77 77 (4 %) 3 % Other noninterest income 336 80
136 602 213 NM 58 % Securities gains, net 4
6 3 1 - (33
%) 100 % Total noninterest income $ 840 $ 599
$ 637 $ 1,104 $ 713 40 % 18 %
Noninterest income of $840 million increased $241 million
sequentially and increased $127 million compared with prior year
results. The sequential and year-over-year comparisons reflect the
impacts described below.
Noninterest Income excluding certain items
For the Three Months Ended % Change September
June September 2016 2016 2015
Seq Yr/Yr
Noninterest Income excluding certain
items ($ in millions) Noninterest income (U.S. GAAP) $ 840 $
599 $ 713
Gain from termination and settlement of
Vantiv TRA and the expected obligation to terminate and settle the
remaining TRA cash flows upon exercise of put or call options
(280 ) - - Gain on sale of a non-branch facility (11 ) - - Vantiv
warrant valuation 2 (19 ) (130 ) Transfer of certain nonconforming
investments under Volcker to HFS 9 - - Valuation of Visa total
return swap 12 50 8 Branch / land impairment charge 28 - - Gain on
sale of certain branches - (11 ) - Gain on sale of the
non-strategic agented bankcard loan portfolio - (11 ) - Securities
(gains) / losses (4 ) (6 )
- Noninterest income
excluding certain items(a) $ 596 $ 602
$ 591 (1 %) 1 % (a) Non-GAAP measure;
see discussion of non-GAAP on page 33
Excluding the items in the table above, noninterest income of
$596 million decreased $6 million, or 1 percent, from the previous
quarter and increased $5 million, or 1 percent, from the third
quarter of 2015. The sequential decrease was primarily due to the
change in net mortgage servicing rights (MSR) valuation adjustments
and corporate banking revenue, partially offset by an increase in
service charges on deposits. The year-over-year increase was driven
by increases in corporate banking revenue and card and processing
revenue.
Service charges on deposits of $143 million increased 4 percent
from the second quarter of 2016, and decreased 1 percent compared
with the same quarter last year. The sequential increase primarily
reflected a 6 percent increase in retail service charges due to
seasonally higher overdraft occurrences, as well as a 3 percent
increase in commercial service charges. The decrease from the third
quarter of 2015 was primarily due to a 6 percent decrease in retail
service charges due lower checking fees driven by a change in
product offering.
Corporate banking revenue of $111 million decreased $6 million
compared to the second quarter of 2016 and increased $7 million
from the third quarter of 2015. The sequential comparison reflects
decreases in loan syndication revenue and foreign exchange fees,
partially offset by an increase in institutional sales revenue. The
year-over-year increase was primarily driven by higher
institutional sales revenue and loan syndication revenue, partially
offset by lower foreign exchange fees and interest rate derivative
fees.
Mortgage banking net revenue was $66 million in the third
quarter of 2016, down $9 million from the second quarter of 2016
and down $5 million from the third quarter of 2015. Originations
were $2.9 billion in the current quarter, increasing 7 percent
sequentially and 27 percent from the same quarter last year. Third
quarter 2016 originations resulted in $61 million of origination
fees and gains on loan sales, compared with $54 million during the
previous quarter and $46 million during the third quarter of 2015.
Mortgage servicing fees were $49 million this quarter, $50 million
in the second quarter of 2016, and $54 million in the third quarter
of 2015. Mortgage banking net revenue is also affected by net
servicing asset valuation adjustments, which include MSR
amortization and MSR valuation adjustments (including
mark-to-market adjustments on free-standing derivatives used to
economically hedge the MSR portfolio). These adjustments resulted
in a negative $44 million in the third quarter of 2016 (reflecting
MSR amortization of $35 million and net MSR valuation adjustments
of negative $9 million); negative $29 million in the second quarter
of 2016 (MSR amortization of $35 million and net MSR valuation
adjustments of positive $6 million); and negative $29 million in
the third quarter of 2015 (MSR amortization of $37 million and net
MSR valuation adjustments of positive $8 million). The mortgage
servicing asset, net of the valuation reserve, was $619 million at
quarter end on a servicing portfolio of $55 billion.
Wealth and asset management revenue of $101 million was flat
from the second quarter of 2016 and decreased 2 percent from the
third quarter of 2015. The year-over-year decline was primarily
driven by lower securities and brokerage fees, partially offset by
an increase in personal asset management fees.
Card and processing revenue of $79 million in the third quarter
of 2016 decreased 4 percent sequentially and increased 3 percent
from the third quarter of 2015. The sequential decrease reflected a
decline in the number of actively used cards and lower spend
volume. The year-over-year increase reflected an increase in
customer transactions and a higher number of actively used
cards.
Other noninterest income totaled $336 million in the third
quarter of 2016, compared with $80 million in the previous quarter
and $213 million in the third 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 $96
million increased approximately $7 million, or 8 percent, from the
second quarter of 2016 and increased approximately $5 million, or 5
percent, from the third quarter of 2015.
Net gains on investment securities were $4 million in the third
quarter of 2016, compared with $6 million in the previous quarter
and an immaterial gain in the third quarter of 2015.
Noninterest Expense
For the
Three Months Ended % Change September June March December
September 2016 2016 2016 2015 2015
Seq Yr/Yr
Noninterest Expense ($ in millions)
Salaries, wages and incentives $ 400 $ 407 $ 403 $ 386 $ 387 (2 %)
3 % Employee benefits 78 85 100 74 72 (8 %) 8 % Net occupancy
expense 73 75 77 83 77 (3 %) (5 %) Technology and communications 62
60 56 59 56 3 % 11 % Equipment expense 29 30 30 32 31 (3 %) (6 %)
Card and processing expense 30 37 35 40 40 (19 %) (25 %) Other
noninterest expense 301 289
285 289 280 4 % 8
% Total noninterest expense $ 973 $ 983 $ 986
$ 963 $ 943 (1 %) 3 %
Noninterest expense of $973 million declined $10 million, or 1
percent, compared with the second quarter of 2016 and increased $30
million, or 3 percent, compared with the third quarter of 2015. The
sequential comparison reflected a decrease in compensation-related
expenses and employee benefits resulting from the impact of the
second quarter of 2016 retirement eligibility change, the
previously disclosed review of business units and staff functions,
as well as reduced card and processing expense. The year-over-year
increase reflected higher compensation expense as a result of
personnel additions primarily in risk and compliance and
information technology, as well as the change in provision for
unfunded commitments. This increase was partially offset by a
decrease in card and processing expense primarily due to contract
renegotiations and $6 million in executive retirement expense in
the third quarter of 2015.
Credit Quality
For the Three
Months Ended September June March December September 2016
2016 2016 2015 2015
Total net losses
charged-off ($ in millions) Commercial and industrial loans
($61 ) ($39 ) ($46 ) ($30 ) ($128 ) Commercial mortgage loans (2 )
(6 ) (6 ) (3 ) (11 ) Commercial construction loans - - - - (3 )
Commercial leases - (1 ) (2 ) (1 ) - Residential mortgage loans (2
) (2 ) (2 ) (3 ) (3 ) Home equity (7 ) (6 ) (8 ) (9 ) (9 )
Automobile loans (9 ) (8 ) (9 ) (9 ) (7 ) Credit card (20 ) (21 )
(20 ) (19 ) (21 ) Other consumer loans and leases (6
) (4 ) (3 ) (6 )
(6 ) Total net losses charged-off ($107 ) ($87 ) ($96 ) ($80
) ($188 ) Total losses charged-off ($137 ) ($105 ) ($116 )
($105 ) ($209 ) Total recoveries of losses previously charged-off
30 18 20
25 21 Total net losses
charged-off ($107 ) ($87 ) ($96 ) ($80 ) ($188 )
Ratios
(annualized)
Net losses charged-off as a percent of
average portfolio loans and leases (excluding held for sale)
0.45 % 0.37 % 0.42 % 0.34 % 0.80 % Commercial 0.43 % 0.32 % 0.38 %
0.24 % 0.99 % Consumer 0.49 % 0.45 %
0.48 % 0.49 % 0.51 %
Net charge-offs were $107 million, or 45 bps of average
portfolio loans and leases on an annualized basis, in the third
quarter of 2016 compared with net charge-offs of $87 million, or 37
bps, in the second quarter of 2016 and $188 million, or 80 bps, in
the third quarter of 2015. Net charge-offs in the third quarter of
2015 included $102 million related to the restructuring of a
student loan backed commercial credit originally extended in 2007.
Excluding this credit, net charge-offs were $86 million, or 37 bps,
in the third quarter of 2015.
Commercial net charge-offs were $63 million, or 43 bps, and were
up $17 million sequentially. The increase was primarily due to
higher charge-offs of C&I loans, which increased by $22 million
from the second quarter of 2016. Commercial real estate net
charge-offs were down $4 million from the previous quarter.
Consumer net charge-offs were $44 million, or 49 bps, and were
up $3 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 increased $1
million. Net charge-offs on the auto portfolio were up $1 million
and net charge-offs on credit card loans were down $1 million from
the second quarter of 2016. Net charge-offs on other consumer loans
of $6 million were up $2 million sequentially.
For the Three Months Ended September
June March December September 2016
2016 2016 2015 2015
Allowance for
Credit Losses ($ in millions) Allowance for loan and lease
losses, beginning $ 1,299 $ 1,295 $ 1,272 $ 1,261 $ 1,293 Total net
losses charged-off (107 ) (87 ) (96 ) (80 ) (188 ) Provision for
loan and lease losses 80
91 119 91
156 Allowance for loan and lease
losses, ending $ 1,272 $ 1,299 $ 1,295 $ 1,272 $ 1,261
Reserve for unfunded commitments, beginning $ 151 $ 144 $ 138 $ 134
$ 132 Provision for unfunded commitments 11
7 6
4 2 Reserve for
unfunded commitments, ending $ 162 $ 151 $ 144 $ 138 $ 134
Components of allowance for credit losses: Allowance for loan and
lease losses $ 1,272 $ 1,299 $ 1,295 $ 1,272 $ 1,261 Reserve for
unfunded commitments 162
151 144 138
134 Total allowance for credit
losses $ 1,434 $ 1,450 $ 1,439 $ 1,410 $ 1,395
Allowance for
loan and lease losses ratio As a percent of portfolio loans and
leases 1.37 % 1.38 % 1.38 % 1.37 % 1.35 % As a percent of
nonperforming loans and leases(a) 217 % 188 % 185 % 252 % 275 % As
a percent of nonperforming assets(a) 186 % 161 % 157 % 197 % 208 %
(a) Excludes nonaccrual loans in loans held for sale.
Provision for loan and lease losses totaled $80 million in the
third quarter of 2016. The allowance represented 1.37 percent of
total portfolio loans and leases outstanding as of quarter end,
compared with 1.38 percent last quarter, and represented 217
percent of nonperforming loans and leases, and 186 percent of
nonperforming assets.
Provision for loan and lease losses decreased $11 million from
the second quarter of 2016 impacted by improving nonperforming
loans and criticized assets and decreased $76 million from the
third quarter of 2015 impacted by improving criticized assets. The
third quarter of 2015 included a $35 million impact related to the
aforementioned student loan backed commercial credit. The allowance
for loan and lease losses decreased $27 million sequentially. As of
September 30, the reserve allocated to the energy portfolio was
approximately 4.95%, down from approximately 5.97% last
quarter.
As of
September June March December September
Nonperforming Assets and Delinquent Loans ($ in millions)
2016 2016 2016 2015 2015 Nonaccrual
portfolio loans and leases: Commercial and industrial loans $ 220 $
254 $ 278 $ 82 $ 47 Commercial mortgage loans 31 39 51 56 60
Commercial construction loans - - - - - Commercial leases - 4 4 - 2
Residential mortgage loans 19 27 25 28 31 Home equity
59 61 61
62 65 Total nonaccrual
portfolio loans and leases (excludes restructured loans) $ 329 $
385 $ 419 $ 228 $ 205 Nonaccrual restructured portfolio commercial
loans and leases(b) 194 242 210 203 177 Nonaccrual
restructured portfolio consumer loans and leases 63
66 72
75 76 Total nonaccrual portfolio
loans and leases $ 586 $ 693 $ 701 $ 506 $ 458 Repossessed property
13 15 17 18 17 OREO 84 97
107
123
131 Total nonperforming portfolio assets(a) $ 683 $
805 $ 825 $ 647 $ 606 Nonaccrual loans held for sale 91 20 3 1 1
Nonaccrual restructured loans held for sale 9
- 2 11
1 Total nonperforming assets $
783 $ 825 $ 830 $ 659
$ 608 Restructured Portfolio Consumer
loans and leases (accrual) $ 972 $ 982 $ 998 $ 979 $ 973
Restructured Portfolio Commercial loans and leases (accrual)(b) $
408 $ 431 $ 461 $ 491 $ 571 Total loans and leases 90 days
past due $ 76 $ 65 $ 73 $ 75 $ 70
Nonperforming portfolio loans and leases
as a percent of portfolio loans, leases and other assets, including
OREO(a)
0.63 % 0.74 % 0.75 % 0.55 % 0.49 %
Nonperforming portfolio assets as a
percent of portfolio loans and leases and OREO(a)
0.73 % 0.86 % 0.88 % 0.70 % 0.65 % (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 September 30, 2016, 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.
Total nonperforming assets, including loans held-for-sale,
decreased $42 million, or 5 percent, from the previous quarter to
$783 million. Nonperforming loans (NPLs) at quarter-end decreased
$107 million, or 15 percent, from the previous quarter to $586
million or 0.63 percent of total loans, leases and OREO.
Commercial NPAs decreased $103 million from the second quarter
to $499 million, or 0.87 percent of commercial loans, leases and
OREO. Commercial NPLs decreased $94 million from last quarter to
$445 million, or 0.77 percent of commercial loans and leases.
C&I NPAs decreased $72 million from the prior quarter to $405
million. Commercial mortgage NPAs decreased $28 million from the
previous quarter to $86 million. Commercial construction NPAs
decreased $2 million from the previous quarter to $5 million.
Commercial lease NPAs were $3 million, down $1 million from the
previous quarter. Commercial NPAs included $194 million of
nonaccrual troubled debt restructurings (TDRs), compared with $242
million last quarter.
Consumer NPAs decreased $19 million from the second quarter to
$184 million, or 0.52 percent of consumer loans, leases and OREO.
Consumer NPLs decreased $13 million from last quarter to $141
million, or 0.39 percent of consumer loans and leases. Residential
mortgage NPAs decreased $12 million from the second quarter to $57
million. Home equity NPAs decreased $5 million, sequentially, to
$89 million. Consumer nonaccrual TDRs were $63 million in the third
quarter of 2016, compared with $66 million in the second quarter of
2016.
Third quarter OREO balances included in NPA balances were down
$13 million from the second quarter to $84 million, and included
$47 million in commercial OREO and $37 million in consumer OREO.
Repossessed personal property decreased $2 million from the prior
quarter to $13 million.
Loans over 90 days past due and still accruing increased $11
million from the second quarter of 2016 to $76 million. Commercial
balances over 90 days past due were $7 million compared with $2
million in the prior quarter, and consumer balances 90 days past
due increased $6 million from the previous quarter to $69 million.
Loans 30-89 days past due of $205 million were up $9 million from
the previous quarter. Commercial balances 30-89 days past due
increased $4 million sequentially to $21 million and consumer
balances 30-89 days past due were up $5 million from the second
quarter at $184 million. The above delinquency figures exclude
nonaccruals described previously.
Capital and Liquidity Position
For the Three
Months Ended September June March December September 2016
2016 2016 2015 2015
Capital Position
Average total Bancorp shareholders' equity to average assets 11.83
% 11.60 % 11.57 % 11.26 % 11.24 % Tangible equity(a) 9.73 % 9.59 %
9.51 % 9.55 % 9.29 % Tangible common equity (excluding unrealized
gains/losses)(a) 8.78 % 8.64 % 8.55 % 8.59 % 8.33 % Tangible common
equity (including unrealized gains/losses)(a) 9.24 % 9.18 % 8.97 %
8.71 % 8.65 %
Regulatory capital
ratios:
CET1 capital(b) 10.16 % 9.94 % 9.81 % 9.82 % 9.40 % Tier I
risk-based capital(b) 11.26 % 11.03 % 10.91 % 10.93 % 10.49 % Total
risk-based capital(b) 14.87 % 14.66 % 14.66 % 14.13 % 13.68 % Tier
I leverage 9.80 % 9.64 % 9.57 % 9.54 % 9.38 % CET1 capital
(fully phased-in)(a)(b) 10.08 % 9.86 % 9.72 % 9.72 % 9.30 %
Book value per share $ 20.44 $ 20.09 $ 19.46 $ 18.48 $ 18.22
Tangible book value per share(a) $ 17.22 $ 16.93 $ 16.32 $ 15.39 $
15.18 Modified liquidity coverage ratio (LCR)(c)(d) 115 %
110 % 118 % N/A N/A (a) Non-GAAP measure; see discussion of
non-GAAP and Reg G. reconciliation beginning on page 33. (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 CET1
ratio was 10.16 percent, the tangible common equity to tangible
assets ratio* was 8.78 percent (excluding unrealized gains/losses),
and 9.24 percent (including unrealized gains/losses). The Tier I
risk-based capital ratio was 11.26 percent, the Total risk-based
capital ratio was 14.87 percent, and the Tier I leverage ratio was
9.80 percent.
Book value per share at September 30, 2016 was $20.44 and
tangible book value per share* was $17.22, compared with the June
30, 2016 book value per share of $20.09 and tangible book value per
share* of $16.93.
On August 5, 2016, Fifth Third initially settled a share
repurchase agreement whereby Fifth Third would purchase $240
million of its outstanding stock. This reduced third quarter share
count by 10.98 million shares. Settlement of the forward contract
related to this agreement is expected to occur on or before
November 2, 2016.
* 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 10/20/16.
Tax Rate
The effective tax rate was 25.6 percent in the third quarter of
2016 compared with 22.8 percent in the second quarter of 2016 and
26 percent in the third quarter of 2015. The tax rate in the third
quarter of 2016 was impacted by Vantiv-related gains, which were
partially offset by an $8 million tax benefit in connection with
certain commercial lease terminations. The tax rate in the second
quarter of 2016 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 terminated
and settled 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, which resulted in
a $163 million pre-tax gain recognized in the third quarter of
2016. For more detail, see the 8-K dated July 28, 2016.
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 $56.27 on September 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 $390
million as of June 30, 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 $325 million as of September
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, November 3, 2016 by
dialing 855-859-2056 for domestic access or 404-537-3406 for
international access (passcode 83768757#).
Corporate Profile
Fifth Third Bancorp is a diversified financial services company
headquartered in Cincinnati, Ohio. As of September 30, 2016, the
Company had $143 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 2,497 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 September 30,
2016, had $314 billion in assets under care, of which it managed
$27 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) losses or adverse impacts
on the carrying values of branches and long-lived assets in
connection with their sales or anticipated sales; (24) inability to
achieve expected benefits from branch consolidations and planned
sales within desired timeframes, if at all; (25) ability to secure
confidential information and deliver products and services through
the use of computer systems and telecommunications networks; and
(26) 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.
In this release, we may sometimes provide non-GAAP financial
information. Please note that although non-GAAP financial measures
provide useful insight to analysts, investors and regulators, they
should not be considered in isolation or relied upon as a
substitute for analysis using GAAP measures. We provide GAAP
reconciliations for non-GAAP measures in our earnings release and
presentation, both of which are available in the investor relations
section of our website, www.53.com.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161020005322/en/
Fifth Third BancorpSameer Gokhale (Investors),
513-534-2219orLarry Magnesen (Media), 513-534-8055
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