The Condensed Consolidated Financial Statements include the accounts of the Bancorp and its majority-owned subsidiaries and VIEs in which the
Bancorp has been determined to be the primary beneficiary. Other entities, including certain joint ventures, in which the Bancorp has the ability to exercise significant influence over operating and financial policies of the investee, but upon which
the Bancorp does not possess control, are accounted for by the equity method and not consolidated. Those entities in which the Bancorp does not have the ability to exercise significant influence are generally carried at the lower of cost or fair
value. Intercompany transactions and balances have been eliminated.
In the opinion of management, the unaudited Condensed Consolidated
Financial Statements include all adjustments, which consist of normal recurring accruals, necessary to present fairly the results for the periods presented. In accordance with U.S. GAAP and the rules and regulations of the SEC for interim financial
information, these statements do not include certain information and footnote disclosures required for complete annual financial statements and it is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the
Bancorps Annual Report on Form 10-K. The results of operations and comprehensive income for the three and nine months ended September 30, 2016 and 2015 and the cash flows and changes in equity for the nine months ended September 30, 2016 and
2015 are not necessarily indicative of the results to be expected for the full year. Financial information as of December 31, 2015 has been derived from the Bancorps Annual Report on Form 10-K.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash payments related to interest and income taxes in addition to non-cash investing and financing activities are
presented in the following table for the nine months ended September 30:
In May 2014, the FASB issued amended guidance on revenue recognition from contracts with customers. The standard outlines a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most contract revenue recognition guidance, including industry-specific guidance. The core principle of the amended guidance is
that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amended
guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within the reporting period, and should be applied either retrospectively to each prior reporting period presented or retrospectively with
the cumulative effect of initially applying the amendments recognized at the date of initial application. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016 and interim reporting periods within those
fiscal years. The Bancorp is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements.
Subsequently, the FASB has issued additional guidance to clarify certain implementation issues. Specifically, the FASB issued updates
regarding Principal versus Agent Considerations, Identifying Performance Obligations and Licensing and Narrow-Scope Improvements and Practical Expedients in March, April and May 2016, respectively. These amendments do not change the core principle
in Revenue from Contracts with Customers (Topic 606) and the effective date and transition requirements for the amendments are consistent with those in Topic 606.
In June 2014, the FASB issued amended guidance which clarifies that a performance target that affects vesting and can be achieved
after the requisite service period be treated as a performance condition. The amended guidance provides that an entity should apply existing guidance as it relates to awards with performance conditions that affect vesting to account for such awards.
As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should
represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining
unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that
are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is
achieved.
The amended guidance was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. The amended guidance
may be adopted either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the
financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying the amended guidance as of the beginning of the earliest annual period presented in the financial statements
should be recognized as an adjustment to the opening retained earnings balance at that date. The Bancorp adopted the amended guidance prospectively on January 1, 2016 and the adoption did not have a material impact on the Condensed Consolidated
Financial Statements.
In August 2014, the FASB issued amended guidance that provides an alternative to ASC Topic 820: Fair Value Measurement for measuring the
financial assets and financial liabilities of a CFE, such as a collateralized debt obligation or a collateralized loan obligation entity consolidated as a VIE when a) all of the financial assets and the financial liabilities of that CFE are measured
at fair value in the Condensed Consolidated Financial Statements and b) the changes in the fair values of those financial assets and financial liabilities are reflected in earnings. If elected, the measurement alternative would allow the Bancorp to
measure both the financial assets and the financial liabilities of the CFE by using the more observable of the fair value of the financial assets or the fair value of the financial liabilities and to eliminate any measurement difference. When the
measurement alternative is not elected for a consolidated CFE within the scope of this amended guidance, the amendments clarify that 1) the fair value of the financial assets and the fair value of the financial liabilities of the consolidated CFE
should be measured using the requirements of Topic 820 and 2) any difference in the fair value of the financial assets and the fair value of the financial liabilities of that consolidated CFE should be reflected in earnings and attributed to the
Bancorp in the Condensed Consolidated Statements of Income. The amended guidance may be applied retrospectively or through a modified retrospective approach and was effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2015. The Bancorp adopted the amended guidance on January 1, 2016 and the adoption did not have a material impact on the Condensed Consolidated Financial Statements.
In November 2014, the FASB issued amended guidance that clarifies how current U.S. GAAP should be interpreted in evaluating the economic
characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded
derivative features being evaluated for bifurcation, in evaluating the nature of the host contract. Furthermore, the amendments clarify that no single term or feature would necessarily determine the economic characteristics and risks of the host
contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. The amended guidance was effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015, with early adoption permitted. The effects of initially adopting the amended guidance should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of
the beginning of the fiscal year for which the amendments are effective and shall be reported as a cumulative-effect adjustment directly to retained earnings as of the beginning of the year of adoption. The Bancorp adopted the amended guidance on
January 1, 2016 and the adoption did not have a material impact on the Condensed Consolidated Financial Statements.
In January 2015, the FASB issued amended guidance that eliminates
the concept of extraordinary items from U.S. GAAP. Previously, an event or transaction was presumed to be an ordinary and usual activity of a reporting entity unless evidence clearly supported its classification as an extraordinary item, which had
to be both unusual in nature and infrequent in occurrence. An entity was required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from
continuing operations. An entity was also required to disclose applicable income taxes and either present or disclose earnings per share data applicable to the extraordinary item. The presentation and disclosure guidance for items that are unusual
in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. The amended guidance was effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The amended guidance may be applied prospectively or retrospectively to all periods presented
in the financial statements. The Bancorp adopted the amended guidance prospectively on January 1, 2016 and the adoption did not have a material impact on the Condensed Consolidated Financial Statements.
In February 2015, the FASB issued amended guidance that changes the analysis a reporting entity must perform to determine whether it should
consolidate certain types of legal entities. The amended guidance 1) modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities; 2) eliminates the presumption that a general partner should
consolidate a limited partnership; 3) affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and 4) provides a scope exception from
consolidation guidance for reporting entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amended
guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. The amended guidance may be applied using either a retrospective approach or a modified
retrospective approach with a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. The Bancorp adopted the amended guidance on January 1, 2016 and the adoption did not have a material impact on the Condensed
Consolidated Financial Statements.
In April 2015, the FASB issued amended guidance to address the different balance sheet presentation requirements for debt issuance costs and
debt discounts and premiums. The amended guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts.
The recognition and measurement guidance for debt issuance costs are not affected by the amended guidance. The amended guidance was effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2015, with early adoption permitted for financial statements that have not been previously issued. The amended guidance should be applied retrospectively, wherein the balance sheet of each individual
period presented should be adjusted to reflect the period-specific effects of applying the amended guidance. Upon adoption on January 1, 2016, the Bancorp reclassified approximately $34 million of debt issuance costs from other assets to a
direct deduction from long-term debt in the Condensed Consolidated Balance Sheets.
In April 2015, the FASB issued amended guidance intended to simplify
an entitys measurement of the fair value of plan assets of a defined benefit pension or other postretirement benefit plan when the fiscal year-end does not coincide with a month end. For an entity with a fiscal year-end that does not coincide
with a month-end, the amended guidance provides a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entitys fiscal year-end and apply that practical
expedient consistently from year to year. The amended guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The amended guidance should be
applied prospectively. The Bancorp adopted the amended guidance on January 1, 2016 and the adoption did not have an impact on the Condensed Consolidated Financial Statements as the Bancorps fiscal year-end coincides with a month-end.
In April 2015, the FASB issued amended guidance on a customers accounting for fees paid in a cloud computing arrangement. Under the
amended guidance, if a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing
arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amended guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2015, with early adoption permitted. The amended guidance may be applied either prospectively to all arrangements entered into or materially modified after the effective date, or retrospectively. The Bancorp adopted the amended guidance
prospectively on January 1, 2016 and the adoption did not have a material impact on the Condensed Consolidated Financial Statements.
In May 2015, the FASB issued amended guidance to
remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amended guidance also removes the requirement to make certain
disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value
using that practical expedient. The amended guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amended guidance should be applied retrospectively to all periods
presented. The retrospective approach requires that an investment for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy in all periods presented in an entitys
financial statements. Earlier application is permitted. The Bancorp adopted the amended guidance on January 1, 2016 and the adoption did not have a material impact on the Condensed Consolidated Financial Statements.
In August 2015, the FASB issued amended guidance about the presentation and subsequent measurement of debt issuance costs associated with line
of credit arrangements. Given the absence of authoritative guidance for debt issuance costs related to line of credit arrangements within ASU 2015-03, the amended guidance provides that the SEC staff would not object to an entity deferring and
presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there were any outstanding borrowings on the line of credit
arrangement. The amended guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amended guidance should be applied retrospectively, wherein the balance sheet of each individual
period presented should be adjusted to reflect the period-specific effects of applying the amendments. Early adoption is permitted for financial statements that have not been previously issued. The Bancorp adopted the amended guidance on January 1,
2016 and the adoption did not have a material impact on the Condensed Consolidated Financial Statements.
In September 2015, the FASB issued amended guidance to simplify the accounting for adjustments
made to provisional amounts recognized in a business combination. The amended guidance eliminates the requirement to retrospectively account for those adjustments and requires that an acquirer recognize adjustments to provisional amounts that are
identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer shall record, in the same periods financial statements, the effect on earnings of changes in depreciation,
amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amended guidance requires an entity to present separately on the face
of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized
as of the acquisition date. The amended guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with earlier application permitted for financial statements that have not been issued.
The amended guidance should be applied prospectively to adjustments to provisional amounts that occur after the effective date of the amended guidance. The Bancorp adopted the amended guidance on January 1, 2016 and the adoption did not have an
impact on the Condensed Consolidated Financial Statements.
In January 2016, the FASB issued amended guidance to improve certain aspects of recognition, measurement, presentation and disclosure of
financial instruments. Specifically, the amendments significantly revise an entitys accounting related to 1) the classification and measurement of investments in equity securities, 2) the presentation of certain fair value changes for
financial liabilities measured at fair value, and 3) certain disclosure requirements associated with the fair value of financial instruments. The amendments require equity investments (except those accounted for under the equity method of accounting
or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at
cost minus impairment, if any, plus or minus changes as a result of an observable price change. The amendments also simplify the impairment assessment of equity investments for which fair value is not readily determinable by requiring an entity to
perform a qualitative assessment to identify impairment. If qualitative indicators are identified, the entity will be required to measure the investment at fair value. For financial liabilities that an entity has elected to measure at fair value,
the amendments require an entity to present separately in other comprehensive income the portion of the change in fair value that results from a change in instrument-specific credit risk. For public business entities, the amendments 1) eliminate the
requirement to disclose the method(s) and significant assumptions used to estimate fair value for financial instruments measured at amortized cost and 2) require, for disclosure purposes, the use of an exit price notion in the determination of the
fair value of financial instruments. The amended guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Upon adoption, the Bancorp will be required to make a cumulative-effect
adjustment to the Condensed Consolidated Balance Sheets as of the beginning of the fiscal year of adoption. The guidance on equity securities without a readily determinable fair value will be applied prospectively to all equity investments that
exist as of the date of adoption of the standard. Early adoption of the amendments is not permitted with the exception of the presentation of certain fair value changes for financial liabilities measured at fair value for which early application is
permitted. The Bancorp is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements.
In
February 2016, the FASB issued amended guidance that establishes a new accounting model for leases. The amended guidance requires lessees to record lease liabilities on the lessees balance sheets along with corresponding right-of-use assets for all
leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the lessees statements of income. From a lessor perspective, the
accounting model is largely unchanged, except that the amended guidance includes certain targeted improvements to align, where necessary, lessor accounting with the lessee accounting model and the revenue recognition guidance in ASC Topic 606. The
amendments also modify disclosure requirements for an entitys lease arrangements. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption
permitted. The amendments should be applied to each prior reporting period presented using a modified retrospective approach, although the amended guidance contains certain transition relief provisions that, among other things, permit an entity to
elect not to reassess the classification of leases which existed or expired as of the date the amendments are effective. The Bancorp is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial
Statements.
In March 2016, the FASB issued amended guidance to permit proportional derecognition of the liability for unused funds on certain prepaid
stored-value products (known as breakage) to the extent that it is probable that a significant reversal of the recognized breakage amount will not subsequently occur. The amendments do not apply to any prepaid stored-value products that are attached
to a segregated customer deposit account, or products for which unused funds are subject to unclaimed property remittance laws. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15,
2017, with early adoption permitted, and should be applied retrospectively to all comparable periods presented in the year of adoption. Entities may also elect a modified retrospective application by means of a cumulative-effect adjustment to
retained earnings as of the beginning of the fiscal year in which the guidance is effective. The Bancorp is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements.
In March 2016, the FASB issued amended guidance to clarify that a change in counterparty in a derivative contract does not, in and of itself,
represent a change in critical terms that would require discontinuation of hedge accounting provided that other hedge accounting criteria continue to be met. The amended guidance is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2016, with early adoption permitted, and should be applied prospectively. However, entities may elect to apply a modified retrospective approach to redesignate hedges that were derecognized in a prior period
presented in the financial statements because of a novation. The Bancorp is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements.
In March 2016, the FASB issued amended guidance to clarify the requirements for determining when contingent put and call options embedded in
debt instruments should be bifurcated from the debt instrument and accounted for separately as derivatives. A four-step decision sequence should be followed in determining whether such options are clearly and closely related to the economic
characteristics and risks of the debt instrument, which determines whether bifurcation is necessary. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early
adoption permitted, and should be applied on a modified retrospective basis for debt instruments existing as of the beginning of the fiscal year for which the amendments are effective. The Bancorp is currently in the process of evaluating the impact
of the amended guidance on its Condensed Consolidated Financial Statements.
In March 2016, the FASB issued amended guidance to eliminate the requirement that when an investment qualifies for use of the equity method as
a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect
during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investors previously held
interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting, eliminating the requirement to retrospectively apply the equity method of accounting back to the date of the initial
investment. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted, and should be applied prospectively to increases in the level of ownership
interest or degree of influence that result in the adoption of the equity method. The Bancorp is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements.
In March 2016, the FASB issued amended guidance simplifying the accounting for share-based compensation paid to employees. The amended
guidance 1) requires excess tax benefits and tax deficiencies on share-based payments to employees to be recognized directly to income tax expense or benefit in the Condensed Consolidated Income Statements; 2) requires excess tax benefits to be
included as operating activities on the Condensed Consolidated Statements of Cash Flows; 3) provides entities with the option of making an accounting policy election to account for forfeitures of share-based payments as they occur instead of
estimating the awards expected to be forfeited; and 4) changes the threshold to qualify for equity classification to permit withholdings up to the maximum statutory tax rate in the applicable jurisdiction. In addition, excess tax benefits and
tax deficiencies are considered discrete items in the reporting period they occur and are not included in the estimate of an entitys annual effective tax rate. The amended guidance is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2016, with early adoption permitted. The majority of the amendments should be applied using a modified retrospective approach with a cumulative-effect adjustment to equity as of the beginning of the
fiscal year of adoption. The amendments related to the presentation of excess tax benefits on the Condensed Consolidated Statements of Cash Flows may be applied prospectively or retrospectively. The Bancorp is currently in the process of evaluating
the impact of the amended guidance on its Condensed Consolidated Financial Statements.
In June 2016, the FASB issued amended guidance that establishes a new approach to estimate credit losses on certain types of
financial instruments. The new approach changes the impairment model for most financial assets, and will require the use of an expected credit loss model for financial instruments measured at amortized cost and certain other instruments,
including trade and other receivables, loans, debt securities, net investments in leases, and off-balance-sheet credit exposures (such as loan commitments, standby letters of credit, and financial guarantees not accounted for as insurance). This
model requires entities to estimate the lifetime expected credit loss on such instruments and record an allowance that represents the portion of the amortized cost basis that the entity does not expect to collect. This allowance is deducted from the
financial assets amortized cost basis to present the net amount expected to be collected. The new expected credit loss model will also apply to purchased financial assets with credit deterioration, superseding current accounting guidance for
such assets. The amended guidance also amends the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss, and also eliminating the
option for management to consider the length of time a security has been in an unrealized loss position as a factor in concluding whether or not a credit loss exists. The amended model states that an entity will recognize an allowance for credit
losses on available-for-sale debt securities as a contra account to the amortized cost basis, instead of a direct reduction of the amortized cost basis of the investment, as under current guidance. As a result, entities will recognize improvements
to estimated credit losses on available-for-sale debt securities immediately in earnings as opposed to in interest income over time. There are also additional disclosure requirements included in this guidance. The amended guidance is effective for
fiscal years, and interim periods within those years, beginning after December 15, 2019 and is to be applied on a modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings at the
date of initial application. However, certain provisions of the guidance are only required to be applied on a prospective basis. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2018 and interim periods
within those years. The Bancorp is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements.
In August 2016, the FASB issued amended guidance to clarify the classification of certain items with an entitys statements of cash
flows. These items include debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the
settlement of BOLI policies, distributions received from equity method investees, and beneficial interests in securitization transactions. The amended guidance also specifies how to address classification of cash receipts and payments that have
aspects of more than one class of cash flows. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted, and is to be applied on a retrospective
basis unless it is impractical to do so. The Bancorp is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements.
In October 2016, the FASB issued amended guidance that requires an entity to recognize the income tax consequences of an intra-entity transfer
of an asset other than inventory when the transfer occurs. Current U.S. GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The amended guidance is
effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted, and is applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained
earnings as of the beginning of the fiscal year in which the guidance is effective. The Bancorp is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements.
In October 2016, the FASB issued amended guidance that changes the accounting for the consolidation of variable interest entities in certain
situations involving entities under common control. Specifically, the amendments change how the indirect interests held through related parties that are under common control should be included in a reporting entitys evaluation of whether it is
a primary beneficiary of a variable interest entity. Under the amended guidance, the reporting entity is only required to include the indirect interests held through related parties that are under common control in a variable interest entity on a
proportionate basis. Currently, the indirect interests held by the related parties that are under common control are considered to be the equivalent of direct interests in their entirety. The amended guidance is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2016, with early adoption permitted. The Bancorp is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements.
The following tables provide the amortized cost, fair value and unrealized gains and losses for the major categories of the available-for-sale
and other and held-to-maturity investment securities portfolios as of:
The following table presents realized gains and losses that were recognized in income from available-for-sale securities:
Trading securities were $431 million as of September 30, 2016, compared to $386 million at
December 31, 2015. The following table presents total gains and losses that were recognized in income from trading securities:
At September 30, 2016 and December 31,
2015, securities with a fair value of $9.3 billion and $11.0 billion, respectively, were pledged to secure borrowings, public deposits, trust funds, derivative contracts and for other purposes as required or permitted by law.
The expected maturity distribution of the Bancorps mortgage-backed securities and the contractual maturity distribution of the
remainder of the Bancorps available-for-sale and other and held-to-maturity investment securities as of September 30, 2016 are shown in the following table:
The following table provides the fair value and gross unrealized
losses on available-for-sale and other securities in an unrealized loss position, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of:
At September 30, 2016, 2% of unrealized losses in the available-for-sale and other securities portfolio were
represented by non-rated securities, compared to 1% at December 31, 2015.
The Bancorp diversifies its loan and lease portfolio by offering a variety of loan and lease products with various payment terms and rate
structures. Lending activities are generally concentrated within those states in which the Bancorp has banking centers and are primarily located in the Midwestern and Southeastern regions of the U.S.. The Bancorps commercial loan portfolio
consists of lending to various industry types. Management periodically reviews the performance of its loan and lease products to evaluate whether they are performing within acceptable interest rate and credit risk levels and changes are made to
underwriting policies and procedures as needed. The Bancorp maintains an allowance to absorb loan and lease losses inherent in the portfolio. For further information on credit quality and the ALLL, refer to Note 6.
The following table provides a summary of commercial loans and leases classified by primary purpose and consumer loans and leases classified
based upon product or collateral as of:
Total portfolio loans and leases are recorded net of unearned income, which totaled $529 million as of
September 30, 2016 and $624 million as of December 31, 2015. Additionally, portfolio loans and leases are recorded net of unamortized premiums and discounts, deferred loan fees and costs and fair value adjustments (associated with acquired loans or
loans designated at fair value upon origination) which totaled a net premium of $234 million and $220 million as of September 30, 2016 and December 31, 2015, respectively.
The Bancorps FHLB and FRB advances are generally secured by loans. The Bancorp had loans of $13.1 billion and $11.9 billion at
September 30, 2016 and December 31, 2015, respectively, pledged at the FHLB, and loans of $33.3 billion and $33.7 billion at September 30, 2016 and December 31, 2015, respectively, pledged at the FRB.
The following table presents a summary of the total loans and leases owned by the Bancorp as
of:
The Bancorp disaggregates ALLL balances and transactions in the ALLL by portfolio segment. Credit quality related disclosures for loans and
leases are further disaggregated by class.
Allowance for Loan and Lease Losses
The following tables summarize transactions in the ALLL by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2016 ($ in millions)
|
|
Commercial
|
|
Residential
Mortgage
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Balance, beginning of period
|
|
$
|
873
|
|
|
|
98
|
|
|
|
211
|
|
|
|
117
|
|
|
|
1,299
|
|
Losses charged-off
|
|
|
(81
|
)
|
|
|
(4
|
)
|
|
|
(52
|
)
|
|
|
-
|
|
|
|
(137
|
)
|
Recoveries of losses previously charged-off
|
|
|
18
|
|
|
|
2
|
|
|
|
10
|
|
|
|
-
|
|
|
|
30
|
|
Provision for loan and lease losses
|
|
|
44
|
|
|
|
-
|
|
|
|
38
|
|
|
|
(2
|
)
|
|
|
80
|
|
Balance, end of period
|
|
$
|
854
|
|
|
|
96
|
|
|
|
207
|
|
|
|
115
|
|
|
|
1,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2015 ($ in millions)
|
|
Commercial
|
|
Residential
Mortgage
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Balance, beginning of period
|
|
$
|
855
|
|
|
|
104
|
|
|
|
231
|
|
|
|
103
|
|
|
|
1,293
|
|
Losses charged-off
|
|
|
(149
|
)
|
|
|
(6
|
)
|
|
|
(54
|
)
|
|
|
-
|
|
|
|
(209
|
)
|
Recoveries of losses previously charged-off
|
|
|
7
|
|
|
|
3
|
|
|
|
11
|
|
|
|
-
|
|
|
|
21
|
|
Provision for (benefit from) loan and lease losses
|
|
|
115
|
|
|
|
(3
|
)
|
|
|
33
|
|
|
|
11
|
|
|
|
156
|
|
Balance, end of period
|
|
$
|
828
|
|
|
|
98
|
|
|
|
221
|
|
|
|
114
|
|
|
|
1,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2016 ($ in millions)
|
|
Commercial
|
|
Residential
Mortgage
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Balance, beginning of period
|
|
$
|
840
|
|
|
|
100
|
|
|
|
217
|
|
|
|
115
|
|
|
|
1,272
|
|
Losses charged-off
|
|
|
(192
|
)
|
|
|
(14
|
)
|
|
|
(153
|
)
|
|
|
-
|
|
|
|
(359
|
)
|
Recoveries of losses previously charged-off
|
|
|
29
|
|
|
|
7
|
|
|
|
34
|
|
|
|
-
|
|
|
|
70
|
|
Provision for loan and lease losses
|
|
|
177
|
|
|
|
3
|
|
|
|
109
|
|
|
|
-
|
|
|
|
289
|
|
Balance, end of period
|
|
$
|
854
|
|
|
|
96
|
|
|
|
207
|
|
|
|
115
|
|
|
|
1,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2015 ($ in millions)
|
|
Commercial
|
|
Residential
Mortgage
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Balance, beginning of period
|
|
$
|
875
|
|
|
|
104
|
|
|
|
237
|
|
|
|
106
|
|
|
|
1,322
|
|
Losses charged-off
|
|
|
(251
|
)
|
|
|
(23
|
)
|
|
|
(163
|
)
|
|
|
-
|
|
|
|
(437
|
)
|
Recoveries of losses previously charged-off
|
|
|
24
|
|
|
|
9
|
|
|
|
38
|
|
|
|
-
|
|
|
|
71
|
|
Provision for loan and lease losses
|
|
|
180
|
|
|
|
8
|
|
|
|
109
|
|
|
|
8
|
|
|
|
305
|
|
Balance, end of period
|
|
$
|
828
|
|
|
|
98
|
|
|
|
221
|
|
|
|
114
|
|
|
|
1,261
|
|
|
The following tables provide a summary of the ALLL and related loans and leases classified by portfolio
segment:
|
|
As of September 30, 2016 ($ in millions)
|
|
Commercial
|
|
Residential
Mortgage
|
|
Consumer
|
|
Unallocated
|
|
Total
|
ALLL:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
96
|
(c)
|
|
|
68
|
|
|
|
43
|
|
|
|
-
|
|
|
|
207
|
|
Collectively evaluated for impairment
|
|
|
758
|
|
|
|
28
|
|
|
|
164
|
|
|
|
-
|
|
|
|
950
|
|
Unallocated
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
115
|
|
|
|
115
|
|
Total ALLL
|
|
$
|
854
|
|
|
|
96
|
|
|
|
207
|
|
|
|
115
|
|
|
|
1,272
|
|
Portfolio loans and leases:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
906
|
(c)
|
|
|
651
|
|
|
|
384
|
|
|
|
-
|
|
|
|
1,941
|
|
Collectively evaluated for impairment
|
|
|
56,577
|
|
|
|
13,840
|
|
|
|
20,641
|
|
|
|
-
|
|
|
|
91,058
|
|
Loans acquired with deteriorated credit quality
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Total portfolio loans and leases
|
|
$
|
57,483
|
|
|
|
14,494
|
|
|
|
21,025
|
|
|
|
-
|
|
|
|
93,002
|
|
(a)
|
Includes
$
2
related to leveraged leases at
September 30,
2016
.
|
(b)
|
Excludes
$
149
of residential mortgage loans
measured at fair value, and includes
$
725
of leveraged leases, net of unearned income at
September 30, 2016
.
|
(c)
|
Includes five restructured loans at
September 30, 2016
associated with a consolidated
VIE in which the Bancorp has no continuing credit risk due to the risk being assumed by a third party, with a recorded investment of
$
27
and an ALLL of
$
18
.
|
76
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 ($ in millions)
|
|
Commercial
|
|
Residential
Mortgage
|
|
Consumer
|
|
Unallocated
|
|
Total
|
ALLL:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
119
|
(c)
|
|
|
67
|
|
|
|
49
|
|
|
|
-
|
|
|
|
235
|
|
Collectively evaluated for impairment
|
|
|
721
|
|
|
|
33
|
|
|
|
168
|
|
|
|
-
|
|
|
|
922
|
|
Unallocated
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
115
|
|
|
|
115
|
|
Total ALLL
|
|
$
|
840
|
|
|
|
100
|
|
|
|
217
|
|
|
|
115
|
|
|
|
1,272
|
|
Portfolio loans and leases:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
815
|
(c)
|
|
|
630
|
|
|
|
424
|
|
|
|
-
|
|
|
|
1,869
|
|
Collectively evaluated for impairment
|
|
|
55,341
|
|
|
|
12,917
|
|
|
|
22,286
|
|
|
|
-
|
|
|
|
90,544
|
|
Loans acquired with deteriorated credit quality
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Total portfolio loans and leases
|
|
$
|
56,156
|
|
|
|
13,549
|
|
|
|
22,710
|
|
|
|
-
|
|
|
|
92,415
|
|
(a)
|
Includes $5 related to leveraged leases at December 31, 2015.
|
(b)
|
Excludes $167 of residential mortgage loans measured at fair value, and includes $801 of leveraged leases,
net of unearned income at December 31, 2015.
|
(c)
|
Includes five restructured loans at December 31, 2015 associated with a consolidated VIE in which the
Bancorp has no continuing credit risk due to the risk being assumed by a third party, with a recorded investment of $27 and an ALLL of $15.
|
CREDIT RISK PROFILE
Commercial Portfolio Segment
For purposes of analyzing historical loss rates used in the determination of the ALLL and monitoring the credit quality and risk
characteristics of its commercial portfolio segment, the Bancorp disaggregates the segment into the following classes: commercial and industrial, commercial mortgage owner-occupied, commercial mortgage nonowner-occupied, commercial construction and
commercial leases.
To facilitate the monitoring of credit quality within the commercial portfolio segment, and for purposes of analyzing
historical loss rates used in the determination of the ALLL for the commercial portfolio segment, the Bancorp utilizes the following categories of credit grades: pass, special mention, substandard, doubtful and loss. The five categories, which are
derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter.
Pass ratings, which are assigned to those borrowers that do not have identified potential or well defined weaknesses and for which there is a
high likelihood of orderly repayment, are updated at least annually based on the size and credit characteristics of the borrower. All other categories are updated on a quarterly basis during the month preceding the end of the calendar quarter.
The Bancorp assigns a special mention rating to loans and leases that have potential weaknesses that deserve managements close
attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the loan or lease or the Bancorps credit position.
The Bancorp assigns a substandard rating to loans and leases that are inadequately protected by the current sound worth and paying capacity
of the borrower or of the collateral pledged. Substandard loans and leases have well defined weaknesses or weaknesses that could jeopardize the orderly repayment of the debt. Loans and leases in this grade also are characterized by the distinct
possibility that the Bancorp will sustain some loss if the deficiencies noted are not addressed and corrected.
The Bancorp assigns a
doubtful rating to loans and leases that have all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values,
highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage of and strengthen the credit quality of the loan or lease, its
classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceeding, capital injection, perfecting liens on additional collateral or
refinancing plans.
Loans and leases classified as loss are considered uncollectible and are charged-off in the period in which they are
determined to be uncollectible. Because loans and leases in this category are fully charged-off, they are not included in the following tables.
The following tables summarize the credit risk profile of the Bancorps commercial portfolio segment, by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016 ($ in millions)
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Commercial and industrial loans
|
|
$
|
39,592
|
|
|
|
1,471
|
|
|
|
1,664
|
|
|
|
-
|
|
|
|
42,727
|
|
Commercial mortgage owner-occupied loans
|
|
|
3,269
|
|
|
|
74
|
|
|
|
134
|
|
|
|
-
|
|
|
|
3,477
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
3,266
|
|
|
|
25
|
|
|
|
88
|
|
|
|
-
|
|
|
|
3,379
|
|
Commercial construction loans
|
|
|
3,900
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,905
|
|
Commercial leases
|
|
|
3,914
|
|
|
|
43
|
|
|
|
38
|
|
|
|
-
|
|
|
|
3,995
|
|
Total commercial loans and leases
|
|
$
|
53,941
|
|
|
|
1,618
|
|
|
|
1,924
|
|
|
|
-
|
|
|
|
57,483
|
|
77
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 ($ in millions)
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Commercial and industrial loans
|
|
$
|
38,756
|
|
|
|
1,633
|
|
|
|
1,742
|
|
|
|
-
|
|
|
|
42,131
|
|
Commercial mortgage owner-occupied loans
|
|
|
3,344
|
|
|
|
124
|
|
|
|
191
|
|
|
|
-
|
|
|
|
3,659
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
3,105
|
|
|
|
63
|
|
|
|
130
|
|
|
|
-
|
|
|
|
3,298
|
|
Commercial construction loans
|
|
|
3,201
|
|
|
|
4
|
|
|
|
9
|
|
|
|
-
|
|
|
|
3,214
|
|
Commercial leases
|
|
|
3,724
|
|
|
|
93
|
|
|
|
37
|
|
|
|
-
|
|
|
|
3,854
|
|
Total commercial loans and leases
|
|
$
|
52,130
|
|
|
|
1,917
|
|
|
|
2,109
|
|
|
|
-
|
|
|
|
56,156
|
|
Residential Mortgage and Consumer Portfolio Segments
For purposes of monitoring the credit quality and risk characteristics of its consumer portfolio segment, the Bancorp disaggregates the
segment into the following classes: home equity, automobile loans, credit card and other consumer loans and leases. The Bancorps residential mortgage portfolio segment is also a separate class.
The Bancorp considers repayment performance as the best indicator of credit quality for residential mortgage and consumer loans, which
includes both the delinquency status and performing versus nonperforming status of the loans. The delinquency status of all residential mortgage and consumer loans is presented by class in the age analysis section while the performing versus
nonperforming status is presented in the following table. Refer to the nonaccrual loans and leases section of Note 1 in the Bancorps Annual Report on Form 10-K for the year ended December 31, 2015 for additional delinquency and nonperforming
information.
The following table presents a summary of the Bancorps residential mortgage and consumer portfolio segments, by
class, disaggregated into performing versus nonperforming status as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
($ in millions)
|
|
|
|
Performing
|
|
|
Nonperforming
|
|
|
Performing
|
|
|
Nonperforming
|
Residential mortgage loans
(a)
|
|
$
|
|
|
14,462
|
|
|
|
32
|
|
|
|
13,498
|
|
|
|
51
|
|
Home equity
|
|
|
|
|
7,786
|
|
|
|
78
|
|
|
|
8,222
|
|
|
|
79
|
|
Automobile loans
|
|
|
|
|
10,347
|
|
|
|
2
|
|
|
|
11,491
|
|
|
|
2
|
|
Credit card
|
|
|
|
|
2,140
|
|
|
|
29
|
|
|
|
2,226
|
|
|
|
33
|
|
Other consumer loans and leases
|
|
|
|
|
643
|
|
|
|
-
|
|
|
|
657
|
|
|
|
-
|
|
Total residential mortgage and consumer loans and leases
(a)
|
|
$
|
|
|
35,378
|
|
|
|
141
|
|
|
|
36,094
|
|
|
|
165
|
|
(a)
|
Excludes
$
149
and $167 of loans measured at
fair value at
September 30, 2016
and December 31, 2015, respectively.
|
Age Analysis of Past Due Loans
and Leases
The following tables summarize the Bancorps recorded investment in portfolio loans and leases, by age and class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
Past Due
|
|
|
|
90 Days Past
|
|
As of September 30, 2016 ($ in millions)
|
|
Loans and
Leases
(c)
|
|
30-89
Days
(c)
|
|
90 Days
or More
(c)
|
|
Total
Past Due
|
|
|
Total Loans
and Leases
|
|
Due and Still
Accruing
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
42,587
|
|
|
|
31
|
|
|
|
109
|
|
|
|
140
|
|
|
|
42,727
|
|
|
|
7
|
|
Commercial mortgage owner-occupied loans
|
|
|
3,442
|
|
|
|
7
|
|
|
|
28
|
|
|
|
35
|
|
|
|
3,477
|
|
|
|
-
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
3,371
|
|
|
|
1
|
|
|
|
7
|
|
|
|
8
|
|
|
|
3,379
|
|
|
|
-
|
|
Commercial construction loans
|
|
|
3,905
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,905
|
|
|
|
-
|
|
Commercial leases
|
|
|
3,993
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3,995
|
|
|
|
-
|
|
Residential mortgage
loans
(a)(b)
|
|
|
14,388
|
|
|
|
32
|
|
|
|
74
|
|
|
|
106
|
|
|
|
14,494
|
|
|
|
43
|
|
Consumer loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
7,740
|
|
|
|
65
|
|
|
|
59
|
|
|
|
124
|
|
|
|
7,864
|
|
|
|
-
|
|
Automobile loans
|
|
|
10,266
|
|
|
|
72
|
|
|
|
11
|
|
|
|
83
|
|
|
|
10,349
|
|
|
|
8
|
|
Credit card
|
|
|
2,121
|
|
|
|
27
|
|
|
|
21
|
|
|
|
48
|
|
|
|
2,169
|
|
|
|
18
|
|
Other consumer loans and leases
|
|
|
642
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
643
|
|
|
|
-
|
|
Total portfolio loans and leases
(a)
|
|
$
|
92,455
|
|
|
|
236
|
|
|
|
311
|
|
|
|
547
|
|
|
|
93,002
|
|
|
|
76
|
|
(a)
|
Excludes
$
149
of residential mortgage loans measured at fair value
at
September 30, 2016
.
|
(b)
|
Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments
are insured by the FHA or guaranteed by the VA. As of
September 30, 2016
,
$
112
of these loans were 30-89 days past due and
$
287
were 90 days or more past due. The Bancorp recognized
$
2
and
$
5
of losses
during the three and nine months ended
September 30, 2016
, respectively, due to claim denials and curtailments associated with these insured or guaranteed loans.
|
(c)
|
Includes accrual and nonaccrual loans and leases.
|
78
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Past Due
|
|
|
|
|
90 Days Past
|
|
As of December 31, 2015 ($ in millions)
|
|
Loans and
Leases
(c)
|
|
|
30-89
Days
(c)
|
|
|
90 Days
or More
(c)
|
|
|
Total
Past Due
|
|
|
Total Loans
and Leases
|
|
Due and Still
Accruing
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
41,996
|
|
|
|
55
|
|
|
|
80
|
|
|
|
135
|
|
|
|
42,131
|
|
|
|
7
|
|
Commercial mortgage owner-occupied loans
|
|
|
3,610
|
|
|
|
15
|
|
|
|
34
|
|
|
|
49
|
|
|
|
3,659
|
|
|
|
-
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
3,262
|
|
|
|
9
|
|
|
|
27
|
|
|
|
36
|
|
|
|
3,298
|
|
|
|
-
|
|
Commercial construction loans
|
|
|
3,214
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,214
|
|
|
|
-
|
|
Commercial leases
|
|
|
3,850
|
|
|
|
3
|
|
|
|
1
|
|
|
|
4
|
|
|
|
3,854
|
|
|
|
-
|
|
Residential mortgage
loans
(a)(b)
|
|
|
13,420
|
|
|
|
37
|
|
|
|
92
|
|
|
|
129
|
|
|
|
13,549
|
|
|
|
40
|
|
Consumer loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
8,158
|
|
|
|
82
|
|
|
|
61
|
|
|
|
143
|
|
|
|
8,301
|
|
|
|
-
|
|
Automobile loans
|
|
|
11,407
|
|
|
|
75
|
|
|
|
11
|
|
|
|
86
|
|
|
|
11,493
|
|
|
|
10
|
|
Credit card
|
|
|
2,207
|
|
|
|
29
|
|
|
|
23
|
|
|
|
52
|
|
|
|
2,259
|
|
|
|
18
|
|
Other consumer loans and leases
|
|
|
656
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
657
|
|
|
|
-
|
|
Total portfolio loans and leases
(a)
|
|
$
|
91,780
|
|
|
|
306
|
|
|
|
329
|
|
|
|
635
|
|
|
|
92,415
|
|
|
|
75
|
|
(a)
|
Excludes $167 of residential mortgage loans measured at fair value at December 31, 2015.
|
(b)
|
Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments
are insured by the FHA or guaranteed by the VA. As of December 31, 2015, $102 of these loans were 30-89 days past due and $335 were 90 days or more past due. The Bancorp recognized $2 and $6 of losses during the three and nine months ended September
30, 2015, respectively, due to claim denials and curtailments associated with these insured or guaranteed loans.
|
(c)
|
Includes accrual and nonaccrual loans and leases.
|
Impaired Portfolio Loans and Leases
Larger commercial loans and leases included within aggregate borrower relationship balances exceeding $1 million that exhibit probable or
observed credit weaknesses are subject to individual review for impairment. The Bancorp also performs an individual review on loans and leases that are restructured in a TDR. The Bancorp considers the current value of collateral, credit quality of
any guarantees, the loan structure and other factors when evaluating whether an individual loan or lease is impaired. Other factors may include the geography and industry of the borrower, size and financial condition of the borrower, cash flow and
leverage of the borrower, and the Bancorps evaluation of the borrowers management. Smaller-balance homogenous loans or leases that are collectively evaluated for impairment are not included in the following tables.
The following tables summarize the Bancorps impaired portfolio loans and leases, by class, that were subject to individual review,
which includes all portfolio loans and leases restructured in a TDR:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016 ($ in millions)
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
ALLL
|
|
With a related ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
433
|
|
|
|
375
|
|
|
|
74
|
|
Commercial mortgage owner-occupied
loans
(b)
|
|
|
22
|
|
|
|
13
|
|
|
|
2
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
13
|
|
|
|
11
|
|
|
|
2
|
|
Restructured residential mortgage loans
|
|
|
474
|
|
|
|
470
|
|
|
|
68
|
|
Restructured consumer loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
210
|
|
|
|
210
|
|
|
|
30
|
|
Automobile loans
|
|
|
14
|
|
|
|
14
|
|
|
|
1
|
|
Credit card
|
|
|
54
|
|
|
|
54
|
|
|
|
12
|
|
Total impaired portfolio loans and leases with a related
ALLL
|
|
$
|
1,220
|
|
|
|
1,147
|
|
|
|
189
|
|
With no related ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
382
|
|
|
|
311
|
|
|
|
-
|
|
Commercial mortgage owner-occupied loans
|
|
|
49
|
|
|
|
46
|
|
|
|
-
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
132
|
|
|
|
117
|
|
|
|
-
|
|
Commercial leases
|
|
|
6
|
|
|
|
6
|
|
|
|
-
|
|
Restructured residential mortgage loans
|
|
|
202
|
|
|
|
181
|
|
|
|
-
|
|
Restructured consumer loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
108
|
|
|
|
104
|
|
|
|
-
|
|
Automobile loans
|
|
|
3
|
|
|
|
2
|
|
|
|
-
|
|
Total impaired portfolio loans and leases with no related
ALLL
|
|
$
|
882
|
|
|
|
767
|
|
|
|
-
|
|
Total impaired portfolio loans and leases
|
|
$
|
2,102
|
|
|
|
1,914
|
(a)
|
|
|
189
|
|
(a)
|
Includes
$
408
,
$
638
and
$
334
, respectively, of commercial, residential mortgage and consumer portfolio TDRs on accrual status and
$
194
,
$
13
and
$
50
, respectively, of commercial, residential mortgage and consumer portfolio TDRs on nonaccrual status at
September 30, 2016
.
|
(b)
|
Excludes five restructured loans at
September 30, 2016
associated with a consolidated
VIE in which the Bancorp has no continuing credit risk due to the risk being assumed by a third party, with an unpaid principal balance of
$
27
, a recorded investment of
$
27
and an ALLL of
$
18
.
|
79
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 ($ in millions)
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
ALLL
|
|
With a related ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
412
|
|
|
|
346
|
|
|
|
84
|
|
Commercial mortgage owner-occupied
loans
(b)
|
|
|
28
|
|
|
|
21
|
|
|
|
5
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
75
|
|
|
|
64
|
|
|
|
12
|
|
Commercial construction loans
|
|
|
4
|
|
|
|
4
|
|
|
|
2
|
|
Commercial leases
|
|
|
3
|
|
|
|
3
|
|
|
|
1
|
|
Restructured residential mortgage loans
|
|
|
450
|
|
|
|
444
|
|
|
|
67
|
|
Restructured consumer loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
226
|
|
|
|
225
|
|
|
|
32
|
|
Automobile loans
|
|
|
17
|
|
|
|
16
|
|
|
|
2
|
|
Credit card
|
|
|
61
|
|
|
|
61
|
|
|
|
15
|
|
Total impaired portfolio loans and leases with a related
ALLL
|
|
$
|
1,276
|
|
|
|
1,184
|
|
|
|
220
|
|
With no related ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
228
|
|
|
|
182
|
|
|
|
-
|
|
Commercial mortgage owner-occupied loans
|
|
|
54
|
|
|
|
51
|
|
|
|
-
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
126
|
|
|
|
111
|
|
|
|
-
|
|
Commercial construction loans
|
|
|
9
|
|
|
|
5
|
|
|
|
-
|
|
Commercial leases
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
Restructured residential mortgage loans
|
|
|
210
|
|
|
|
186
|
|
|
|
-
|
|
Restructured consumer loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
122
|
|
|
|
119
|
|
|
|
-
|
|
Automobile loans
|
|
|
3
|
|
|
|
3
|
|
|
|
-
|
|
Total impaired portfolio loans and leases with no related
ALLL
|
|
$
|
753
|
|
|
|
658
|
|
|
|
-
|
|
Total impaired portfolio loans and leases
|
|
$
|
2,029
|
|
|
|
1,842
|
(a)
|
|
|
220
|
|
(a)
|
Includes $491, $607 and $327, respectively, of commercial, residential mortgage and consumer portfolio TDRs
on accrual status and $203, $23 and $52, respectively, of commercial, residential mortgage and consumer portfolio TDRs on nonaccrual status at December 31, 2015.
|
(b)
|
Excludes five restructured loans at December 31, 2015 associated with a consolidated VIE in which the
Bancorp has no continuing credit risk due to the risk being assumed by a third party, with an unpaid principal balance of $27, a recorded investment of $27 and an ALLL of $15.
|
The following tables summarize the Bancorps average impaired portfolio loans and leases, by class, and interest income, by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30, 2016
|
|
For the nine months ended
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
|
|
725
|
|
|
|
4
|
|
|
|
685
|
|
|
|
8
|
|
Commercial mortgage owner-occupied
loans
(a)
|
|
|
|
|
62
|
|
|
|
-
|
|
|
|
66
|
|
|
|
1
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
|
|
139
|
|
|
|
2
|
|
|
|
152
|
|
|
|
4
|
|
Commercial construction loans
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
Commercial leases
|
|
|
|
|
7
|
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
Restructured residential mortgage loans
|
|
|
|
|
651
|
|
|
|
6
|
|
|
|
646
|
|
|
|
19
|
|
Restructured consumer loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
|
|
318
|
|
|
|
3
|
|
|
|
330
|
|
|
|
9
|
|
Automobile loans
|
|
|
|
|
16
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
Credit card
|
|
|
|
|
55
|
|
|
|
1
|
|
|
|
57
|
|
|
|
4
|
|
Total average impaired portfolio loans and leases
|
|
$
|
|
|
1,973
|
|
|
|
16
|
|
|
|
1,963
|
|
|
|
45
|
|
(a)
|
Excludes five restructured loans associated with a consolidated VIE in which the Bancorp has no continuing
credit risk due to the risk being assumed by a third party, with an average recorded investment of
$
27
and an immaterial amount of interest income recognized for both the three and nine months ended
September 30, 2016
.
|
80
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30, 2015
|
|
For the nine months ended
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
|
|
635
|
|
|
|
5
|
|
|
$
|
696
|
|
|
|
17
|
|
Commercial mortgage owner-occupied
loans
(a)
|
|
|
|
|
84
|
|
|
|
-
|
|
|
|
98
|
|
|
|
1
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
|
|
210
|
|
|
|
2
|
|
|
|
236
|
|
|
|
5
|
|
Commercial construction loans
|
|
|
|
|
35
|
|
|
|
-
|
|
|
|
49
|
|
|
|
1
|
|
Commercial leases
|
|
|
|
|
6
|
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
Restructured residential mortgage loans
|
|
|
|
|
611
|
|
|
|
6
|
|
|
|
576
|
|
|
|
17
|
|
Restructured consumer loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
|
|
355
|
|
|
|
3
|
|
|
|
366
|
|
|
|
10
|
|
Automobile loans
|
|
|
|
|
21
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
Credit card
|
|
|
|
|
65
|
|
|
|
1
|
|
|
|
70
|
|
|
|
4
|
|
Total average impaired loans and leases
|
|
$
|
|
|
2,022
|
|
|
|
17
|
|
|
$
|
2,120
|
|
|
|
55
|
|
(a)
|
Excludes five restructured loans associated with a consolidated VIE in which the Bancorp has no continuing
credit risk due to the risk being assumed by a third party, with an average recorded investment of $28 and an immaterial amount of interest income recognized for both the three and nine months ended September 30, 2015.
|
Nonperforming Assets
Nonperforming assets include nonaccrual loans and leases for which ultimate collectability of the full amount of the principal and/or interest
is uncertain; restructured commercial and credit card loans which have not yet met the requirements to be classified as a performing asset; restructured consumer loans which are 90 days past due based on the restructured terms unless the loan is
both well-secured and in the process of collection; and certain other assets, including OREO and other repossessed property.
The
following table presents the Bancorps nonaccrual loans and leases, by class, and OREO and other repossessed property as of:
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
September 30,
2016
|
|
December 31,
2015
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
409
|
(a)
|
|
|
259
|
|
Commercial mortgage owner-occupied
loans
(b)
|
|
|
38
|
|
|
|
46
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
10
|
|
|
|
35
|
|
Commercial leases
|
|
|
3
|
|
|
|
1
|
|
Total nonaccrual portfolio commercial loans and
leases
|
|
|
460
|
(a)
|
|
|
341
|
|
Residential mortgage loans
|
|
|
32
|
|
|
|
51
|
|
Consumer loans and leases:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
78
|
|
|
|
79
|
|
Automobile loans
|
|
|
2
|
|
|
|
2
|
|
Credit card
|
|
|
29
|
|
|
|
33
|
|
Total nonaccrual portfolio consumer loans and
leases
|
|
|
109
|
|
|
|
114
|
|
Total nonaccrual portfolio loans and leases
(c)(d)
|
|
$
|
601
|
(a)
|
|
|
506
|
|
OREO and other repossessed property
|
|
|
97
|
|
|
|
141
|
|
Total nonperforming portfolio assets
(c)(d)
|
|
$
|
698
|
(a)
|
|
|
647
|
|
(a)
|
Nonaccrual portfolio loans and leases at
September 30, 2016
were adjusted by
$15
to reflect the identification of certain commercial and industrial loans as nonaccrual after the Bancorps Form 8-K was filed on October 20, 2016.
|
(b)
|
Excludes
$
20
of restructured nonaccrual loans at both
September 30, 2016
and December 31, 2015 associated with a consolidated VIE in which the Bancorp has no continuing credit risk due to the risk being assumed by a third party.
|
(c)
|
Excludes
$
100
and $12 of nonaccrual loans
held for sale at
September 30, 2016
and December 31, 2015, respectively.
|
(d)
|
Includes
$
4
and $6 of nonaccrual government
insured commercial loans whose repayments are insured by the SBA at
September 30, 2016
and December 31, 2015, respectively, and
$
1
and $2 of restructured nonaccrual government
insured commercial loans at
September 30, 2016
and December 31, 2015, respectively.
|
The
Bancorps recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction was $245 million and
$303 million as of September 30, 2016 and December 31, 2015, respectively.
Troubled Debt Restructurings
If a borrower is experiencing financial difficulty, the Bancorp may consider, in certain circumstances, modifying the terms of their loan to
maximize collection of amounts due. Within each of the Bancorps loan classes, TDRs typically involve either a reduction of the stated interest rate of the loan, an extension of the loans maturity date with a stated rate lower than the
current market rate for a new loan with similar risk, or in limited circumstances, a reduction of the principal balance of the loan or the loans accrued interest. Modifying the terms of a loan may result in an increase or decrease to the ALLL
depending upon the terms modified, the method used to measure the ALLL for a loan prior to modification, and whether any charge-offs were recorded on the loan before or at the time of modification. Refer to the ALLL section of Note 1 in the
Bancorps Annual Report on Form 10-K for the year ended December 31, 2015 for information on the Bancorps ALLL methodology. Upon modification of a loan, the Bancorp measures the related impairment as the difference between the estimated
future cash flows expected to be collected on the modified loan, discounted at the original effective yield of the loan, and the carrying value of the loan.
81
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The resulting measurement may result in the need for minimal or no allowance because it is probable that all cash flows will be collected under the modified terms of the loan. In addition, if the
stated interest rate was increased in a TDR, the cash flows on the modified loan, using the pre-modification interest rate as the discount rate, often exceed the recorded investment of the loan. Conversely, upon a modification that reduces the
stated interest rate on a loan, the Bancorp recognizes an impairment loss as an increase to the ALLL. If a TDR involves a reduction of the principal balance of the loan or the loans accrued interest, that amount is charged off to the ALLL.
As of September 30, 2016, the Bancorp had $80 million and $57 million in line of credit and letter of credit commitments, respectively,
compared to $39 million and $23 million in line of credit and letter of credit commitments as of December 31, 2015, respectively, to lend additional funds to borrowers whose terms have been modified in a TDR.
The following tables provide a summary of loans and leases, by class, modified in a TDR by the Bancorp during the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 ($ in millions)
(a)
|
|
Number of loans
modified in a TDR
during the period
(b)
|
|
|
Recorded investment
in loans modified
in a TDR
during the period
|
|
|
Increase
to ALLL upon
modification
|
|
|
Charge-offs
recognized upon
modification
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
12
|
|
|
|
$ 41
|
|
|
|
10
|
|
|
|
-
|
|
Commercial mortgage owner-occupied loans
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
Commercial leases
|
|
|
5
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
Residential mortgage loans
|
|
|
240
|
|
|
|
38
|
|
|
|
2
|
|
|
|
-
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
57
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
Automobile loans
|
|
|
52
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
Credit card
|
|
|
2,320
|
|
|
|
10
|
|
|
|
2
|
|
|
|
1
|
|
Total portfolio loans and leases
|
|
|
2,687
|
|
|
|
$ 112
|
|
|
|
14
|
|
|
|
1
|
|
(a)
|
Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality which were
accounted for within a pool.
|
(b)
|
Represents number of loans post-modification and excludes loans previously modified in a TDR.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015 ($ in millions)
(a)
|
|
Number of loans
modified in a TDR
during the period
(b)
|
|
|
Recorded investment
in loans modified
in a TDR
during the period
|
|
|
Increase
to ALLL upon
modification
|
|
|
Charge-offs
recognized upon
modification
|
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
15
|
|
|
|
$ 17
|
|
|
|
7
|
|
|
|
-
|
|
Commercial mortgage owner-occupied loans
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential mortgage loans
|
|
|
301
|
|
|
|
44
|
|
|
|
3
|
|
|
|
-
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
60
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
Automobile loans
|
|
|
98
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
Credit card
|
|
|
3,076
|
|
|
|
15
|
|
|
|
3
|
|
|
|
2
|
|
Total portfolio loans
|
|
|
3,551
|
|
|
|
$ 82
|
|
|
|
13
|
|
|
|
2
|
|
(a)
|
Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality which were
accounted for within a pool.
|
(b)
|
Represents number of loans post-modification and excludes loans previously modified in a TDR.
|
The following tables provide a summary of loans and leases, by class, modified in a TDR by the Bancorp during the
nine months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 ($ in millions)
(a)
|
|
Number of loans
modified in a TDR
during the period
(b)
|
|
|
Recorded investment
in loans modified
in a TDR
during the period
|
|
|
Increase
(Decrease)
to ALLL upon
modification
|
|
|
Charge-offs
recognized upon
modification
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
56
|
|
|
|
$ 158
|
|
|
|
19
|
|
|
|
-
|
|
Commercial mortgage owner-occupied loans
|
|
|
11
|
|
|
|
9
|
|
|
|
(2)
|
|
|
|
-
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
4
|
|
|
|
5
|
|
|
|
1
|
|
|
|
-
|
|
Commercial leases
|
|
|
5
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
Residential mortgage loans
|
|
|
745
|
|
|
|
111
|
|
|
|
6
|
|
|
|
-
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
183
|
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
Automobile loans
|
|
|
188
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
Credit card
|
|
|
7,174
|
|
|
|
33
|
|
|
|
6
|
|
|
|
3
|
|
Total portfolio loans and leases
|
|
|
8,366
|
|
|
|
$ 347
|
|
|
|
30
|
|
|
|
3
|
|
(a)
|
Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality which were
accounted for within a pool.
|
(b)
|
Represents number of loans post-modification and excludes loans previously modified in a TDR.
|
82
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015 ($ in millions)
(a)
|
|
Number of loans
modified in a TDR
during the period
(b)
|
|
|
Recorded investment
in loans modified
in a TDR
during the period
|
|
|
Increase
(Decrease)
to ALLL upon
modification
|
|
|
Charge-offs
recognized upon
modification
|
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
63
|
|
|
|
$ 105
|
|
|
|
7
|
|
|
|
3
|
|
Commercial mortgage owner-occupied loans
|
|
|
14
|
|
|
|
15
|
|
|
|
(2)
|
|
|
|
-
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
11
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
Residential mortgage loans
|
|
|
855
|
|
|
|
121
|
|
|
|
7
|
|
|
|
-
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
203
|
|
|
|
11
|
|
|
|
(1)
|
|
|
|
-
|
|
Automobile loans
|
|
|
357
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
Credit card
|
|
|
9,724
|
|
|
|
49
|
|
|
|
10
|
|
|
|
5
|
|
Total portfolio loans
|
|
|
11,227
|
|
|
|
$ 314
|
|
|
|
21
|
|
|
|
8
|
|
(a)
|
Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality which were
accounted for within a pool.
|
(b)
|
Represents number of loans post-modification and excludes loans previously modified in a TDR.
|
The Bancorp considers TDRs that become 90 days or more past due under the modified terms as subsequently
defaulted. For commercial loans not subject to individual review for impairment, loss rates that are applied for purposes of determining the ALLL include historical losses associated with subsequent defaults on loans previously modified in a
TDR. For consumer loans, the Bancorp performs a qualitative assessment of the adequacy of the consumer ALLL by comparing the consumer ALLL to forecasted consumer losses over the projected loss emergence period (the forecasted losses include the
impact of subsequent defaults of consumer TDRs). When a residential mortgage, home equity, automobile or other consumer loan that has been modified in a TDR subsequently defaults, the present value of expected cash flows used in the measurement
of the potential impairment loss is generally limited to the expected net proceeds from the sale of the loans underlying collateral and any resulting impairment loss is reflected as a charge-off or an increase in ALLL. The Bancorp recognizes
ALLL for the entire balance of the credit card loans modified in a TDR that subsequently default.
The following tables provide a summary
of TDRs that subsequently defaulted during the three months ended September 30, 2016 and 2015 and were within twelve months of the restructuring date:
|
|
|
|
|
|
|
|
|
September 30, 2016 ($ in millions)
(a)
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
1
|
|
|
$
|
1
|
|
Commercial leases
|
|
|
2
|
|
|
|
1
|
|
Residential mortgage loans
|
|
|
41
|
|
|
|
6
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
3
|
|
|
|
-
|
|
Credit card
|
|
|
458
|
|
|
|
2
|
|
Total portfolio loans and leases
|
|
|
505
|
|
|
$
|
10
|
|
(a)
|
Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality.
|
|
|
|
|
|
|
|
|
|
September 30, 2015 ($ in millions)
(a)
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
Residential mortgage loans
|
|
|
31
|
|
|
$
|
5
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4
|
|
|
|
-
|
|
Credit card
|
|
|
140
|
|
|
|
-
|
|
Total portfolio loans
|
|
|
175
|
|
|
$
|
5
|
|
(a)
|
Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality.
|
The following tables provide a summary of TDRs that subsequently defaulted during the nine months ended
September 30, 2016 and 2015 and were within twelve months of the restructuring date:
|
|
|
|
|
|
|
|
|
September 30, 2016 ($ in millions)
(a)
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
4
|
|
|
$
|
4
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
2
|
|
|
|
-
|
|
Commercial leases
|
|
|
2
|
|
|
|
1
|
|
Residential mortgage loans
|
|
|
127
|
|
|
|
18
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
11
|
|
|
|
1
|
|
Credit card
|
|
|
1,232
|
|
|
|
5
|
|
Total portfolio loans and leases
|
|
|
1,378
|
|
|
$
|
29
|
|
(a)
|
Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality.
|
83
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
September 30, 2015 ($ in millions)
(a)
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
Commercial loans:
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
4
|
|
|
$
|
7
|
|
Residential mortgage loans
|
|
|
101
|
|
|
|
14
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
12
|
|
|
|
1
|
|
Automobile loans
|
|
|
8
|
|
|
|
-
|
|
Credit card
|
|
|
1,285
|
|
|
|
6
|
|
Total portfolio loans
|
|
|
1,410
|
|
|
$
|
28
|
|
(a)
|
Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality.
|
7. Bank Premises and Equipment
The following table provides a summary of bank premises and equipment as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Land and improvements
(a)
|
|
$
|
|
|
|
|
663
|
|
|
|
685
|
|
Buildings
|
|
|
|
|
|
|
1,658
|
|
|
|
1,755
|
|
Equipment
|
|
|
|
|
|
|
1,725
|
|
|
|
1,696
|
|
Leasehold improvements
|
|
|
|
|
|
|
394
|
|
|
|
403
|
|
Construction in progress
|
|
|
|
|
|
|
110
|
|
|
|
85
|
|
Bank premises and equipment held for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
|
|
|
|
|
34
|
|
|
|
55
|
|
Buildings
|
|
|
|
|
|
|
10
|
|
|
|
20
|
|
Equipment
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
Leasehold improvements
|
|
|
|
|
|
|
-
|
|
|
|
3
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
(2,511)
|
|
|
|
(2,466)
|
|
Total bank premises and equipment
|
|
$
|
|
|
|
|
2,084
|
|
|
|
2,239
|
|
(a)
|
At
September 30, 2016
and December 31, 2015, land and improvements included
$
94
and $102, respectively, associated with parcels of undeveloped land intended for future branch expansion.
|
The Bancorp monitors changing customer preferences associated with the channels it uses for banking transactions to evaluate the efficiency,
competitiveness and quality of the customer service experience in its consumer distribution network. As part of this ongoing assessment, the Bancorp may determine that it is no longer fully committed to maintaining full-service branches at certain
of its existing banking center locations. Similarly, the Bancorp may also determine that it is no longer fully committed to building banking centers on certain parcels of land which had previously been held for future branch expansion.
On June 16, 2015, the Bancorps Board of Directors authorized management to pursue a plan to further develop its distribution strategy,
including a plan to consolidate and/or sell certain operating branch locations and certain parcels of undeveloped land that had been acquired by the Bancorp for future branch expansion (the Branch Consolidation and Sales Plan). In
addition, the Bancorp announced on September 13, 2016 that it had identified an additional 44 branch locations and 5 parcels of undeveloped land that it planned to consolidate or sell.
On January 29, 2016, the Bancorp closed the previously announced sale in the St. Louis MSA to Great Southern Bank and recorded a gain on the
sale of $8 million which was recorded in other noninterest income in the Condensed Consolidated Statements of Income. Additionally, on April 22, 2016, the Bancorp closed the previously announced sale in the Pittsburgh MSA to First National Bank of
Pennsylvania and recorded a gain on the sale of $11 million which was recorded in other noninterest income in the Condensed Consolidated Statements of Income. Both transactions were part of the Branch Consolidation and Sales Plan.
As of September 30, 2016, the Bancorp had 72 branch locations and 37 parcels of undeveloped land that had been acquired for future branch
expansion that it intended to consolidate or sell. These branch locations and parcels of undeveloped land, which include unsold properties from the Branch Consolidation and Sales Plan as well as properties included in the September 13, 2016
announcement, represent $45 million, $17 million and $2 million of land and improvements, buildings and equipment, respectively, included in bank premises and equipment in the Condensed Consolidated Balance Sheets as of September 30, 2016, of which
$34 million, $10 million and $1 million, respectively, were classified as held for sale.
The Bancorp performs assessments of the
recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. Impairment losses associated with such assessments and lower of cost or market adjustments were $28 million and
$31 million for the three and nine months ended September 30, 2016, respectively, and $2 million and $104 million for the three and nine months ended September 30, 2015, respectively. The recognized impairment losses were recorded in other
noninterest income in the Condensed Consolidated Statements of Income.
84
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
On September 29, 2016, the Bancorp closed on the sale of an office complex. The sale also
included all of the Bancorps rights, title and interest as a landlord under existing leases in the complex. Under the terms of the transaction, the Bancorp received proceeds of approximately $31 million and entered into a lease agreement
whereby the Bancorp leased-back approximately 25% of the office complex. In conjunction with the transaction, which qualified as a sale-leaseback under U.S. GAAP, the Bancorp retired assets with a net book value of approximately $10 million,
recognized a deferred gain of $10 million, which will be amortized as a reduction of rent expense over the 15 year lease term, and recorded a gain on the transaction of $11 million which was recorded in other noninterest income in the Condensed
Consolidated Statements of Income.
8. Goodwill
Business combinations entered into by the Bancorp typically include the acquisition of goodwill. Acquisition activity includes acquisitions in
the respective period in addition to purchase accounting adjustments related to previous acquisitions. During the fourth quarter of 2008, the Bancorp determined that the Commercial Banking and Consumer Lending reporting units goodwill carrying
amounts exceeded their associated implied fair values by $750 million and $215 million, respectively. The resulting $965 million goodwill impairment charge was recorded in the fourth quarter of 2008 and represents the total amount of accumulated
impairment losses as of September 30, 2016.
Changes in the net carrying amount of goodwill, by reporting unit, for the nine months ended
September 30, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
Commercial
Banking
|
|
|
Branch
Banking
|
|
|
Consumer
Lending
|
|
|
Wealth and Asset
Management
|
|
|
Total
|
|
Net carrying value as of December 31, 2015
|
|
$
|
613
|
|
|
|
1,655
|
|
|
|
-
|
|
|
|
148
|
|
|
|
2,416
|
|
Acquisition activity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net carrying value as of September 30, 2016
|
|
$
|
613
|
|
|
|
1,655
|
|
|
|
-
|
|
|
|
148
|
|
|
|
2,416
|
|
Net carrying value as of December 31, 2014
|
|
$
|
613
|
|
|
|
1,655
|
|
|
|
-
|
|
|
|
148
|
|
|
|
2,416
|
|
Acquisition activity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net carrying value as of September 30, 2015
|
|
$
|
613
|
|
|
|
1,655
|
|
|
|
-
|
|
|
|
148
|
|
|
|
2,416
|
|
The Bancorp completed its annual goodwill impairment test as of September 30, 2016 by performing a
qualitative assessment of goodwill at the reporting unit level to determine whether any indicators of impairment existed. In performing this qualitative assessment, the Bancorp evaluated events and circumstances since the last impairment analysis,
macroeconomic conditions, banking industry and market conditions and key financial metrics of the Bancorp as well as reporting unit and overall Bancorp financial performance. After assessing the totality of the events and circumstances, the Bancorp
determined that it was not more likely than not that the fair values of the Commercial Banking, Branch Banking and Wealth and Asset Management reporting units were less than their respective carrying amounts and, therefore, the first and second
steps of the quantitative goodwill impairment test were deemed unnecessary.
9. Intangible Assets
Intangible assets consist of core deposit intangibles, customer lists, non-compete agreements and cardholder relationships. Intangible assets
are amortized on either a straight-line or an accelerated basis over their estimated useful lives. Intangible assets have an estimated remaining weighted-average life at September 30, 2016 of 4.2 years.
The details of the Bancorps intangible assets are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
As of September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
$
|
34
|
|
|
|
(26)
|
|
|
|
8
|
|
Other
|
|
|
15
|
|
|
|
(13)
|
|
|
|
2
|
|
Total intangible assets
|
|
$
|
49
|
|
|
|
(39)
|
|
|
|
10
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
$
|
34
|
|
|
|
(26)
|
|
|
|
8
|
|
Other
|
|
|
33
|
|
|
|
(29)
|
|
|
|
4
|
|
Total intangible assets
|
|
$
|
67
|
|
|
|
(55)
|
|
|
|
12
|
|
As of September 30, 2016, all of the Bancorps intangible assets were being amortized. Amortization
expense recognized on intangible assets was immaterial and $1 million for the three months ended September 30, 2016 and 2015, respectively, and $1 million and $2 million for the nine months ended September 30, 2016 and 2015, respectively. The
Bancorps projections of amortization expense shown below are based on existing asset balances as of September 30, 2016. Future amortization expense may vary from these projections.
Estimated amortization expense for the remainder of 2016 through
2020 is as follows:
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
Total
|
|
Remainder of 2016
|
|
$
|
|
|
|
|
-
|
|
2017
|
|
|
|
|
|
|
2
|
|
2018
|
|
|
|
|
|
|
1
|
|
2019
|
|
|
|
|
|
|
1
|
|
2020
|
|
|
|
|
|
|
1
|
|
85
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
10. Variable Interest Entities
The Bancorp, in the normal course of business, engages in a variety of activities that involve VIEs, which are legal entities that lack
sufficient equity to finance their activities without additional subordinated financial support or the equity investors of the entities as a group lack any of the characteristics of a controlling interest. The Bancorp evaluates its interest in
certain entities to determine if these entities meet the definition of a VIE and whether the Bancorp is the primary beneficiary and should consolidate the entity based on the variable interests it held both at inception and when there is a change in
circumstances that requires a reconsideration. If the Bancorp is determined to be the primary beneficiary of a VIE, it must account for the VIE as a consolidated subsidiary. If the Bancorp is determined not to be the primary beneficiary of a VIE but
holds a variable interest in the entity, such variable interests are accounted for under the equity method of accounting or other accounting standards as appropriate.
Consolidated VIEs
The following
tables provide a summary of the classifications of consolidated VIE assets, liabilities and noncontrolling interests included in the Condensed Consolidated Balance Sheets as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 ($ in millions)
|
|
|
|
|
Automobile Loan
Securitizations
|
|
|
CDC
Investments
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
|
|
|
|
111
|
|
|
|
1
|
|
|
|
112
|
|
Commercial mortgage loans
|
|
|
|
|
|
|
-
|
|
|
|
47
|
|
|
|
47
|
|
Automobile loans
|
|
|
|
|
|
|
1,513
|
|
|
|
-
|
|
|
|
1,513
|
|
ALLL
|
|
|
|
|
|
|
(8)
|
|
|
|
(20)
|
|
|
|
(28
|
)
|
Other assets
|
|
|
|
|
|
|
11
|
|
|
|
-
|
|
|
|
11
|
|
Total assets
|
|
$
|
|
|
|
|
1,627
|
|
|
|
28
|
|
|
|
1,655
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
Long-term debt
|
|
|
|
|
|
|
1,422
|
|
|
|
-
|
|
|
|
1,422
|
|
Total liabilities
|
|
$
|
|
|
|
|
1,425
|
|
|
|
-
|
|
|
|
1,425
|
|
Noncontrolling interests
|
|
$
|
|
|
|
|
-
|
|
|
|
28
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 ($ in millions)
|
|
|
|
|
Automobile Loan
Securitizations
|
|
|
CDC
Investments
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
|
|
|
|
151
|
|
|
|
1
|
|
|
|
152
|
|
Commercial mortgage loans
|
|
|
|
|
|
|
-
|
|
|
|
47
|
|
|
|
47
|
|
Automobile loans
|
|
|
|
|
|
|
2,490
|
|
|
|
-
|
|
|
|
2,490
|
|
ALLL
|
|
|
|
|
|
|
(11)
|
|
|
|
(17)
|
|
|
|
(28
|
)
|
Other
assets
(a)
|
|
|
|
|
|
|
14
|
|
|
|
-
|
|
|
|
14
|
|
Total
assets
(a)
|
|
$
|
|
|
|
|
2,644
|
|
|
|
31
|
|
|
|
2,675
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
Long-term debt
(a)
|
|
|
|
|
|
|
2,487
|
|
|
|
-
|
|
|
|
2,487
|
|
Total liabilities
(a)
|
|
$
|
|
|
|
|
2,490
|
|
|
|
-
|
|
|
|
2,490
|
|
Noncontrolling interests
|
|
$
|
|
|
|
|
-
|
|
|
|
31
|
|
|
|
31
|
|
(a)
|
Upon adoption of ASU 2015-03 on January 1, 2016, the December 31, 2015 Condensed Consolidated Balance Sheet
was adjusted to reflect the reclassification of $6 of debt issuance costs from other assets to long-term debt. For further information refer to Note 3.
|
Automobile loan securitizations
In
securitization transactions that occurred during the years ended December 31, 2015 and 2014, the Bancorp transferred an aggregate amount of $750 million and $3.8 billion, respectively, in consumer automobile loans to bankruptcy remote trusts which
were deemed to be VIEs. The primary purposes of the VIEs were to issue asset-backed securities with varying levels of credit subordination and payment priority, as well as residual interests, and to provide the Bancorp with access to liquidity for
its originated loans. The Bancorp retained residual interests in the VIEs and, therefore, has an obligation to absorb losses and a right to receive benefits from the VIEs that could potentially be significant to the VIEs. In addition, the Bancorp
retained servicing rights for the underlying loans and, therefore, holds the power to direct the activities of the VIEs that most significantly impact the economic performance of the VIEs. As a result, the Bancorp concluded that it is the primary
beneficiary of the VIEs and, therefore, has consolidated these VIEs. The assets of the VIEs are restricted to the settlement of the asset-backed securities and other obligations of the VIEs. Third-party holders of the notes do not have recourse to
the general assets of the Bancorp.
The economic performance of the VIEs is most significantly impacted by the performance of the
underlying loans. The principal risks to which the VIEs are exposed include credit risk and prepayment risk. The credit and prepayment risks are managed through credit enhancements in the form of reserve accounts, overcollateralization, excess
interest on the loans and the subordination of certain classes of asset-backed securities to other classes.
86
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
CDC investments
CDC, a wholly-owned indirect subsidiary of the Bancorp, was created to invest in projects to create affordable housing, revitalize business
and residential areas and preserve historic landmarks. CDC generally co-invests with other unrelated companies and/or individuals and typically makes investments in a separate legal entity that owns the property under development. The entities are
usually formed as limited partnerships and LLCs and CDC typically invests as a limited partner/investor member in the form of equity contributions. The economic performance of the VIEs is driven by the performance of their underlying investment
projects as well as the VIEs ability to operate in compliance with the rules and regulations necessary for the qualification of tax credits generated by equity investments. The Bancorps subsidiaries serve as the managing member of
certain LLCs invested in business revitalization projects and have the right to make decisions that most significantly impact the economic performance of the LLCs. Additionally, the investor members do not own substantive kick-out rights or
substantive participating rights over the managing member. The Bancorp has provided an indemnification guarantee to the investor member of these LLCs related to the qualification of tax credits generated by the investor members investment.
Accordingly, the Bancorp concluded that it is the primary beneficiary and, therefore, has consolidated these VIEs. As a result, the investor members interests in these VIEs are presented as noncontrolling interests in the Condensed
Consolidated Financial Statements. This presentation includes reporting separately the equity attributable to the noncontrolling interests in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Changes in Equity and
reporting separately the comprehensive income attributable to the noncontrolling interests in the Condensed Consolidated Statements of Comprehensive Income and the net income attributable to the noncontrolling interests in the Condensed Consolidated
Statements of Income. The Bancorps maximum exposure related to these indemnifications at September 30, 2016 and December 31, 2015 was $30 million and $27 million, respectively, which is based on an amount required to meet the investor
members defined target rate of return.
Non-consolidated VIEs
The following tables provide a summary of assets and liabilities carried on the Condensed Consolidated Balance Sheets related to
non-consolidated VIEs for which the Bancorp holds an interest, but is not the primary beneficiary of the VIE, as well as the Bancorps maximum exposure to losses associated with its interests in the entities as of:
|
|
|
|
|
|
|
September 30, 2016 ($ in millions)
|
|
Total
Assets
|
|
Total
Liabilities
|
|
Maximum
Exposure
|
CDC investments
|
|
$ 1,409
|
|
337
|
|
1,409
|
Private equity investments
|
|
186
|
|
-
|
|
247
|
Loans provided to VIEs
|
|
1,916
|
|
-
|
|
2,793
|
|
|
|
|
|
|
|
December 31, 2015 ($ in millions)
|
|
Total
Assets
|
|
Total
Liabilities
|
|
Maximum
Exposure
|
CDC investments
|
|
$ 1,455
|
|
367
|
|
1,455
|
Private equity investments
|
|
211
|
|
-
|
|
271
|
Loans provided to VIEs
|
|
1,630
|
|
-
|
|
2,599
|
CDC investments
As noted previously, CDC typically invests in VIEs as a limited partner or investor member in the form of equity contributions and has no
substantive kick-out or substantive participating rights over the managing member. The Bancorp has determined that it is not the primary beneficiary of these VIEs because it lacks the power to direct the activities that most significantly impact the
economic performance of the underlying project or the VIEs ability to operate in compliance with the rules and regulations necessary for the qualification of tax credits generated by equity investments. This power is held by the managing
members who exercise full and exclusive control of the operations of the VIEs. Accordingly, the Bancorp accounts for these investments under the equity method of accounting.
The Bancorps funding requirements are limited to its invested capital and any additional unfunded commitments for future equity
contributions. The Bancorps maximum exposure to loss as a result of its involvement with the VIEs is limited to the carrying amounts of the investments, including the unfunded commitments. The carrying amounts of these investments, which are
included in other assets in the Condensed Consolidated Balance Sheets, and the liabilities related to the unfunded commitments, which are included in other liabilities in the Condensed Consolidated Balance Sheets, are included in the previous tables
for all periods presented. The Bancorp has no other liquidity arrangements or obligations to purchase assets of the VIEs that would expose the Bancorp to a loss. In certain arrangements, the general partner/managing member of the VIE has guaranteed
a level of projected tax credits to be received by the limited partners/investor members, thereby minimizing a portion of the Bancorps risk.
At both September 30, 2016 and December 31, 2015, the Bancorps CDC investments included $1.3 billion of investments in affordable
housing tax credits recognized in other assets in the Condensed Consolidated Balance Sheets. The unfunded commitments related to these investments were $329 million and $356 million at September 30, 2016 and December 31, 2015, respectively. The
unfunded commitments as of September 30, 2016 are expected to be funded from 2016 to 2033.
87
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The Bancorp has accounted for all of its investments in qualified affordable housing tax
credits using the equity method of accounting. The following table summarizes the impact to the Condensed Consolidated Statements of Income relating to investments in qualified affordable housing investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated
|
|
|
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
($ in millions)
|
|
Statements of Income Caption
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Pre-tax investment and impairment
losses
(a)
|
|
Other noninterest expense
|
|
$
|
|
|
|
|
37
|
|
|
|
33
|
|
|
|
110
|
|
|
|
100
|
|
Tax credits and other benefits
|
|
Applicable income tax expense
|
|
|
|
|
|
|
(54
|
)
|
|
|
(51)
|
|
|
|
(165
|
)
|
|
|
(156)
|
|
(a)
|
The Bancorp did not recognize impairment losses resulting from the forfeiture or ineligibility of tax
credits or other circumstances during both the three and nine months ended
September 30, 2016
and 2015.
|
Private equity investments
The
Bancorp, through Fifth Third Capital Holdings, a wholly-owned indirect subsidiary of the Bancorp, invests as a limited partner in private equity investments which provide the Bancorp an opportunity to obtain higher rates of return on invested
capital, while also creating cross-selling opportunities for the Bancorps commercial products. Each of the limited partnerships has an unrelated third-party general partner responsible for appointing the fund manager. The Bancorp has not been
appointed fund manager for any of these private equity investments. The funds finance primarily all of their activities from the partners capital contributions and investment returns. The Bancorp has determined that it is not the primary
beneficiary of the funds because it does not have the obligation to absorb the funds expected losses or the right to receive the funds expected residual returns that could potentially be significant to the funds and lacks the power to
direct the activities that most significantly impact the economic performance of the funds. The Bancorp, as a limited partner, does not have substantive participating or substantive kick-out rights over the general partner. Therefore, the Bancorp
accounts for its investments in these limited partnerships under the equity method of accounting.
The Bancorp is exposed to losses
arising from the negative performance of the underlying investments in the private equity investments. As a limited partner, the Bancorps maximum exposure to loss is limited to the carrying amounts of the investments plus unfunded commitments.
The carrying amounts of these investments, which are included in other assets in the Condensed Consolidated Balance Sheets, are included in the previous tables. Also, at September 30, 2016 and December 31, 2015, the unfunded commitment amounts to
the funds were $61 million and $60 million, respectively. As part of previous commitments, the Bancorp made capital contributions to private equity investments of an immaterial amount and $6 million during the three months ended September 30, 2016
and 2015, respectively, and $8 million and $28 million, during the nine months ended September 30, 2016 and 2015, respectively. The Bancorp recognized $9 million of OTTI primarily associated with certain nonconforming investments affected by the
Volcker Rule during both the three and nine months ended September 30, 2016 and no OTTI was recognized during both the three and nine months ended September 30, 2015. Refer to Note 22 for further information.
Loans provided to VIEs
The Bancorp has
provided funding to certain unconsolidated VIEs sponsored by third parties. These VIEs are generally established to finance certain consumer and small business loans originated by third parties. The entities are primarily funded through the issuance
of a loan from the Bancorp or a syndication through which the Bancorp is involved. The sponsor/administrator of the entities is responsible for servicing the underlying assets in the VIEs. Because the sponsor/administrator, not the Bancorp, holds
the servicing responsibilities, which include the establishment and employment of default mitigation policies and procedures, the Bancorp does not hold the power to direct the activities that most significantly impact the economic performance of the
entity and, therefore, is not the primary beneficiary.
The principal risk to which these entities are exposed is credit risk related to
the underlying assets. The Bancorps maximum exposure to loss is equal to the carrying amounts of the loans and unfunded commitments to the VIEs. The Bancorps outstanding loans to these VIEs are included in commercial loans in Note 5. As
of September 30, 2016 and December 31, 2015, the Bancorps unfunded commitments to these entities were $877 million and $969 million, respectively. The loans and unfunded commitments to these VIEs are included in the Bancorps overall
analysis of the ALLL and reserve for unfunded commitments, respectively. The Bancorp does not provide any implicit or explicit liquidity guarantees or principal value guarantees to these VIEs.
88
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
11. Sales of Receivables and Servicing Rights
Residential Mortgage TDR Loan Sale
In March of 2015, the Bancorp recognized a $37 million gain, included in other noninterest income in the Condensed Consolidated Statements of
Income, on the sale of certain HFS residential mortgage loans with a carrying value of $568 million that were previously modified in a TDR. As part of this sale, the Bancorp provided certain standard representations and warranties which are expired.
Additionally, the Bancorp did not obtain servicing responsibilities on the sales of these loans and the investors have no credit recourse to the Bancorps other assets for failure of debtors to pay when due.
Residential Mortgage Loan Sales
The Bancorp sold fixed and adjustable-rate residential mortgage loans during the three and nine months ended September 30, 2016 and 2015. In
those sales, the Bancorp obtained servicing responsibilities and provided certain standard representations and warranties, however the investors have no recourse to the Bancorps other assets for failure of debtors to pay when due. The Bancorp
receives annual servicing fees based on a percentage of the outstanding balance. The Bancorp identifies classes of servicing assets based on financial asset type and interest rates.
Information related to residential mortgage loan sales and the Bancorps mortgage banking activity, which is included in mortgage
banking net revenue in the Condensed Consolidated Statements of Income, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30,
|
|
|
|
|
|
For the nine months ended
September 30,
|
|
($ in millions)
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Residential mortgage loan
sales
(a)
|
|
$
|
|
|
|
|
1,846
|
|
|
|
1,421
|
|
|
|
|
|
|
|
4,591
|
|
|
|
3,798
(b)
|
|
|
|
|
|
|
|
|
Origination fees and gains on loan sales
|
|
|
|
|
|
|
61
|
|
|
|
46
|
|
|
|
|
|
|
|
156
|
|
|
|
134
|
|
Gross mortgage servicing fees
|
|
|
|
|
|
|
49
|
|
|
|
54
|
|
|
|
|
|
|
|
151
|
|
|
|
169
|
|
(a)
|
Represents the unpaid principal balance at the time of the sale.
|
(b)
|
Excludes $568 of HFS residential mortgage loans previously modified in a TDR that were sold during the first
quarter of 2015.
|
Servicing Rights
The following table presents changes in the servicing rights related to residential mortgage and automobile loans for the nine months ended
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
2016
|
|
|
2015
|
|
Carrying amount before valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
|
|
|
|
1,204
|
|
|
|
1,392
|
|
Servicing rights that result from the transfer of residential mortgage loans
|
|
|
|
|
|
|
55
|
|
|
|
48
|
|
Amortization
|
|
|
|
|
|
|
(96
|
)
|
|
|
(111)
|
|
Balance, end of period
|
|
$
|
|
|
|
|
1,163
|
|
|
|
1,329
|
|
Valuation allowance for servicing rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
|
|
|
|
(419
|
)
|
|
|
(534)
|
|
Provision for MSR impairment
|
|
|
|
|
|
|
(125
|
)
|
|
|
(38)
|
|
Balance, end of period
|
|
|
|
|
|
|
(544
|
)
|
|
|
(572)
|
|
Carrying amount after valuation allowance
|
|
$
|
|
|
|
|
619
|
|
|
|
757
|
|
Amortization expense recognized on servicing rights for the three months ended September 30, 2016 and 2015
was $35 million and $37 million, respectively. For the nine months
ended September 30, 2016 and 2015, amortization expense was $96 million and $111 million, respectively. The Bancorps projections of amortization expense shown below are
based on existing asset balances and static key economic assumptions as of September 30, 2016. Future amortization expense may vary from these projections.
Estimated amortization expense for the remainder of 2016 through 2020 is as follows:
|
|
|
|
|
($ in millions)
|
|
Total
|
|
Remainder of 2016
|
|
$
|
35
|
|
2017
|
|
|
131
|
|
2018
|
|
|
116
|
|
2019
|
|
|
102
|
|
2020
|
|
|
90
|
|
Temporary impairment or impairment recovery, affected through a change in the MSR valuation allowance, is
captured as a component of mortgage banking net revenue in the Condensed Consolidated Statements of Income. The Bancorp maintains a non-qualifying hedging strategy to manage a portion of the risk associated with changes in the value of the MSR
portfolio. This strategy may include the purchase of free-standing derivatives and various available-for-sale securities. The interest income, mark-to-market adjustments and gain or loss from sale activities associated with these portfolios are
expected to economically hedge a portion of the change in value of the MSR portfolio caused by fluctuating OAS spreads, earnings rates and prepayment speeds. The fair value of the servicing asset is based on the present value of expected future cash
flows.
89
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table displays the beginning and ending fair value of the servicing rights for
the nine months ended September 30:
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2016
|
|
|
2015
|
|
Fixed-rate residential mortgage loans:
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
757
|
|
|
|
823
|
|
Balance, end of period
|
|
|
597
|
|
|
|
731
|
|
Adjustable-rate residential mortgage loans:
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
27
|
|
|
|
33
|
|
Balance, end of period
|
|
|
22
|
|
|
|
25
|
|
Fixed-rate automobile loans:
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
1
|
|
|
|
2
|
|
Balance, end of period
|
|
|
-
|
|
|
|
1
|
|
The following table presents activity related to valuations of the MSR portfolio and the impact of the
non-qualifying hedging strategy, which is included in mortgage banking net revenue in the Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30,
|
|
|
|
|
|
For the nine months ended
September 30,
|
|
($ in millions)
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Changes in fair value and settlement of free-standing derivatives purchased to economically hedge
the MSR portfolio
|
|
$
|
|
|
|
|
(16
|
)
|
|
|
85
|
|
|
|
|
|
|
|
133
|
|
|
|
119
|
|
(Provision for) recovery of MSR impairment
|
|
|
|
|
|
|
7
|
|
|
|
(77)
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
(38)
|
|
As of September 30, 2016 and 2015, the key economic assumptions used in measuring the interests in
residential mortgage loans that continued to be held by the Bancorp at the date of sale or securitization resulting from transactions completed during the three months ended were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
|
|
September 30, 2015
|
|
|
|
Rate
|
|
Weighted-
Average Life
(in years)
|
|
|
Prepayment
Speed
(annual)
|
|
|
OAS
Spread
(bps)
|
|
|
Weighted-
Average
Default Rate
|
|
|
|
|
|
Weighted-
Average Life
(in years)
|
|
|
Prepayment
Speed
(annual)
|
|
|
OAS
Spread
(bps)
|
|
|
Weighted-
Average
Default Rate
|
|
Residential mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing rights
|
|
Fixed
|
|
|
6.6
|
|
|
|
11.7 %
|
|
|
|
564
|
|
|
|
N/A
|
|
|
|
|
|
|
|
7.4
|
|
|
|
10.9 %
|
|
|
|
674
|
|
|
|
N/A
|
|
Servicing rights
|
|
Adjustable
|
|
|
2.8
|
|
|
|
30.0
|
|
|
|
681
|
|
|
|
N/A
|
|
|
|
|
|
|
|
2.8
|
|
|
|
32.9
|
|
|
|
671
|
|
|
|
N/A
|
|
Based on historical credit experience, expected credit losses for residential mortgage loan servicing rights
have been deemed immaterial, as the Bancorp sold the majority of the underlying loans without recourse. At September 30, 2016 and December 31, 2015, the Bancorp serviced $54.6 billion and $59.0 billion, respectively, of residential mortgage loans
for other investors. The value of MSRs that continue to be held by the Bancorp is subject to credit, prepayment and interest rate risks on the sold financial assets.
At September 30, 2016, the sensitivity of the current fair value of residual cash flows to immediate 10%, 20% and 50% adverse changes in
prepayment speed assumptions and immediate 10% and 20% adverse changes in other assumptions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment
Speed Assumption
|
|
|
Residual Servicing
Cash Flows
|
|
|
|
|
|
|
Fair
Value
|
|
|
|
|
|
Weighted-
Average Life
(in years)
|
|
|
Rate
|
|
|
|
|
|
Impact of Adverse Change
on Fair Value
|
|
|
OAS
Spread
|
|
|
|
|
|
Impact of
Adverse Change
on Fair Value
|
|
($ in millions)
(a)
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
10%
|
|
|
20%
|
|
|
50%
|
|
|
(bps)
|
|
|
|
|
|
10%
|
|
|
20%
|
|
Residential mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing rights
|
|
|
Fixed
|
|
|
$
|
597
|
|
|
|
|
|
|
|
4.9
|
|
|
|
14.9 %
|
|
|
|
$
|
|
|
|
(31)
|
|
|
|
(59)
|
|
|
|
(128)
|
|
|
|
615
|
|
|
$
|
|
|
|
|
(13)
|
|
|
|
(26)
|
|
Servicing rights
|
|
|
Adjustable
|
|
|
|
22
|
|
|
|
|
|
|
|
3.1
|
|
|
|
27.1
|
|
|
|
|
|
|
|
(1)
|
|
|
|
(3)
|
|
|
|
(6)
|
|
|
|
724
|
|
|
|
|
|
|
|
-
|
|
|
|
(1)
|
|
(a)
|
The impact of the weighted-average default rate on the current fair value of residual cash flows for all
scenarios is immaterial.
|
These sensitivities are hypothetical and should be used with caution. As the figures
indicate, changes in fair value based on these variations in the assumptions typically cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. The Bancorp believes variations of
these levels are reasonably possible; however, there is the potential that adverse changes in key assumptions could be even greater. Also, in the previous table, the effect of a variation in a particular assumption on the fair value of the interests
that continue to be held by the Bancorp is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which
might magnify or counteract these sensitivities.
90
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
12. Derivative Financial Instruments
The Bancorp maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce certain risks related
to interest rate, prepayment and foreign currency volatility. Additionally, the Bancorp holds derivative instruments for the benefit of its commercial customers and for other business purposes. The Bancorp does not enter into unhedged speculative
derivative positions.
The Bancorps interest rate risk management strategy involves modifying the repricing characteristics of
certain financial instruments so that changes in interest rates do not adversely affect the Bancorps net interest margin and cash flows. Derivative instruments that the Bancorp may use as part of its interest rate risk management strategy
include interest rate swaps, interest rate floors, interest rate caps, forward contracts, forward starting interest rate swaps, options and swaptions. Interest rate swap contracts are exchanges of interest payments, such as fixed-rate payments for
floating-rate payments, based on a stated notional amount and maturity date. Interest rate floors protect against declining rates, while interest rate caps protect against rising interest rates. Forward contracts are contracts in which the buyer
agrees to purchase, and the seller agrees to make delivery of, a specific financial instrument at a predetermined price or yield. Options provide the purchaser with the right, but not the obligation, to purchase or sell a contracted item during a
specified period at an agreed upon price. Swaptions are financial instruments granting the owner the right, but not the obligation, to enter into or cancel a swap.
Prepayment volatility arises mostly from changes in fair value of the largely fixed-rate MSR portfolio, mortgage loans and mortgage-backed
securities. The Bancorp may enter into various free-standing derivatives (principal-only swaps, interest rate swaptions, interest rate floors, mortgage options, TBAs and interest rate swaps) to economically hedge prepayment volatility.
Principal-only swaps are total return swaps based on changes in the value of the underlying mortgage principal-only trust. TBAs are a forward purchase agreement for a mortgage-backed securities trade whereby the terms of the security are undefined
at the time the trade is made.
Foreign currency volatility occurs as the Bancorp enters into certain loans denominated in foreign
currencies. Derivative instruments that the Bancorp may use to economically hedge these foreign denominated loans include foreign exchange swaps and forward contracts.
The Bancorp also enters into derivative contracts (including foreign exchange contracts, commodity contracts and interest rate contracts) for
the benefit of commercial customers and other business purposes. The Bancorp economically hedges significant exposures related to these free-standing derivatives by entering into offsetting third-party contracts with approved, reputable and
independent counterparties with substantially matching terms and currencies. Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. The Bancorps exposure is limited to the replacement value of
the contracts rather than the notional, principal or contract amounts. Credit risk is minimized through credit approvals, limits, counterparty collateral and monitoring procedures.
The Bancorps derivative assets include certain contractual features in which the Bancorp requires the counterparties to provide
collateral in the form of cash and securities to offset changes in the fair value of the derivatives, including changes in the fair value due to credit risk of the counterparty. As of September 30, 2016 and December 31, 2015, the balance of
collateral held by the Bancorp for derivative assets was $801 million and $821 million, respectively. The credit component negatively impacting the fair value of derivative assets associated with customer accommodation contracts as of September 30,
2016 and December 31, 2015 was $8 million and $9 million, respectively.
In measuring the fair value of derivative liabilities, the
Bancorp considers its own credit risk, taking into consideration collateral maintenance requirements of certain derivative counterparties and the duration of instruments with counterparties that do not require collateral maintenance. When necessary,
the Bancorp posts collateral primarily in the form of cash and securities to offset changes in fair value of the derivatives, including changes in fair value due to the Bancorps credit risk. As of September 30, 2016 and December 31, 2015, the
balance of collateral posted by the Bancorp for derivative liabilities was $555 million and $504 million, respectively. Certain of the Bancorps derivative liabilities contain credit-risk related contingent features that could result in the
requirement to post additional collateral upon the occurrence of specified events. As of September 30, 2016 and December 31, 2015, the fair value of the additional collateral that could be required to be posted as a result of the credit-risk related
contingent features being triggered was immaterial to the Condensed Consolidated Financial Statements.
The posting of collateral has been determined to remove the need for further consideration of credit risk. As a result, the Bancorp
determined that the impact of the Bancorps credit risk to the valuation of its derivative liabilities was immaterial to the Condensed Consolidated Financial Statements.
The Bancorp holds certain derivative instruments that qualify for hedge accounting treatment and are designated as either fair value hedges
or cash flow hedges. Derivative instruments that do not qualify for hedge accounting treatment, or for which hedge accounting is not established, are held as free-standing derivatives. All customer accommodation derivatives are held as free-standing
derivatives.
The fair value of derivative instruments is presented on a gross basis, even when the derivative instruments are subject to
master netting arrangements. Derivative instruments with a positive fair value are reported in other assets in the Condensed Consolidated Balance Sheets while derivative instruments with a negative fair value are reported in other liabilities in the
Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative instruments are not added to or netted against the fair value amounts.
91
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables reflect the notional amounts and fair values for all derivative
instruments included in the Condensed Consolidated Balance Sheets as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
September 30, 2016 ($ in millions)
|
|
Notional
Amount
|
|
|
|
|
|
Derivative
Assets
|
|
|
Derivative
Liabilities
|
|
Derivatives Designated as Qualifying Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps related to long-term
debt
|
|
$
|
3,455
|
|
|
|
|
|
|
|
473
|
|
|
|
-
|
|
Total fair value hedges
|
|
|
|
|
|
|
|
|
|
|
473
|
|
|
|
-
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps related to C&I
loans
|
|
|
4,475
|
|
|
|
|
|
|
|
83
|
|
|
|
-
|
|
Total cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
-
|
|
Total derivatives designated as qualifying hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
556
|
|
|
|
-
|
|
Derivatives Not Designated as Qualifying Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free-standing derivatives - risk management and other business purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts related to MSRs
|
|
|
10,397
|
|
|
|
|
|
|
|
332
|
|
|
|
50
|
|
Forward contracts related to residential mortgage loans held for sale
|
|
|
2,033
|
|
|
|
|
|
|
|
-
|
|
|
|
8
|
|
Stock warrant associated with Vantiv Holding, LLC
|
|
|
438
|
|
|
|
|
|
|
|
325
|
|
|
|
-
|
|
Swap associated with the sale of Visa, Inc. Class B shares
|
|
|
1,378
|
|
|
|
|
|
|
|
-
|
|
|
|
103
|
|
Foreign exchange contracts
|
|
|
168
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Total free-standing derivatives - risk management and other
business purposes
|
|
|
|
|
|
|
|
|
|
|
657
|
|
|
|
161
|
|
Free-standing derivatives - customer accommodation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts for customers
|
|
|
32,218
|
|
|
|
|
|
|
|
339
|
|
|
|
346
|
|
Interest rate lock commitments
|
|
|
1,215
|
|
|
|
|
|
|
|
33
|
|
|
|
-
|
|
Commodity contracts
|
|
|
1,800
|
|
|
|
|
|
|
|
111
|
|
|
|
99
|
|
Foreign exchange contracts
|
|
|
12,545
|
|
|
|
|
|
|
|
194
|
|
|
|
186
|
|
Total free-standing derivatives - customer
accommodation
|
|
|
|
|
|
|
|
|
|
|
677
|
|
|
|
631
|
|
Total derivatives not designated as qualifying hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
1,334
|
|
|
|
792
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
1,890
|
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
December 31, 2015 ($ in millions)
|
|
Notional
Amount
|
|
|
|
|
|
Derivative
Assets
|
|
|
Derivative
Liabilities
|
|
Derivatives Designated as Qualifying Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps related to long-term
debt
|
|
$
|
2,705
|
|
|
|
|
|
|
|
372
|
|
|
|
2
|
|
Total fair value hedges
|
|
|
|
|
|
|
|
|
|
|
372
|
|
|
|
2
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps related to C&I loans
|
|
|
5,475
|
|
|
|
|
|
|
|
39
|
|
|
|
-
|
|
Total cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
-
|
|
Total derivatives designated as qualifying hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
411
|
|
|
|
2
|
|
Derivatives Not Designated as Qualifying Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free-standing derivatives - risk management and other business purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts related to MSRs
|
|
|
11,657
|
|
|
|
|
|
|
|
239
|
|
|
|
9
|
|
Forward contracts related to residential mortgage loans held for sale
|
|
|
1,330
|
|
|
|
|
|
|
|
3
|
|
|
|
1
|
|
Stock warrant associated with Vantiv Holding, LLC
|
|
|
369
|
|
|
|
|
|
|
|
262
|
|
|
|
-
|
|
Swap associated with the sale of Visa, Inc. Class B
shares
|
|
|
1,292
|
|
|
|
|
|
|
|
-
|
|
|
|
61
|
|
Total free-standing derivatives - risk
management and other business purposes
|
|
|
|
|
|
|
|
|
|
|
504
|
|
|
|
71
|
|
Free-standing derivatives - customer accommodation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts for customers
|
|
|
29,889
|
|
|
|
|
|
|
|
242
|
|
|
|
249
|
|
Interest rate lock commitments
|
|
|
721
|
|
|
|
|
|
|
|
15
|
|
|
|
-
|
|
Commodity contracts
|
|
|
2,464
|
|
|
|
|
|
|
|
294
|
|
|
|
276
|
|
Foreign exchange contracts
|
|
|
16,243
|
|
|
|
|
|
|
|
386
|
|
|
|
340
|
|
Total free-standing derivatives - customer
accommodation
|
|
|
|
|
|
|
|
|
|
|
937
|
|
|
|
865
|
|
Total derivatives not designated as qualifying hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
1,441
|
|
|
|
936
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
1,852
|
|
|
|
938
|
|
92
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Fair Value Hedges
The Bancorp may enter into interest rate swaps to convert its fixed-rate funding to floating-rate. Decisions to convert fixed-rate funding to
floating are made primarily through consideration of the asset/liability mix of the Bancorp, the desired asset/liability sensitivity and interest rate levels. For all interest rate swaps as of September 30, 2016, an assessment of hedge effectiveness
was performed using regression analysis and such swaps were accounted for using the long-haul method. The long-haul method requires a quarterly assessment of hedge effectiveness and measurement of ineffectiveness. For interest rate swaps
accounted for as a fair value hedge using the long-haul method, ineffectiveness is the difference between the changes in the fair value of the interest rate swap and changes in fair value of the related hedged item attributable to the risk being
hedged. The ineffectiveness on interest rate swaps hedging fixed-rate funding is reported within interest expense in the Condensed Consolidated Statements of Income.
The following table reflects the change in fair value of interest rate contracts, designated as fair value hedges, as well as the change in
fair value of the related hedged items attributable to the risk being hedged, included in the Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated
Statements of
Income Caption
|
|
|
|
For the three months
ended September 30,
|
|
|
|
|
|
For the nine months
ended September 30,
|
|
($ in millions)
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Change in fair value of interest rate swaps hedging long-term debt
|
|
Interest on long-term debt
|
|
$
|
|
|
(19)
|
|
|
|
64
|
|
|
|
|
|
|
|
103
|
|
|
|
15
|
|
Change in fair value of hedged long-term debt attributable
to the risk being hedged
|
|
Interest on long-term debt
|
|
|
|
|
17
|
|
|
|
(65)
|
|
|
|
|
|
|
|
(109)
|
|
|
|
(18)
|
|
Cash Flow Hedges
The Bancorp may enter into interest rate swaps to convert floating-rate assets and liabilities to fixed rates or to hedge certain forecasted
transactions. The assets or liabilities may be grouped in circumstances where they share the same risk exposure that the Bancorp desires to hedge. The Bancorp may also enter into interest rate caps and floors to limit cash flow variability of
floating-rate assets and liabilities. As of September 30, 2016, all hedges designated as cash flow hedges were assessed for effectiveness using regression analysis. Ineffectiveness is generally measured as the amount by which the cumulative change
in the fair value of the hedging instrument exceeds the present value of the cumulative change in the hedged items expected cash flows attributable to the risk being hedged. Ineffectiveness is reported within other noninterest income in the
Condensed Consolidated Statements of Income. The effective portion of the cumulative gains or losses on cash flow hedges are reported within AOCI and are reclassified from AOCI to current period earnings when the forecasted transaction affects
earnings. As of September 30, 2016, the maximum length of time over which the Bancorp is hedging its exposure to the variability in future cash flows is 39 months.
Reclassified gains and losses on interest rate contracts related to commercial and industrial loans are recorded within interest income in
the Condensed Consolidated Statements of Income. As of September 30, 2016 and December 31, 2015, $48 million and $22 million, respectively, of net deferred gains, net of tax, on cash flow hedges were recorded in AOCI in the Condensed Consolidated
Balance Sheets. As of September 30, 2016, approximately $24 million in net deferred gains, net of tax, recorded in AOCI are expected to be reclassified into earnings during the next twelve months. This amount could differ from amounts actually
recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 2016.
During both the three and nine months ended September 30, 2016 and 2015, there were no gains or losses reclassified from AOCI into earnings
associated with the discontinuance of cash flow hedges because it was probable that the original forecasted transaction would no longer occur by the end of the originally specified time period or within the additional period of time as defined by
U.S. GAAP.
The following table presents the pretax net gains (losses) recorded in the Condensed Consolidated Statements of Income and in
the Condensed Consolidated Statements of Comprehensive Income relating to derivative instruments designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30,
|
|
|
|
|
|
For the nine months ended
September 30,
|
|
($ in millions)
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Amount of pretax net gains (losses) recognized in OCI
|
|
$
|
|
|
|
|
(23
|
)
|
|
|
65
|
|
|
|
|
|
|
|
77
|
|
|
|
109
|
|
Amount of pretax net gains reclassified from OCI into net
income
|
|
|
|
|
|
|
11
|
|
|
|
20
|
|
|
|
|
|
|
|
37
|
|
|
|
55
|
|
Free-Standing Derivative Instruments Risk Management and Other Business Purposes
As part of its overall risk management strategy relative to its mortgage banking activity, the Bancorp may enter into various free-standing
derivatives (principal-only swaps, interest rate swaptions, interest rate floors, mortgage options, TBAs and interest rate swaps) to economically hedge changes in fair value of its largely fixed-rate MSR portfolio. Principal-only swaps hedge the
mortgage-LIBOR spread because these swaps appreciate in value as a result of tightening spreads. Principal-only swaps also provide prepayment protection by increasing in value when prepayment speeds increase, as opposed to MSRs that lose value in a
faster prepayment environment. Receive fixed/pay floating interest rate swaps and swaptions increase in value when interest rates do not increase as quickly as expected.
The Bancorp enters into forward contracts and mortgage options to economically hedge the change in fair value of certain residential mortgage
loans held for sale due to changes in interest rates. IRLCs issued on residential mortgage loan commitments that will be held for sale are also considered free-standing derivative instruments and the interest rate exposure on these commitments is
economically hedged primarily with forward contracts. Revaluation gains and losses from free-standing derivatives related to mortgage banking activity are recorded as a component of mortgage banking net revenue in the Condensed Consolidated
Statements of Income.
93
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
In conjunction with the initial sale of the Bancorps 51% interest in Vantiv Holding,
LLC, the Bancorp received a warrant which is accounted for as a free-standing derivative. Refer to Note 22 for further discussion of significant inputs and assumptions used in the valuation of the warrant.
In conjunction with the initial sale of Visa, Inc. Class B shares in 2009, the Bancorp entered into a total return swap in which the Bancorp
will make or receive payments based on subsequent changes in the conversion rate of the Class B shares into Class A shares. This total return swap is accounted for as a free-standing derivative. Refer to Note 22 for further discussion of significant
inputs and assumptions used in the valuation of this instrument.
The net gains (losses) recorded in the Condensed Consolidated
Statements of Income relating to free-standing derivative instruments used for risk management and other business purposes are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated
|
|
|
|
|
For the three months
|
|
|
|
|
For the nine months
|
|
|
|
Statements of
|
|
|
|
|
ended September 30,
|
|
|
|
|
ended September 30,
|
|
($ in millions)
|
|
Income Caption
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts related to residential mortgage loans held for sale
|
|
Mortgage banking net revenue
|
|
$
|
|
|
|
|
9
|
|
|
|
(15)
|
|
|
|
|
|
(10)
|
|
|
|
(4)
|
|
Interest rate contracts related to MSR portfolio
|
|
Mortgage banking net revenue
|
|
|
|
|
|
|
(16)
|
|
|
|
85
|
|
|
|
|
|
133
|
|
|
|
119
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts for risk management purposes
|
|
Other noninterest income
|
|
|
|
|
|
|
2
|
|
|
|
6
|
|
|
|
|
|
(3)
|
|
|
|
19
|
|
Equity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock warrant associated with Vantiv Holding, LLC
|
|
Other noninterest income
|
|
|
|
|
|
|
(2)
|
|
|
|
130
|
|
|
|
|
|
64
|
|
|
|
215
|
|
Swap associated with sale of Visa, Inc. Class B
shares
|
|
Other noninterest income
|
|
|
|
|
|
|
(12)
|
|
|
|
(8)
|
|
|
|
|
|
(61)
|
|
|
|
(27)
|
|
Free-Standing Derivative Instruments Customer Accommodation
The majority of the free-standing derivative instruments the Bancorp enters into are for the benefit of its commercial customers. These
derivative contracts are not designated against specific assets or liabilities on the Condensed Consolidated Balance Sheets or to forecasted transactions; and therefore, do not qualify for hedge accounting. These instruments include foreign exchange
derivative contracts entered into for the benefit of commercial customers involved in international trade to hedge their exposure to foreign currency fluctuations and commodity contracts to hedge such items as natural gas and various other
derivative contracts. The Bancorp may economically hedge significant exposures related to these derivative contracts entered into for the benefit of customers by entering into offsetting contracts with approved, reputable and independent
counterparties with substantially matching terms. The Bancorp hedges its interest rate exposure on commercial customer transactions by executing offsetting swap agreements with primary dealers. Revaluation gains and losses on interest rate, foreign
exchange, commodity and other commercial customer derivative contracts are recorded as a component of corporate banking revenue in the Condensed Consolidated Statements of Income.
The Bancorp enters into risk participation agreements, under which the Bancorp assumes credit exposure relating to certain underlying
interest rate derivative contracts. The Bancorp only enters into these risk participation agreements in instances in which the Bancorp has participated in the loan that the underlying interest rate derivative contract was designed to hedge. The
Bancorp will make payments under these agreements if a customer defaults on its obligation to perform under the terms of the underlying interest rate derivative contract. As of September 30, 2016 and December 31, 2015, the total notional amount of
the risk participation agreements was $2.5 billion and $1.7 billion, respectively, and the fair value was a liability of $4 million and $3 million at September 30, 2016 and December 31, 2015, respectively, which is included in interest rate
contracts for customers. As of September 30, 2016, the risk participation agreements had a weighted-average remaining life of 2.9 years.
The Bancorps maximum exposure in the risk participation agreements is contingent on the fair value of the underlying interest rate
derivative contracts in an asset position at the time of default. The Bancorp monitors the credit risk associated with the underlying customers in the risk participation agreements through the same risk grading system currently utilized for
establishing loss reserves in its loan and lease portfolio.
Risk ratings of the notional amount of risk participation agreements under
this risk rating system are summarized in the following table as of:
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Pass
|
|
$
|
2,463
|
|
|
|
1,650
|
|
Special mention
|
|
|
8
|
|
|
|
7
|
|
Substandard
|
|
|
2
|
|
|
|
7
|
|
Total
|
|
$
|
2,473
|
|
|
|
1,664
|
|
94
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The net gains (losses) recorded in the Condensed Consolidated Statements of Income relating
to free-standing derivative instruments used for customer accommodation are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
|
|
|
|
|
|
For the nine months
|
|
|
|
Condensed Consolidated
|
|
|
|
|
|
ended September 30,
|
|
|
|
|
|
ended September 30,
|
|
($ in millions)
|
|
Statements of Income Caption
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts for customers (contract revenue)
|
|
|
Corporate banking revenue
|
|
|
$
|
|
|
|
|
5
|
|
|
|
7
|
|
|
|
|
|
|
|
17
|
|
|
|
18
|
|
Interest rate contracts for customers (credit losses)
|
|
|
Other noninterest expense
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
(1)
|
|
Interest rate contracts for customers (credit portion of fair value adjustment)
|
|
|
Other noninterest expense
|
|
|
|
|
|
|
|
1
|
|
|
|
(1)
|
|
|
|
|
|
|
|
(2)
|
|
|
|
(1)
|
|
Interest rate lock commitments
|
|
|
Mortgage banking net revenue
|
|
|
|
|
|
|
|
42
|
|
|
|
38
|
|
|
|
|
|
|
|
126
|
|
|
|
90
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts for customers (contract revenue)
|
|
|
Corporate banking revenue
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Commodity contracts for customers (credit losses)
|
|
|
Other noninterest expense
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(1)
|
|
|
|
(2)
|
|
Commodity contracts for customers (credit portion of fair value adjustment)
|
|
|
Other noninterest expense
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
1
|
|
|
|
6
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts for customers (contract revenue)
|
|
|
Corporate banking revenue
|
|
|
|
|
|
|
|
13
|
|
|
|
17
|
|
|
|
|
|
|
|
44
|
|
|
|
55
|
|
Foreign exchange contracts for customers (credit
losses)
|
|
|
Other noninterest expense
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(2)
|
|
|
|
-
|
|
Offsetting Derivative Financial Instruments
The Bancorps derivative transactions are generally governed by ISDA Master Agreements and similar arrangements, which include provisions
governing the setoff of assets and liabilities between the parties. When the Bancorp has more than one outstanding derivative transaction with a single counterparty, the setoff provisions contained within these agreements generally allow the
non-defaulting party the right to reduce its liability to the defaulting party by amounts eligible for setoff, including the collateral received as well as eligible offsetting transactions with that counterparty, irrespective of the currency, place
of payment, or booking office. The Bancorps policy is to present its derivative assets and derivative liabilities in the Condensed Consolidated Balance Sheets on a gross basis, even when provisions allowing for setoff are in place.
Collateral amounts included in the tables below consist primarily of cash and highly-rated government-backed securities.
The following tables provide a summary of offsetting derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
Gross Amounts Not Offset in the
|
|
|
|
|
|
|
Recognized in the
|
|
|
|
|
|
Condensed Consolidated Balance Sheets
|
|
|
|
|
As of September 30, 2016 ($ in millions)
|
|
Condensed Consolidated
Balance Sheets
(a)
|
|
|
|
|
|
Derivatives
|
|
|
Collateral
(b)
|
|
|
Net Amount
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
1,532
|
|
|
|
|
|
|
|
(517
|
)
|
|
|
(551
|
)
|
|
|
464
|
|
Total assets
|
|
|
1,532
|
|
|
|
|
|
|
|
(517
|
)
|
|
|
(551
|
)
|
|
|
464
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
792
|
|
|
|
|
|
|
|
(517
|
)
|
|
|
(173
|
)
|
|
|
102
|
|
Total liabilities
|
|
$
|
792
|
|
|
|
|
|
|
|
(517
|
)
|
|
|
(173
|
)
|
|
|
102
|
|
(a)
|
Amount does not include the stock warrant associated with Vantiv Holding, LLC and IRLCs because these
instruments are not subject to master netting or similar arrangements.
|
(b)
|
Amount of collateral received as an offset to asset positions or pledged as an offset to liability
positions. Collateral values in excess of related derivative amounts recognized in the Condensed Consolidated Balance Sheets were excluded from this table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
Gross Amounts Not Offset in the
|
|
|
|
|
|
|
Recognized in the
|
|
|
|
|
|
Condensed Consolidated Balance Sheets
|
|
|
|
|
As of December 31, 2015 ($ in millions)
|
|
Condensed Consolidated
Balance Sheets
(a)
|
|
|
|
|
|
Derivatives
|
|
|
Collateral
(b)
|
|
|
Net Amount
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
1,575
|
|
|
|
|
|
|
|
(512
|
)
|
|
|
(627
|
)
|
|
|
436
|
|
Total assets
|
|
|
1,575
|
|
|
|
|
|
|
|
(512
|
)
|
|
|
(627
|
)
|
|
|
436
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
938
|
|
|
|
|
|
|
|
(512
|
)
|
|
|
(173
|
)
|
|
|
253
|
|
Total liabilities
|
|
$
|
938
|
|
|
|
|
|
|
|
(512
|
)
|
|
|
(173
|
)
|
|
|
253
|
|
(a)
|
Amount does not include the stock warrant associated with Vantiv Holding, LLC and IRLCs because these
instruments are not subject to master netting or similar arrangements.
|
(b)
|
Amount of collateral received as an offset to asset positions or pledged as an offset to liability
positions. Collateral values in excess of related derivative amounts recognized in the Condensed Consolidated Balance Sheets were excluded from this table.
|
95
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
13. Other Short-Term Borrowings
Borrowings with original maturities of one year or less are classified as short-term. The following table presents a summary of the
Bancorps other short-term borrowings as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
FHLB advances
|
|
$
|
|
|
|
|
1,950
|
|
|
|
-
|
|
Securities sold under repurchase agreements
|
|
|
|
|
|
|
832
|
|
|
|
925
|
|
Derivative collateral
|
|
|
|
|
|
|
712
|
|
|
|
582
|
|
Total other short-term borrowings
|
|
$
|
|
|
|
|
3,494
|
|
|
|
1,507
|
|
The Bancorps securities sold under repurchase agreements are accounted for as secured borrowings and
are collateralized by securities included in available-for-sale and other securities in the Condensed Consolidated Balance Sheets. These securities are subject to changes in market value and, therefore, the Bancorp may increase or decrease the level
of securities pledged as collateral based upon these movements in market value.
The following table summarizes the Bancorps
securities sold under repurchase agreements by the type of collateral securing the borrowing and remaining contractual maturity as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Amount
|
|
|
Remaining Contractual
Maturity
|
|
|
Amount
|
|
|
Remaining Contractual
Maturity
|
|
Type of collateral:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage-backed securities
|
|
|
$
|
|
|
|
685
|
|
|
|
Overnight
|
|
|
|
646
|
|
|
|
Overnight
|
|
U.S. Treasury and federal agencies securities
|
|
|
|
|
|
|
147
|
|
|
|
Overnight
|
|
|
|
279
|
|
|
|
Overnight
|
|
Total securities sold under repurchase agreements
|
|
|
$
|
|
|
|
832
|
|
|
|
|
|
|
|
925
|
|
|
|
|
|
14. Long-Term Debt
On March 15, 2016, the Bank issued and sold $1.5 billion in aggregate principal amount of unsecured bank notes. The bank notes consisted of
$750 million of 2.30% senior fixed-rate notes, with a maturity of three years, due on March 15, 2019; and $750 million of 3.85% subordinated fixed-rate notes, with a maturity of ten years, due on March 15, 2026. These bank notes will be redeemable
by the Bank, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.
On June 14, 2016, the Bank issued and sold $1.3 billion of 2.25% unsecured senior fixed-rate notes, with a maturity of five years, due on
June 14, 2021. These bank notes will be redeemable by the Bank, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up
to, but excluding, the redemption date.
On September 2, 2016, the Bank submitted a redemption notice to the Issuing and Paying Agent to
redeem $1.0 billion of 1.15% senior fixed-rate notes and $750 million of senior floating-rate notes at three-month LIBOR plus 51 bps. Pursuant to the terms and conditions of the notes, the Bank redeemed the notes on October 19, 2016, which was 30
days prior to their scheduled maturity on November 18, 2016.
On September 27, 2016, the Bank issued and sold $1.0 billion in aggregate
principal amount of unsecured senior bank notes, with a maturity of three years, due on September 27, 2019. The bank notes consisted of $750 million of 1.625% senior fixed-rate notes and $250 million of senior floating-rate notes at three-month
LIBOR plus 59 bps. The Bancorp entered into interest rate swaps to convert the fixed-rate notes to a floating-rate, which resulted in an effective interest rate of three-month LIBOR plus 53 bps. These bank notes will be redeemable by the Bank, in
whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.
96
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
15. Capital Actions
Accelerated Share Repurchase Transactions
During the nine months ended September 30, 2016, the Bancorp entered into or settled a number of accelerated share repurchase transactions. As
part of these transactions, the Bancorp entered into forward contracts in which the final number of shares delivered at settlement was based generally on a discount to the average daily volume weighted-average price of the Bancorps common
stock during the term of these repurchase agreements. The accelerated share repurchases were treated as two separate transactions, (i) the acquisition of treasury shares on the repurchase date and (ii) a forward contract indexed to the
Bancorps common stock.
The following table presents a summary of the Bancorps accelerated share repurchase transactions that
were entered into or settled during the nine months ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Date
|
|
|
|
|
Amount
($ in millions)
|
|
|
Shares Repurchased on
Repurchase Date
|
|
|
Shares Received
from Forward
Contract Settlement
|
|
|
Total Shares
Repurchased
|
|
|
Settlement Date
|
|
December 14, 2015
|
|
$
|
|
|
|
|
215
|
|
|
|
9,248,482
|
|
|
|
1,782,477
|
|
|
|
11,030,959
|
|
|
|
January 14, 2016
|
|
March 4, 2016
|
|
|
|
|
|
|
240
|
|
|
|
12,623,762
|
|
|
|
1,868,379
|
|
|
|
14,492,141
|
|
|
|
April 11, 2016
|
|
August 5, 2016
|
|
|
|
|
|
|
240
|
|
|
|
10,979,548
|
|
|
|
1,099,205
|
|
|
|
12,078,753
|
|
|
|
November 7, 2016
|
|
Open Market Share Repurchase Transactions
Between June 17, 2016 and June 20, 2016, the Bancorp repurchased 1,436,100 shares, or approximately $26 million, of its outstanding common
stock through open market repurchase transactions.
16. Commitments, Contingent Liabilities and Guarantees
The Bancorp, in the normal course of business, enters into financial instruments and various agreements to meet the financing needs of its
customers. The Bancorp also enters into certain transactions and agreements to manage its interest rate and prepayment risks, provide funding, equipment and locations for its operations and invest in its communities. These instruments and agreements
involve, to varying degrees, elements of credit risk, counterparty risk and market risk in excess of the amounts recognized in the Condensed Consolidated Balance Sheets. The creditworthiness of counterparties for all instruments and agreements is
evaluated on a case-by-case basis in accordance with the Bancorps credit policies. The Bancorps significant commitments, contingent liabilities and guarantees in excess of the amounts recognized in the Condensed Consolidated Balance
Sheets are discussed in further detail below:
Commitments
The Bancorp has certain commitments to make future payments under contracts. The following table reflects a summary of significant commitments
as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
($ in millions)
|
|
|
|
|
2016
|
|
|
2015
|
|
Commitments to extend credit
|
|
|
$
|
|
|
|
67,566
|
|
|
|
66,884
|
|
Letters of credit
|
|
|
|
|
|
|
2,606
|
|
|
|
3,055
|
|
Forward contracts related to residential mortgage loans held for sale
|
|
|
|
|
|
|
2,033
|
|
|
|
1,330
|
|
Noncancelable operating lease obligations
|
|
|
|
|
|
|
592
|
|
|
|
635
|
|
Capital commitments for private equity investments
|
|
|
|
|
|
|
65
|
|
|
|
60
|
|
Purchase obligations
|
|
|
|
|
|
|
61
|
|
|
|
60
|
|
Capital expenditures
|
|
|
|
|
|
|
34
|
|
|
|
30
|
|
Capital lease obligations
|
|
|
|
|
|
|
21
|
|
|
|
27
|
|
Commitments to extend credit
Commitments to extend credit are agreements to lend, typically having fixed expiration dates or other termination clauses that may require
payment of a fee. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. The Bancorp is exposed to credit risk in the event of
nonperformance by the counterparty for the amount of the contract. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and the Bancorps exposure is limited to the replacement value of those
commitments. As of September 30, 2016 and December 31, 2015, the Bancorp had a reserve for unfunded commitments, including letters of credit, totaling $162 million and $138 million, respectively, included in other liabilities in the Condensed
Consolidated Balance Sheets. The Bancorp monitors the credit risk associated with commitments to extend credit using the same risk rating system utilized within its loan and lease portfolio.
Risk ratings under this risk rating system are summarized in the following table as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
($ in millions)
|
|
|
|
|
2016
|
|
|
2015
|
|
Pass
|
|
|
$
|
|
|
|
66,403
|
|
|
|
65,645
|
|
Special mention
|
|
|
|
|
|
|
457
|
|
|
|
647
|
|
Substandard
|
|
|
|
|
|
|
706
|
|
|
|
592
|
|
Total commitments to extend credit
|
|
|
$
|
|
|
|
67,566
|
|
|
|
66,884
|
|
97
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Letters of credit
Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party and
expire as summarized in the following table as of September 30, 2016:
|
|
|
|
|
($ in millions)
|
|
|
|
Less than 1 year
(a)
|
|
$
|
1,434
|
|
1 - 5 years
(a)
|
|
|
1,148
|
|
Over 5 years
|
|
|
24
|
|
Total letters of credit
|
|
$
|
2,606
|
|
(a)
|
Includes $15 and $3 issued on behalf of commercial customers to facilitate trade payments in U.S. dollars
and foreign currencies which expire less than 1 year and between 1 - 5 years, respectively.
|
Standby letters of
credit accounted for 99% of total letters of credit at both September 30, 2016 and December 31, 2015, and are considered guarantees in accordance with U.S. GAAP. Approximately 63% and 65% of the total standby letters of credit were collateralized as
of September 30, 2016 and December 31, 2015, respectively. In the event of nonperformance by the customers, the Bancorp has rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory,
receivables, cash and marketable securities. The reserve related to these standby letters of credit, which was included in the total reserve for unfunded commitments, was $3 million and immaterial, respectively, at September 30, 2016 and December
31, 2015. The Bancorp monitors the credit risk associated with letters of credit using the same risk rating system utilized within its loan and lease portfolio.
Risk ratings under this risk rating system are summarized in the following table as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Pass
|
|
$
|
|
|
|
|
2,171
|
|
|
|
2,606
|
|
Special mention
|
|
|
|
|
|
|
89
|
|
|
|
130
|
|
Substandard
|
|
|
|
|
|
|
286
|
|
|
|
258
|
|
Doubtful
|
|
|
|
|
|
|
60
|
|
|
|
61
|
|
Total letters of credit
|
|
$
|
|
|
|
|
2,606
|
|
|
|
3,055
|
|
At September 30, 2016 and December 31, 2015, the Bancorp had outstanding letters of credit that were
supporting certain securities issued as VRDNs. The Bancorp facilitates financing for its commercial customers, which consist of companies and municipalities, by marketing the VRDNs to investors. The VRDNs pay interest to holders at a rate of
interest that fluctuates based upon market demand. The VRDNs generally have long-term maturity dates, but can be tendered by the holder for purchase at par value upon proper advance notice. When the VRDNs are tendered, a remarketing agent generally
finds another investor to purchase the VRDNs to keep the securities outstanding in the market. As of September 30, 2016 and December 31, 2015, total VRDNs in which the Bancorp was the remarketing agent or were supported by a Bancorp letter of credit
were $973 million and $1.3 billion, respectively, of which FTS acted as the remarketing agent to issuers on $820 million and $1.1 billion, respectively. As remarketing agent, FTS is responsible for finding purchasers for VRDNs that are put by
investors. The Bancorp issued letters of credit, as a credit enhancement, to $649 million and $921 million of the VRDNs remarketed by FTS, in addition to $154 million and $187 million in VRDNs remarketed by third parties at September 30, 2016 and
December 31, 2015, respectively. These letters of credit are included in the total letters of credit balance provided in the previous table.
Forward
contracts related to residential mortgage loans held for sale
The Bancorp enters into forward contracts to economically hedge the
change in fair value of certain residential mortgage loans held for sale due to changes in interest rates. The outstanding notional amounts of these forward contracts are included in the summary of significant commitments table for all periods
presented.
Noncancelable operating lease obligations and other commitments
The Bancorps subsidiaries have entered into a number of noncancelable lease agreements. The minimum rental commitments under
noncancelable lease agreements are shown in the summary of significant commitments table. The Bancorp has also entered into a limited number of agreements for work related to banking center construction and to purchase goods or services.
Contingent Liabilities
Private mortgage
reinsurance
For certain mortgage loans originated by the Bancorp, borrowers may be required to obtain PMI provided by third-party
insurers. In some instances, these insurers cede a portion of the PMI premiums to the Bancorp, and the Bancorp provides reinsurance coverage within a specified range of the total PMI coverage. The Bancorps reinsurance coverage typically ranges
from 5% to 10% of the total PMI coverage.
In the second quarter of 2016, the Bancorp allowed one of its third-party insurers to terminate its reinsurance agreement with the Bancorp, resulting in the Bancorp releasing collateral to the insurer
in the form of investment securities and other assets with a carrying value of $6 million, and the insurer assuming the Bancorps obligations under the reinsurance agreement, resulting in a decrease to the Bancorps reserve liability of $2
million and a decrease in the Bancorps maximum exposure of $26 million. In addition, the Bancorp received a payment of $4 million related to the difference between the release of the assets and the reserve liability assumed. The Bancorps
remaining maximum exposure in the event of nonperformance by the underlying borrowers is equivalent to the Bancorps total outstanding reinsurance coverage, which was $1 million at September 30, 2016 and $27 million at December 31, 2015. As of
September 30, 2016 the Bancorp no longer maintained a reserve related to exposures within the reinsurance portfolio. As of December 31, 2015, the Bancorp maintained a reserve of $2 million related to exposures within the reinsurance portfolio which
was included in other liabilities in the Condensed Consolidated Balance
98
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Sheet. The change in the reserve was due primarily to the decrease in outstanding exposure associated with the termination of the reinsurance agreement discussed previously. During 2009, the
Bancorp suspended the practice of providing reinsurance of PMI for newly originated mortgage loans.
Legal claims
There are legal claims pending against the Bancorp and its subsidiaries that have arisen in the normal course of business. Refer to Note 17
for additional information regarding these proceedings.
Guarantees
The Bancorp has performance obligations upon the occurrence of certain events under financial guarantees provided in certain contractual
arrangements as discussed in the following sections.
Residential mortgage loans sold with representation and warranty provisions
Conforming residential mortgage loans sold to unrelated third parties are generally sold with representation and warranty provisions. A
contractual liability arises only in the event of a breach of these representations and warranties and, in general, only when a loss results from the breach. The Bancorp may be required to repurchase any previously sold loan or indemnify (make
whole) the investor or insurer for which the representation or warranty of the Bancorp proves to be inaccurate, incomplete or misleading. For more information on how the Bancorp establishes the residential mortgage repurchase reserve, refer to Note
1 in the Bancorps Annual Report on Form 10-K for the year ended December 31, 2015.
During the fourth quarter of 2013, the Bancorp
settled certain repurchase claims related to residential mortgage loans originated and sold to FHLMC prior to January 1, 2009 for $25 million, after paid claim credits and other adjustments. The settlement removes the Bancorps responsibility
to repurchase or indemnify FHLMC for representation and warranty violations on any loan sold prior to January 1, 2009 except in limited circumstances.
As of September 30, 2016 and December 31, 2015, the Bancorp maintained reserves related to loans sold with representation and warranty
provisions totaling $18 million and $25 million, respectively, included in other liabilities in the Condensed Consolidated Balance Sheets.
The Bancorp uses the best information available when estimating its mortgage representation and warranty reserve; however, the estimation
process is inherently uncertain and imprecise and, accordingly, losses in excess of the amounts reserved as of September 30, 2016, are reasonably possible. The Bancorp currently estimates that it is reasonably possible that it could incur losses
related to mortgage representation and warranty provisions in an amount up to approximately $11 million in excess of amounts reserved. This estimate was derived by modifying the key assumptions previously discussed to reflect managements
judgment regarding reasonably possible adverse changes to those assumptions. The actual repurchase losses could vary significantly from the recorded mortgage representation and warranty reserve or this estimate of reasonably possible losses,
depending on the outcome of various factors, including those previously discussed.
For both the three months ended September 30, 2016
and 2015, the Bancorp paid an immaterial amount in the form of make whole payments and repurchased $4 million and $7 million, respectively, in outstanding principal of loans to satisfy investor demands. For the nine months ended September 30,
2016 and 2015, the Bancorp paid an immaterial amount and $2 million, respectively, in the form of make whole payments and repurchased $10 million and $64 million, respectively, in outstanding principal of loans to satisfy investor demands. Total
repurchase demand requests during the three months ended September 30, 2016 and 2015 were $8 million and $7 million, respectively. Total repurchase demand requests for the nine months ended September 30, 2016 and 2015 were $18 million and
$68 million, respectively. Total outstanding repurchase demand inventory was $7 million and $4 million at September 30, 2016 and December 31, 2015, respectively.
The following table summarizes activity in the reserve for representation and warranty provisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Balance, beginning of period
|
|
$
|
21
|
|
|
|
32
|
|
|
|
25
|
|
|
|
35
|
|
Net reductions to the reserve
|
|
|
(3)
|
|
|
|
(3)
|
|
|
|
(7)
|
|
|
|
(1)
|
|
Losses charged against the reserve
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(6)
|
|
Balance, end of period
|
|
$
|
18
|
|
|
|
28
|
|
|
|
18
|
|
|
|
28
|
|
The following tables provide a rollforward of unresolved claims by claimant type for the nine months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
|
|
|
Private Label
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 ($ in millions)
|
|
Units
|
|
|
Dollars
|
|
|
Units
|
|
|
Dollars
|
|
|
|
Balance, beginning of period
|
|
|
16
|
|
|
$
|
4
|
|
|
|
2
|
|
|
$
|
-
|
|
New demands
|
|
|
253
|
|
|
|
18
|
|
|
|
4
|
|
|
|
-
|
|
Loan paydowns/payoffs
|
|
|
(8
|
)
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
Resolved demands
|
|
|
(203
|
)
|
|
|
(14)
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
Balance, end of period
|
|
|
58
|
|
|
$
|
7
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
99
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
|
|
|
Private Label
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015 ($ in millions)
|
|
Units
|
|
|
Dollars
|
|
|
Units
|
|
|
Dollars
|
|
|
|
Balance, beginning of period
|
|
|
37
|
|
|
$
|
6
|
|
|
|
1
|
|
|
$
|
1
|
|
New demands
|
|
|
350
|
|
|
|
26
|
|
|
|
257
|
|
|
|
42
|
|
Loan paydowns/payoffs
|
|
|
(26
|
)
|
|
|
(2)
|
|
|
|
-
|
|
|
|
-
|
|
Resolved demands
|
|
|
(337
|
)
|
|
|
(26)
|
|
|
|
(258
|
)
|
|
|
(43)
|
|
|
|
Balance, end of period
|
|
|
24
|
|
|
$
|
4
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
Residential mortgage loans sold with credit recourse
The Bancorp sold certain residential mortgage loans in the secondary market with credit recourse. In the event of any customer default,
pursuant to the credit recourse provided, the Bancorp is required to reimburse the third party. The maximum amount of credit risk in the event of nonperformance by the underlying borrowers is equivalent to the total outstanding balance. In the event
of nonperformance, the Bancorp has rights to the underlying collateral value securing the loan. The outstanding balances on these loans sold with credit recourse were $396 million and $465 million at September 30, 2016 and December 31, 2015,
respectively, and the delinquency rates were 3.0% at both September 30, 2016 and December 31, 2015. The Bancorp maintained an estimated credit loss reserve on these loans sold with credit recourse of $7 million and $9 million, respectively, at
September 30, 2016 and December 31, 2015, recorded in other liabilities in the Condensed Consolidated Balance Sheets. To determine the credit loss reserve, the Bancorp used an approach that is consistent with its overall approach in estimating
credit losses for various categories of residential mortgage loans held in its loan portfolio.
Margin accounts
FTS, an indirect wholly-owned subsidiary of the Bancorp, guarantees the collection of all margin account balances held by its brokerage
clearing agent for the benefit of its customers. FTS is responsible for payment to its brokerage clearing agent for any loss, liability, damage, cost or expense incurred as a result of customers failing to comply with margin or margin maintenance
calls on all margin accounts. The margin account balance held by the brokerage clearing agent was $15 million and $10 million at September 30, 2016 and December 31, 2015, respectively. In the event of any customer default, FTS has rights to the
underlying collateral provided. Given the existence of the underlying collateral provided and negligible historical credit losses, the Bancorp does not maintain a loss reserve related to the margin accounts.
Long-term borrowing obligations
The
Bancorp had certain fully and unconditionally guaranteed long-term borrowing obligations issued by wholly-owned issuing trust entities of $62 million at both September 30, 2016 and December 31, 2015.
Visa litigation
The Bancorp, as a
member bank of Visa prior to Visas reorganization and IPO (the IPO) of its Class A common shares (the Class A Shares) in 2008, had certain indemnification obligations pursuant to Visas certificate of incorporation
and by-laws and in accordance with their membership agreements. In accordance with Visas by-laws prior to the IPO, the Bancorp could have been required to indemnify Visa for the Bancorps proportional share of losses based on the pre-IPO
membership interests. As part of its reorganization and IPO, the Bancorps indemnification obligation was modified to include only certain known or anticipated litigation (the Covered Litigation) as of the date of the restructuring.
This modification triggered a requirement for the Bancorp to recognize a liability equal to the fair value of the indemnification liability.
In conjunction with the IPO, the Bancorp received 10.1 million of Visas Class B common shares (the Class B Shares) based on
the Bancorps membership percentage in Visa prior to the IPO. The Class B Shares are not transferable (other than to another member bank) until the later of the third anniversary of the IPO closing or the date which the Covered Litigation has
been resolved; therefore, the Bancorps Class B Shares were classified in other assets and accounted for at their carryover basis of $0. Visa initially deposited $3 billion of the proceeds from the IPO into a litigation escrow account,
established for the purpose of funding judgments in, or settlements of, the Covered Litigation. Since then, when Visas litigation committee determined that the escrow account was insufficient; Visa issued additional Class A Shares and
deposited the proceeds from the sale of the Class A Shares into the litigation escrow account. When Visa funded the litigation escrow account, the Class B Shares were subjected to dilution through an adjustment in the conversion rate of Class B
Shares into Class A Shares.
In 2009, the Bancorp completed the sale of Visa, Inc. Class B Shares and entered into a total return swap in
which the Bancorp will make or receive payments based on subsequent changes in the conversion rate of the Class B Shares into Class A Shares. The swap terminates on the later of the third anniversary of Visas IPO or the date on which the
Covered Litigation is settled. Refer to Note 22 for additional information on the valuation of the swap. The counterparty to the swap as a result of its ownership of the Class B Shares will be impacted by dilutive adjustments to the conversion rate
of the Class B Shares into Class A Shares caused by any Covered Litigation losses in excess of the litigation escrow account. If actual judgments in, or settlements of, the Covered Litigation significantly exceed current expectations, then
additional funding by Visa of the litigation escrow account and the resulting dilution of the Class B Shares could result in a scenario where the Bancorps ultimate exposure associated with the Covered Litigation (the Visa Litigation
Exposure) exceeds the value of the Class B Shares owned by the swap counterparty (the Class B Value). In the event the Bancorp concludes that it is probable that the Visa Litigation Exposure exceeds the Class B Value, the Bancorp
would record a litigation reserve liability and a corresponding amount of other noninterest expense for the amount of the excess. Any such litigation reserve liability would be separate and distinct from the fair value derivative liability
associated with the total return swap.
100
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
As of the date of the Bancorps sale of Visa Class B Shares and through September 30,
2016, the Bancorp has concluded that it is not probable that the Visa Litigation Exposure will exceed the Class B value. Based on this determination, upon the sale of Class B Shares, the Bancorp reversed its net Visa litigation reserve liability and
recognized a free-standing derivative liability associated with the total return swap. The fair value of the swap liability was $103 million at September 30, 2016 and $61 million at December 31, 2015. Refer to Note 12 and Note 17 for further
information.
After the Bancorps sale of Visa Class B Shares, Visa has funded additional amounts into the litigation escrow account
which have resulted in further dilutive adjustments to the conversion of Class B Shares into Class A Shares, and along with other terms of the total return swap, required the Bancorp to make cash payments in varying amounts to the swap counterparty
as follows:
|
|
|
|
|
|
|
|
|
Period ($ in millions)
|
|
Visa
Funding Amount
|
|
|
Bancorp
Cash
Payment Amount
|
|
Q2 2010
|
|
$
|
500
|
|
|
|
20
|
|
Q4 2010
|
|
|
800
|
|
|
|
35
|
|
Q2 2011
|
|
|
400
|
|
|
|
19
|
|
Q1 2012
|
|
|
1,565
|
|
|
|
75
|
|
Q3 2012
|
|
|
150
|
|
|
|
6
|
|
Q3 2014
|
|
|
450
|
|
|
|
18
|
|
101
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
17. Legal and Regulatory Proceedings
Litigation
Visa/Mastercard Merchant
Interchange Litigation
In April 2006, the Bancorp was added as a defendant in a consolidated antitrust class action lawsuit originally
filed against Visa
®
, MasterCard
®
and several other major financial institutions in the United States District Court for the Eastern
District of New York. The plaintiffs, merchants operating commercial businesses throughout the U.S. and trade associations, claimed that the interchange fees charged by card-issuing banks were unreasonable and sought injunctive relief and
unspecified damages. In addition to being a named defendant, the Bancorp is also subject to a possible indemnification obligation of Visa as discussed in Note 16 and has also entered into judgment and loss sharing agreements with Visa, MasterCard
and certain other named defendants. In October 2012, the parties to the litigation entered into a settlement agreement. On January 14, 2014, the trial court entered a final order approving the class settlement. A number of merchants filed appeals
from that approval. The U.S. Court of Appeals for the Second Circuit held a hearing on those appeals and on June 30, 2016, reversed the district courts approval of the class settlement, remanding the case to the district court for further
proceedings. In rejecting the settlement, the appellate court found that counsel for plaintiffs was conflicted and thus could not adequately represent the plaintiff-class members of the separate monetary and injunctive relief settlement classes. The
appellate court decertified the settlement classes, ordered that the case return to the trial court and directed the trial court to appoint separate counsel for the separate plaintiff classes. Pursuant to the terms of the overturned settlement
agreement, the Bancorp previously paid $46 million into a class settlement escrow account. Because the appellate court ruling remands the case to the district court for further proceedings, the ultimate outcome in this matter is uncertain.
Approximately 8,000 merchants requested exclusion from the class settlement, and therefore, pursuant to the terms of the settlement agreement, 25% of the funds paid into the class settlement escrow account were already returned to the control of the
defendants. More than 460 of the merchants who requested exclusion from the class filed separate federal lawsuits against Visa, MasterCard and certain other defendants alleging similar antitrust violations. These opt-out federal lawsuits
were transferred to the United States District Court for the Eastern District of New York. The Bancorp was not named as a defendant in any of the opt-out federal lawsuits, but may have obligations pursuant to indemnification arrangements and/or the
judgment or loss sharing agreements noted above. On July 18, 2015, the court in which all the remaining opt-out federal lawsuits have been consolidated denied defendants motion to dismiss the complaints. Refer to Note 16 for further
information.
Dudenhoeffer v. Fifth Third Bancorp
On March 29, 2016, the court in two class action lawsuits consolidated as Dudenhoeffer v. Fifth Third Bancorp et al. filed in 2008 in the
United States District Court for the Southern District of Ohio preliminarily approved a settlement in which the Bancorp agreed to pay $6 million and make certain changes to the Bancorps profit sharing plan. The complaints alleged that the
Bancorp and certain officers violated ERISA by continuing to offer Fifth Third stock in the Bancorps profit sharing plan when it was no longer a prudent investment. On July 11, 2016, the court issued a Final Approval Order and Judgment
approving the settlement in all respects and ordering that the settlement agreement be implemented in accordance with its terms.
Klopfenstein v. Fifth
Third Bank
On August 3, 2012, William Klopfenstein and Adam McKinney filed a lawsuit against Fifth Third Bank in the United States
District Court for the Northern District of Ohio (Klopfenstein et al. v. Fifth Third Bank), alleging that the 120% APR that Fifth Third disclosed on its Early Access program was misleading. Early Access is a deposit-advance program offered to
eligible customers with checking accounts. The plaintiffs sought to represent a nationwide class of customers who used the Early Access program and repaid their cash advances within 30 days. On October 31, 2012, the case was transferred to the
United States District Court for the Southern District of Ohio. In 2013, four similar putative class actions were filed against Fifth Third Bank in federal courts throughout the country (Lori and Danielle Laskaris v. Fifth Third Bank, Janet Fyock v.
Fifth Third Bank, Jesse McQuillen v. Fifth Third Bank, and Brian Harrison v. Fifth Third Bank). Those four lawsuits were transferred to the Southern District of Ohio and consolidated with the original lawsuit as In re: Fifth Third Early Access Cash
Advance Litigation. On behalf of a putative class, the plaintiffs seek unspecified monetary and statutory damages, injunctive relief, punitive damages, attorneys fees, and pre- and post-judgment interest. On March 30, 2015, the court dismissed
all claims alleged in the consolidated lawsuit except a claim under the TILA. The parties are currently engaged in discovery. No trial date has been scheduled.
Nina Investments, LLC v. Fifth Third Bank
On July 5, 2012, Nina Investments, LLC (Nina) filed a lawsuit against Fifth Third Bank (Nina Investments, LLC. v. Fifth Third Bank,
et al.) in the Circuit Court of Cook County, Illinois, alleging fraud and conspiracy to commit fraud related to a credit facility established by Fifth Third Bank in 2007 to finance life insurance premiums. Nina invested funds in an entity related to
the borrower under the credit facility and is claiming over $70 million in damages based on its alleged loss of these funds. Nina alleges that it would have made different investment decisions if Fifth Third had disclosed fraud committed by the
borrower with the alleged knowledge of Fifth Third employees. Nina filed this lawsuit in response to a lawsuit filed by Fifth Third Bank in the same court on June 11, 2010 against Nina and other defendants (Fifth Third Bank v. Concord Capital
Management, LLC, et al.) alleging fraud and breach of contract. In 2015, the court dismissed Fifth Thirds contract and fraud claims against certain defendants but Fifth Third currently has claims pending against other defendants, including a
newly asserted claim for fraudulent conveyance against Nina. On October 20, 2016, the court denied Fifth Thirds motion to assert a new claim against Nina and other investors for fraudulent inducement of a guarantee related to the credit
facility and to reassert claims for breach of guarantee against certain of the investors who also acted as guarantors. The trial has been scheduled in these consolidated actions for April 24, 2017.
Other Litigation
The Bancorp and its
subsidiaries are not parties to any other material litigation. However, there are other litigation matters that arise in the normal course of business. While it is impossible to ascertain the ultimate resolution or range of financial liability with
respect to these contingent matters, management believes that the resulting liability, if any, from these other actions would not have a material effect upon the Bancorps consolidated financial position, results of operations or cash flows.
102
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Governmental Investigations and Proceedings
The Bancorp and/or its affiliates are involved in information-gathering requests, reviews, investigations and proceedings (both formal and
informal) by various governmental regulatory agencies and law enforcement authorities, including but not limited to the CFPB, FINRA, etc., as well as self-regulatory bodies regarding their respective businesses. Additional matters will likely arise
from time to time. Any of these matters may result in material adverse consequences to the Bancorp, its affiliates and/or their respective directors, officers and other personnel, including adverse judgments, findings, settlements, fines, penalties,
orders, injunctions or other actions, amendments and/or restatements of the Bancorps SEC filings and/or financial statements, as applicable, and/or determinations of material weaknesses in our disclosure controls and procedures. Investigations
by regulatory authorities may from time to time result in civil or criminal referrals to law enforcement.
Reasonably Possible Losses in Excess of
Accruals
The Bancorp and its subsidiaries are parties to numerous claims and lawsuits as well as threatened or potential actions
or claims concerning matters arising from the conduct of its business activities. The outcome of claims or litigation and the timing of ultimate resolution are inherently difficult to predict. The following factors, among others, contribute to this
lack of predictability: claims often include significant legal uncertainties, damages alleged by plaintiffs are often unspecified or overstated, discovery may not have started or may not be complete and material facts may be disputed or
unsubstantiated. As a result of these factors, the Bancorp is not always able to provide an estimate of the range of reasonably possible outcomes for each claim. An accrual for a potential litigation loss is established when information related to
the loss contingency indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accrual is adjusted from time to time thereafter as appropriate to reflect changes in circumstances. The Bancorp also
determines, when possible (due to the uncertainties described above), estimates of reasonably possible losses or ranges of reasonably possible losses, in excess of amounts accrued. Under U.S. GAAP, an event is reasonably possible if
the chance of the future event or events occurring is more than remote but less than likely and an event is remote if the chance of the future event or events occurring is slight. Thus, references to the upper end
of the range of reasonably possible loss for cases in which the Bancorp is able to estimate a range of reasonably possible loss mean the upper end of the range of loss for cases for which the Bancorp believes the risk of loss is more than slight.
For matters where the Bancorp is able to estimate such possible losses or ranges of possible losses, the Bancorp currently estimates that it is reasonably possible that it could incur losses related to legal and regulatory proceedings in an
aggregate amount up to approximately $41 million in excess of amounts accrued, with it also being reasonably possible that no losses will be incurred in these matters. The estimates included in this amount are based on the Bancorps analysis of
currently available information, and as new information is obtained the Bancorp may change its estimates.
For these matters and others
where an unfavorable outcome is reasonably possible but not probable, there may be a range of possible losses in excess of the established accrual that cannot be estimated. Based on information currently available, advice of counsel, available
insurance coverage and established accruals, the Bancorp believes that the eventual outcome of the actions against the Bancorp and/or its subsidiaries, including the matters described above, will not, individually or in the aggregate, have a
material adverse effect on the Bancorps consolidated financial position. However, in the event of unexpected future developments, it is possible that the ultimate resolution of those matters, if unfavorable, may be material to the
Bancorps results of operations for any particular period, depending, in part, upon the size of the loss or liability imposed and the operating results for the applicable period.
18. Related Party Transactions
On July
27, 2016, the Bancorp entered into an agreement with Vantiv, Inc. under which a portion of its TRAs with Vantiv, Inc. was terminated and settled in full for consideration of a cash payment in the amount of $116 million from Vantiv, Inc. Under the
agreement, the Bancorp terminated and settled certain TRA cash flows it expected to receive in the years 2019 to 2035, totaling an estimated $331 million. The Bancorp recognized a pre-tax gain of $116 million in other noninterest income in the
Condensed Consolidated Statements of Income from this settlement in the third quarter of 2016.
Additionally, the agreement provides that
Vantiv, Inc. may be obligated to pay up to a total of approximately $171 million to the Bancorp to terminate and settle certain remaining TRA cash flows, totaling an estimated $394 million, upon the exercise of certain call options by Vantiv, Inc.
or certain put options by the Bancorp. If the associated call options or put options are exercised, 10% of the obligations would be settled with respect to each quarter in 2017 and 15% of the obligations would be settled with respect to each quarter
in 2018. The Bancorp recognized a pre-tax gain of $164 million in other noninterest income in the Condensed Consolidated Statements of Income in the third quarter of 2016 associated with these options.
This agreement does not impact the TRA payments expected to be recognized in the fourth quarter of 2016 and the fourth quarter of 2017 which
are expected to be received in the first quarter of 2017 and the first quarter of 2018, respectively.
19. Income Taxes
The applicable income tax expense was $178 million and $134 million for the three months ended September 30, 2016 and 2015, respectively, and
was $385 million and $367 million for the nine months ended September 30, 2016 and 2015, respectively. The effective tax rates for the three months ended September 30, 2016 and 2015 were 25.6% and 26.0%, respectively, and were 24.6% and 25.9%
for the nine months ended September 30, 2016 and 2015, respectively. The decrease in the effective tax rate for the nine months ended September 30, 2016 compared to the same period in the prior year
was primarily related to gains on
sales of certain leveraged leases that are exempt from federal taxation partially offset by Vantiv, Inc. related gains.
While it is
reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the Bancorps uncertain tax positions could increase or decrease during the next 12 months, the Bancorp believes it is unlikely that its
unrecognized tax benefits will change by a material amount during the next 12 months.
103
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
20. Accumulated Other Comprehensive Income
The tables below present the activity of the components of OCI and AOCI for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
Comprehensive Income
|
|
|
Total Accumulated Other
Comprehensive Income
|
|
September 30, 2016 ($ in millions)
|
|
|
|
|
Pretax
Activity
|
|
|
Tax
Effect
|
|
|
Net
Activity
|
|
|
Beginning
Balance
|
|
|
Net
Activity
|
|
|
Ending
Balance
|
|
Unrealized holding losses on available-for-sale securities arising during period
|
|
$
|
|
|
|
|
(149)
|
|
|
|
36
|
|
|
|
(113)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net gains on
available-for-sale securities included in net income
|
|
|
|
|
|
|
(2)
|
|
|
|
1
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on available-for-sale securities
|
|
|
|
|
|
|
(151)
|
|
|
|
37
|
|
|
|
(114)
|
|
|
|
879
|
|
|
|
(114)
|
|
|
|
765
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on cash flow hedge derivatives arising during period
|
|
|
|
|
|
|
(23)
|
|
|
|
8
|
|
|
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net gains on cash flow
hedge derivatives included in net income
|
|
|
|
|
|
|
(11)
|
|
|
|
4
|
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on cash flow hedge derivatives
|
|
|
|
|
|
|
(34)
|
|
|
|
12
|
|
|
|
(22)
|
|
|
|
70
|
|
|
|
(22)
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
Net actuarial loss arising during the period
|
|
|
|
|
|
|
(5)
|
|
|
|
2
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of amounts to net periodic benefit
costs
|
|
|
|
|
|
|
8
|
|
|
|
(3)
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans, net
|
|
|
|
|
|
|
3
|
|
|
|
(1)
|
|
|
|
2
|
|
|
|
(60)
|
|
|
|
2
|
|
|
|
(58)
|
|
Total
|
|
$
|
|
|
|
|
(182)
|
|
|
|
48
|
|
|
|
(134)
|
|
|
|
889
|
|
|
|
(134)
|
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
Comprehensive Income
|
|
|
Total Accumulated Other
Comprehensive Income
|
|
September 30, 2015 ($ in millions)
|
|
|
|
|
Pretax
Activity
|
|
|
Tax
Effect
|
|
|
Net
Activity
|
|
|
Beginning
Balance
|
|
|
Net
Activity
|
|
|
Ending
Balance
|
|
Unrealized holding gains on available-for-sale securities arising during period
|
|
$
|
|
|
|
|
319
|
|
|
|
(111)
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net gains on
available-for-sale securities included in net income
|
|
|
|
|
|
|
(10)
|
|
|
|
3
|
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on available-for-sale securities
|
|
|
|
|
|
|
309
|
|
|
|
(108)
|
|
|
|
201
|
|
|
|
327
|
|
|
|
201
|
|
|
|
528
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains on cash flow hedge derivatives arising during period
|
|
|
|
|
|
|
65
|
|
|
|
(23)
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net gains on cash flow
hedge derivatives included in net income
|
|
|
|
|
|
|
(20)
|
|
|
|
7
|
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on cash flow hedge derivatives
|
|
|
|
|
|
|
45
|
|
|
|
(16)
|
|
|
|
29
|
|
|
|
29
|
|
|
|
29
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
Net actuarial loss arising during the period
|
|
|
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of amounts to net periodic benefit
costs
|
|
|
|
|
|
|
3
|
|
|
|
(1)
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans, net
|
|
|
|
|
|
|
2
|
|
|
|
(1)
|
|
|
|
1
|
|
|
|
(65)
|
|
|
|
1
|
|
|
|
(64)
|
|
Total
|
|
$
|
|
|
|
|
356
|
|
|
|
(125)
|
|
|
|
231
|
|
|
|
291
|
|
|
|
231
|
|
|
|
522
|
|
104
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The tables below present the activity of the components of OCI and AOCI for the nine months
ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
Comprehensive Income
|
|
|
Total Accumulated Other
Comprehensive Income
|
|
September 30, 2016 ($ in millions)
|
|
|
|
|
Pretax
Activity
|
|
|
Tax
Effect
|
|
|
Net
Activity
|
|
|
Beginning
Balance
|
|
|
Net
Activity
|
|
|
Ending
Balance
|
|
Unrealized holding gains on available-for-sale securities arising during period
|
|
$
|
|
|
|
|
855
|
|
|
|
(317)
|
|
|
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net gains on
available-for-sale securities included in net income
|
|
|
|
|
|
|
(18)
|
|
|
|
7
|
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on available-for-sale securities
|
|
|
|
|
|
|
837
|
|
|
|
(310)
|
|
|
|
527
|
|
|
|
238
|
|
|
|
527
|
|
|
|
765
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains on cash flow hedge derivatives arising during period
|
|
|
|
|
|
|
77
|
|
|
|
(28)
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net gains on cash flow
hedge derivatives included in net income
|
|
|
|
|
|
|
(37)
|
|
|
|
14
|
|
|
|
(23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on cash flow hedge derivatives
|
|
|
|
|
|
|
40
|
|
|
|
(14)
|
|
|
|
26
|
|
|
|
22
|
|
|
|
26
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
Net actuarial loss arising during the period
|
|
|
|
|
|
|
(5)
|
|
|
|
2
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of amounts to net periodic benefit
costs
|
|
|
|
|
|
|
12
|
|
|
|
(4)
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans, net
|
|
|
|
|
|
|
7
|
|
|
|
(2)
|
|
|
|
5
|
|
|
|
(63)
|
|
|
|
5
|
|
|
|
(58)
|
|
Total
|
|
$
|
|
|
|
|
884
|
|
|
|
(326)
|
|
|
|
558
|
|
|
|
197
|
|
|
|
558
|
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
Comprehensive Income
|
|
|
Total Accumulated Other
Comprehensive Income
|
|
September 30, 2015 ($ in millions)
|
|
|
|
|
Pretax
Activity
|
|
|
Tax
Effect
|
|
|
Net
Activity
|
|
|
Beginning
Balance
|
|
|
Net
Activity
|
|
|
Ending
Balance
|
|
Unrealized holding gains on available-for-sale securities arising during period
|
|
$
|
|
|
|
|
98
|
|
|
|
(34)
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net gains on
available-for-sale securities included in net income
|
|
|
|
|
|
|
(16)
|
|
|
|
5
|
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on available-for-sale securities
|
|
|
|
|
|
|
82
|
|
|
|
(29)
|
|
|
|
53
|
|
|
|
475
|
|
|
|
53
|
|
|
|
528
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains on cash flow hedge derivatives arising during period
|
|
|
|
|
|
|
109
|
|
|
|
(38)
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net gains on cash flow
hedge derivatives included in net income
|
|
|
|
|
|
|
(55)
|
|
|
|
19
|
|
|
|
(36)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on cash flow hedge derivatives
|
|
|
|
|
|
|
54
|
|
|
|
(19)
|
|
|
|
35
|
|
|
|
23
|
|
|
|
35
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
Net actuarial loss arising during the period
|
|
|
|
|
|
|
(4)
|
|
|
|
1
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of amounts to net periodic benefit
costs
|
|
|
|
|
|
|
12
|
|
|
|
(4)
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans, net
|
|
|
|
|
|
|
8
|
|
|
|
(3)
|
|
|
|
5
|
|
|
|
(69)
|
|
|
|
5
|
|
|
|
(64)
|
|
Total
|
|
$
|
|
|
|
|
144
|
|
|
|
(51)
|
|
|
|
93
|
|
|
|
429
|
|
|
|
93
|
|
|
|
522
|
|
105
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The table below presents reclassifications out of AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of AOCI: ($ in millions)
|
|
Affected Line
Item
in the Condensed Consolidated
Statements of Income
|
|
|
|
For the three months ended
September 30,
|
|
|
|
|
For the nine months ended
September 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on available-for-sale securities:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains included in net income
|
|
Securities gains, net
|
|
$
|
|
|
2
|
|
|
|
10
|
|
|
|
|
|
18
|
|
|
|
16
|
|
|
|
Income before income taxes
|
|
|
|
|
2
|
|
|
|
10
|
|
|
|
|
|
18
|
|
|
|
16
|
|
|
|
Applicable income tax expense
|
|
|
|
|
(1
|
)
|
|
|
(3)
|
|
|
|
|
|
(7
|
)
|
|
|
(5)
|
|
|
|
Net income
|
|
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on cash flow hedge
derivatives:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts related to C&I loans
|
|
Interest and fees on loans and leases
|
|
|
|
|
11
|
|
|
|
20
|
|
|
|
|
|
37
|
|
|
|
55
|
|
|
|
Income before income taxes
|
|
|
|
|
11
|
|
|
|
20
|
|
|
|
|
|
37
|
|
|
|
55
|
|
|
|
Applicable income tax expense
|
|
|
|
|
(4
|
)
|
|
|
(7)
|
|
|
|
|
|
(14
|
)
|
|
|
(19)
|
|
|
|
Net income
|
|
|
|
|
7
|
|
|
|
13
|
|
|
|
|
|
23
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
Employee benefits expense
(a)
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
(7
|
)
|
|
|
(7)
|
|
Settlements
|
|
Employee benefits
expense
(a)
|
|
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
|
|
(5
|
)
|
|
|
(5)
|
|
|
|
Income before income taxes
|
|
|
|
|
(8
|
)
|
|
|
(3
|
)
|
|
|
|
|
(12
|
)
|
|
|
(12)
|
|
|
|
Applicable income tax expense
|
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
Net income
|
|
|
|
|
(5
|
)
|
|
|
(2)
|
|
|
|
|
|
(8
|
)
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for
the period
|
|
Net income
|
|
$
|
|
|
3
|
|
|
|
18
|
|
|
|
|
|
26
|
|
|
|
39
|
|
(a)
|
This AOCI component is included in the computation of net periodic benefit cost. Refer to Note 21 in the
Bancorps Annual Report on Form 10-K for the year ended December 31, 2015 for information on the computation of net periodic benefit cost.
|
(b)
|
Amounts in parentheses indicate reductions to net income.
|
106
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
21. Earnings Per Share
The following tables provide the calculation of earnings per share and the reconciliation of earnings per share and earnings per diluted
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
For the three months ended September 30,
(in millions, except per share data)
|
|
|
|
Income
|
|
|
Average
Shares
|
|
|
Per Share
Amount
|
|
|
Income
|
|
|
Average
Shares
|
|
|
Per Share
Amount
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Bancorp
|
|
$
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
Dividends on preferred stock
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
|
|
|
501
|
|
|
|
|
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
Less: Income allocated to participating securities
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders
|
|
$
|
|
|
496
|
|
|
|
751
|
|
|
|
0.66
|
|
|
|
362
|
|
|
|
796
|
|
|
|
0.46
|
|
Earnings Per Diluted Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
|
|
501
|
|
|
|
|
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based awards
|
|
|
|
|
-
|
|
|
|
6
|
|
|
|
|
|
|
|
-
|
|
|
|
9
|
|
|
|
|
|
Net income available to common shareholders plus assumed conversions
|
|
|
|
|
501
|
|
|
|
|
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
Less: Income allocated to participating securities
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders plus assumed
conversions
|
|
$
|
|
|
496
|
|
|
|
757
|
|
|
|
0.65
|
|
|
|
362
|
|
|
|
805
|
|
|
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
For the nine months ended September 30,
(in millions, except per share data)
|
|
|
|
Income
|
|
|
Average
Shares
|
|
|
Per Share
Amount
|
|
|
Income
|
|
|
Average
Shares
|
|
|
Per Share
Amount
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Bancorp
|
|
$
|
|
|
1,175
|
|
|
|
|
|
|
|
|
|
|
|
1,056
|
|
|
|
|
|
|
|
|
|
Dividends on preferred stock
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
|
|
|
1,123
|
|
|
|
|
|
|
|
|
|
|
|
1,004
|
|
|
|
|
|
|
|
|
|
Less: Income allocated to participating securities
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders
|
|
$
|
|
|
1,112
|
|
|
|
761
|
|
|
|
1.46
|
|
|
|
994
|
|
|
|
803
|
|
|
|
1.24
|
|
Earnings Per Diluted Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
|
|
1,123
|
|
|
|
|
|
|
|
|
|
|
|
1,004
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based awards
|
|
|
|
|
-
|
|
|
|
6
|
|
|
|
|
|
|
|
-
|
|
|
|
9
|
|
|
|
|
|
Net income available to common shareholders plus assumed conversions
|
|
|
|
|
1,123
|
|
|
|
|
|
|
|
|
|
|
|
1,004
|
|
|
|
|
|
|
|
|
|
Less: Income allocated to participating securities
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders plus assumed
conversions
|
|
$
|
|
|
1,112
|
|
|
|
767
|
|
|
|
1.45
|
|
|
|
994
|
|
|
|
812
|
|
|
|
1.22
|
|
Shares are excluded from the computation of net income per diluted share when their inclusion has an
anti-dilutive effect on earnings per share. The diluted earnings per share computation for both the three and nine months ended September 30, 2016 excludes 20 million of SARs and an immaterial amount of stock options because their inclusion would
have been anti-dilutive. The diluted earnings per share computation for the three and nine months ended September 30, 2015 excludes 16 million and 15 million, respectively, of SARs and an immaterial amount of stock options because their inclusion
would have been anti-dilutive.
The diluted earnings per share computation for the three and nine months ended September 30, 2016
excludes the impact of the forward contract related to the August 5, 2016 accelerated share repurchase transaction. Based upon the average daily volume weighted-average price of the Bancorps common stock from the repurchase date through the
end of the third quarter of 2016, the counterparty to the transaction would have been required to deliver additional shares for the settlement of the forward contract as of September 30, 2016, and thus the impact of the forward contract related to
the accelerated share repurchase transaction would have been anti-dilutive to earnings per share.
The diluted earnings per share
computation for the three and nine months ended September 30, 2015 excludes the impact of the forward contract related to the September 9, 2015 accelerated share repurchase transaction. Based upon the average daily volume weighted-average price of
the Bancorps common stock from the repurchase date through the end of the third quarter of 2015, the counterparty to the transaction would have been required to deliver additional shares for the settlement of the forward contract as of
September 30, 2015, and thus the impact of the forward contract related to the accelerated share repurchase transaction would have been anti-dilutive to earnings per share.
107
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
22. Fair Value Measurements
The Bancorp measures certain financial assets and liabilities at fair value in accordance with U.S. GAAP, which defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP also establishes a fair value hierarchy, which prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level
3). A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instruments fair value measurement. For more information regarding the fair value hierarchy,
refer to Note 1 in the Bancorps Annual Report on Form 10-K for the year ended December 31, 2015.
Assets and Liabilities Measured at Fair
Value on a Recurring Basis
The following tables summarize assets and liabilities measured at fair value on a recurring basis,
including residential mortgage loans held for sale for which the Bancorp has elected the fair value option as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 ($ in millions)
|
|
Level 1
(c)
|
|
|
Level 2
(c)
|
|
|
Level 3
|
|
|
Total Fair Value
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale and other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies securities
|
|
$
|
77
|
|
|
|
804
|
|
|
|
-
|
|
|
|
881
|
|
Obligations of states and political subdivisions securities
|
|
|
-
|
|
|
|
52
|
|
|
|
-
|
|
|
|
52
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage-backed securities
|
|
|
-
|
|
|
|
15,188
|
|
|
|
-
|
|
|
|
15,188
|
|
Agency commercial mortgage-backed securities
|
|
|
-
|
|
|
|
8,950
|
|
|
|
-
|
|
|
|
8,950
|
|
Non-agency commercial mortgage-backed securities
|
|
|
-
|
|
|
|
2,834
|
|
|
|
-
|
|
|
|
2,834
|
|
Asset-backed securities and other debt securities
|
|
|
-
|
|
|
|
2,083
|
|
|
|
-
|
|
|
|
2,083
|
|
Equity securities
(a)
|
|
|
94
|
|
|
|
1
|
|
|
|
-
|
|
|
|
95
|
|
|
|
Available-for-sale and other
securities
(a)
|
|
|
171
|
|
|
|
29,912
|
|
|
|
-
|
|
|
|
30,083
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies securities
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
|
|
9
|
|
Obligations of states and political subdivisions securities
|
|
|
-
|
|
|
|
42
|
|
|
|
-
|
|
|
|
42
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage-backed securities
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
13
|
|
Asset-backed securities and other debt securities
|
|
|
-
|
|
|
|
30
|
|
|
|
-
|
|
|
|
30
|
|
Equity securities
|
|
|
337
|
|
|
|
-
|
|
|
|
-
|
|
|
|
337
|
|
|
|
Trading securities
|
|
|
337
|
|
|
|
94
|
|
|
|
-
|
|
|
|
431
|
|
Residential mortgage loans held for sale
|
|
|
-
|
|
|
|
954
|
|
|
|
-
|
|
|
|
954
|
|
Residential mortgage loans
(b)
|
|
|
-
|
|
|
|
-
|
|
|
|
149
|
|
|
|
149
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
-
|
|
|
|
1,227
|
|
|
|
33
|
|
|
|
1,260
|
|
Foreign exchange contracts
|
|
|
-
|
|
|
|
194
|
|
|
|
-
|
|
|
|
194
|
|
Equity contracts
|
|
|
-
|
|
|
|
-
|
|
|
|
325
|
|
|
|
325
|
|
Commodity contracts
|
|
|
17
|
|
|
|
94
|
|
|
|
-
|
|
|
|
111
|
|
|
|
Derivative assets
(d)
|
|
|
17
|
|
|
|
1,515
|
|
|
|
358
|
|
|
|
1,890
|
|
|
|
Total assets
|
|
$
|
525
|
|
|
|
32,475
|
|
|
|
507
|
|
|
|
33,507
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
8
|
|
|
|
392
|
|
|
|
4
|
|
|
|
404
|
|
Foreign exchange contracts
|
|
|
-
|
|
|
|
186
|
|
|
|
-
|
|
|
|
186
|
|
Equity contracts
|
|
|
-
|
|
|
|
-
|
|
|
|
103
|
|
|
|
103
|
|
Commodity contracts
|
|
|
13
|
|
|
|
86
|
|
|
|
-
|
|
|
|
99
|
|
|
|
Derivative liabilities
(e)
|
|
|
21
|
|
|
|
664
|
|
|
|
107
|
|
|
|
792
|
|
Short positions
(e)
|
|
|
15
|
|
|
|
4
|
|
|
|
-
|
|
|
|
19
|
|
|
|
Total liabilities
|
|
$
|
36
|
|
|
|
668
|
|
|
|
107
|
|
|
|
811
|
|
|
|
(a)
|
Excludes FHLB, FRB and DTCC restricted stock holdings totaling
$248
,
$357
and
$
1
, respectively, at
September 30, 2016
.
|
(b)
|
Includes residential mortgage loans originated as held for sale and subsequently transferred to held for
investment.
|
(c)
|
During both the three and nine months ended September 30, 2016, no assets or liabilities were transferred
between Level 1 and Level 2.
|
(d)
|
Included in other assets in the Condensed Consolidated Balance Sheets.
|
(e)
|
Included in other liabilities in the Condensed Consolidated Balance Sheets.
|
108
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 ($ in millions)
|
|
Level 1
(c)
|
|
|
Level 2
(c)
|
|
|
Level 3
|
|
|
Total Fair Value
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale and other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies securities
|
|
$
|
100
|
|
|
|
1,087
|
|
|
|
-
|
|
|
|
1,187
|
|
Obligations of states and political subdivisions securities
|
|
|
-
|
|
|
|
52
|
|
|
|
-
|
|
|
|
52
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage-backed securities
|
|
|
-
|
|
|
|
15,081
|
|
|
|
-
|
|
|
|
15,081
|
|
Agency commercial mortgage-backed securities
|
|
|
-
|
|
|
|
7,862
|
|
|
|
-
|
|
|
|
7,862
|
|
Non-agency commercial mortgage-backed securities
|
|
|
-
|
|
|
|
2,804
|
|
|
|
-
|
|
|
|
2,804
|
|
Asset-backed securities and other debt securities
|
|
|
-
|
|
|
|
1,355
|
|
|
|
-
|
|
|
|
1,355
|
|
Equity securities
(a)
|
|
|
98
|
|
|
|
1
|
|
|
|
-
|
|
|
|
99
|
|
|
|
Available-for-sale and other
securities
(a)
|
|
|
198
|
|
|
|
28,242
|
|
|
|
-
|
|
|
|
28,440
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies securities
|
|
|
-
|
|
|
|
19
|
|
|
|
-
|
|
|
|
19
|
|
Obligations of states and political subdivisions securities
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
|
|
9
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage-backed securities
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
|
|
6
|
|
Asset-backed securities and other debt securities
|
|
|
-
|
|
|
|
19
|
|
|
|
-
|
|
|
|
19
|
|
Equity securities
|
|
|
333
|
|
|
|
-
|
|
|
|
-
|
|
|
|
333
|
|
|
|
Trading securities
|
|
|
333
|
|
|
|
53
|
|
|
|
-
|
|
|
|
386
|
|
Residential mortgage loans held for sale
|
|
|
-
|
|
|
|
519
|
|
|
|
-
|
|
|
|
519
|
|
Residential mortgage loans
(b)
|
|
|
-
|
|
|
|
-
|
|
|
|
167
|
|
|
|
167
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
3
|
|
|
|
892
|
|
|
|
15
|
|
|
|
910
|
|
Foreign exchange contracts
|
|
|
-
|
|
|
|
386
|
|
|
|
-
|
|
|
|
386
|
|
Equity contracts
|
|
|
-
|
|
|
|
-
|
|
|
|
262
|
|
|
|
262
|
|
Commodity contracts
|
|
|
54
|
|
|
|
240
|
|
|
|
-
|
|
|
|
294
|
|
|
|
Derivative assets
(d)
|
|
|
57
|
|
|
|
1,518
|
|
|
|
277
|
|
|
|
1,852
|
|
|
|
Total assets
|
|
$
|
588
|
|
|
|
30,332
|
|
|
|
444
|
|
|
|
31,364
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
1
|
|
|
|
257
|
|
|
|
3
|
|
|
|
261
|
|
Foreign exchange contracts
|
|
|
-
|
|
|
|
340
|
|
|
|
-
|
|
|
|
340
|
|
Equity contracts
|
|
|
-
|
|
|
|
-
|
|
|
|
61
|
|
|
|
61
|
|
Commodity contracts
|
|
|
37
|
|
|
|
239
|
|
|
|
-
|
|
|
|
276
|
|
|
|
Derivative liabilities
(e)
|
|
|
38
|
|
|
|
836
|
|
|
|
64
|
|
|
|
938
|
|
Short positions
(e)
|
|
|
22
|
|
|
|
7
|
|
|
|
-
|
|
|
|
29
|
|
|
|
Total liabilities
|
|
$
|
60
|
|
|
|
843
|
|
|
|
64
|
|
|
|
967
|
|
|
|
(a)
|
Excludes FHLB and FRB restricted stock totaling $248, $355 and $1, respectively, at December 31, 2015.
|
(b)
|
Includes residential mortgage loans originated as held for sale and subsequently transferred to held for
investment.
|
(c)
|
During the year ended December 31, 2015, no assets or liabilities were transferred between Level 1 and Level
2.
|
(d)
|
Included in other assets in the Condensed Consolidated Balance Sheets.
|
(e)
|
Included in other liabilities in the Condensed Consolidated Balance Sheets.
|
The following is a description of the valuation methodologies used for significant instruments measured at fair value, as well as the general
classification of such instruments pursuant to the valuation hierarchy.
Available-for-sale and other securities and trading securities
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities
include U.S. Treasury securities and exchange-traded equities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics or DCFs. Level 2 securities
include federal agencies securities, obligations of states and political subdivisions securities, agency residential mortgage-backed securities, agency and non-agency commercial mortgage-backed securities, asset-backed securities and other debt
securities and equity securities. These securities are generally valued using a market approach based on observable prices of securities with similar characteristics.
Residential mortgage loans held for sale
For residential mortgage loans held for sale for which the fair value election has been made, fair value is estimated based upon
mortgage-backed securities prices and spreads to those prices or, for certain ARM loans, DCF models that may incorporate the anticipated portfolio composition, credit spreads of asset-backed securities with similar collateral and market conditions.
The anticipated portfolio composition includes the effect of interest rate spreads and discount rates due to loan characteristics such as the state in which the loan was originated, the loan amount and the ARM margin. Residential mortgage loans held
for sale that are valued based on mortgage-backed securities prices are classified within Level 2 of the valuation hierarchy as the valuation is based on external pricing for similar instruments. ARM loans classified as held for sale are also
classified within Level 2 of the valuation hierarchy due to the use of observable inputs in the DCF model. These observable inputs include interest rate spreads from agency mortgage-backed securities market rates and observable discount rates.
109
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Residential mortgage loans
Residential mortgage loans held for sale that are reclassified to held for investment are transferred from Level 2 to Level 3 of the fair
value hierarchy. It is the Bancorps policy to value any transfers between levels of the fair value hierarchy based on end of period fair values.
For residential mortgage loans for which the fair value election has been made, and that are reclassified from held for sale to held for
investment, the fair value estimation is based on mortgage-backed securities prices, interest rate risk and an internally developed credit component. Therefore, these loans are classified within Level 3 of the valuation hierarchy. An adverse change
in the loss rate or severity assumption would result in a decrease in fair value of the related loan. The Secondary Marketing department, which reports to the Bancorps Head of the Consumer Bank, in conjunction with the Consumer Credit Risk
department, which reports to the Bancorps Chief Risk Officer, are responsible for determining the valuation methodology for residential mortgage loans held for investment. The Secondary Marketing department reviews loss severity assumptions
quarterly to determine if adjustments are necessary based on decreases in observable housing market data. This group also reviews trades in comparable benchmark securities and adjusts the values of loans as necessary. Consumer Credit Risk is
responsible for the credit component of the fair value which is based on internally developed loss rate models that take into account historical loss rates and loss severities based on underlying collateral values.
Derivatives
Exchange-traded
derivatives valued using quoted prices and certain over-the-counter derivatives valued using active bids are classified within Level 1 of the valuation hierarchy. Most of the Bancorps derivative contracts are valued using DCF or other models
that incorporate current market interest rates, credit spreads assigned to the derivative counterparties and other market parameters and, therefore, are classified within Level 2 of the valuation hierarchy. Such derivatives include basic and
structured interest rate, foreign exchange and commodity swaps and options. Derivatives that are valued based upon models with significant unobservable market parameters are classified within Level 3 of the valuation hierarchy. At September 30, 2016
and December 31, 2015, derivatives classified as Level 3, which are valued using models containing unobservable inputs, consisted primarily of a warrant associated with the initial sale of the Bancorps 51% interest in Vantiv Holding, LLC to
Advent International and a total return swap associated with the Bancorps sale of Visa, Inc. Class B shares. Level 3 derivatives also include IRLCs, which utilize internally generated loan closing rate assumptions as a significant unobservable
input in the valuation process.
As of September 30, 2016, the warrant allows the Bancorp to purchase approximately 7.8 million
incremental nonvoting units in Vantiv Holding, LLC at an exercise price of $15.98 per unit and requires settlement under certain defined conditions involving change of control. The fair value of the warrant is calculated in conjunction with a third
party valuation provider by applying Black-Scholes option-pricing models using probability weighted scenarios which contain the following inputs: Vantiv, Inc. stock price, strike price per the Warrant Agreement and unobservable inputs, such as
expected term and expected volatility.
For the warrant, an increase in the expected term (years) and the expected volatility assumptions
would result in an increase in the fair value; conversely, a decrease in these assumptions would result in a decrease in the fair value. The Accounting and Treasury departments, both of which report to the Bancorps Chief Financial Officer,
determined the valuation methodology for the warrant. Accounting and Treasury review changes in fair value on a quarterly basis for reasonableness based on changes in historical and implied volatilities, expected terms, probability weightings of the
related scenarios, and other assumptions.
Under the terms of the total return swap, the Bancorp will make or receive payments based on
subsequent changes in the conversion rate of the Visa, Inc. Class B shares into Class A shares. Additionally, the Bancorp will make a quarterly payment based on Visas stock price and the conversion rate of the Visa, Inc. Class B shares into
Class A shares until the date on which the Covered Litigation is settled. The fair value of the total return swap was calculated using a DCF model based on unobservable inputs consisting of managements estimate of the probability of certain
litigation scenarios, the timing of the resolution of the Covered Litigation and Visa litigation loss estimates in excess, or shortfall, of the Bancorps proportional share of escrow funds.
An increase in the loss estimate or a delay in the resolution of the Covered Litigation would result in an increase in fair value;
conversely, a decrease in the loss estimate or an acceleration of the resolution of the Covered Litigation would result in a decrease in fair value. The Accounting and Treasury departments determined the valuation methodology for the total return
swap. Accounting and Treasury review the changes in fair value on a quarterly basis for reasonableness based on Visa stock price changes, litigation contingencies, and escrow funding.
The net fair value asset of the IRLCs at September 30, 2016 was $33 million. Immediate decreases in current interest rates of 25 bps and 50
bps would result in increases in the fair value of the IRLCs of approximately $7 million and $14 million, respectively. Immediate increases of current interest rates of 25 bps and 50 bps would result in decreases in the fair value of the IRLCs of
approximately $8 million and $17 million, respectively. The decrease in fair value of IRLCs due to immediate 10% and 20% adverse changes in the assumed loan closing rates would be approximately $3 million and $7 million, respectively, and the
increase in fair value due to immediate 10% and 20% favorable changes in the assumed loan closing rates would be approximately $3 million and $7 million, respectively. These sensitivities are hypothetical and should be used with caution, as changes
in fair value based on a variation in assumptions typically cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear.
The Consumer Line of Business Finance department, which reports to the Bancorps Chief Financial Officer, and the aforementioned
Secondary Marketing department are responsible for determining the valuation methodology for IRLCs. Secondary Marketing, in conjunction with a third party valuation provider, periodically review loan closing rate assumptions and recent loan sales to
determine if adjustments are needed for current market conditions not reflected in historical data.
110
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables are a reconciliation of assets and liabilities measured at fair value on
a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
For the three months ended September 30, 2016 ($ in millions)
|
|
Residential
Mortgage
Loans
|
|
|
Interest Rate
Derivatives,
Net
(a)
|
|
|
Equity
Derivatives,
Net
(a)
|
|
|
Total
Fair Value
|
|
|
|
Balance, beginning of period
|
|
$
|
154
|
|
|
|
30
|
|
|
|
228
|
|
|
|
412
|
|
Total gains (losses) (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
-
|
|
|
|
42
|
|
|
|
(14)
|
|
|
|
28
|
|
Purchases
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(1)
|
|
Settlements
|
|
|
(8)
|
|
|
|
(42)
|
|
|
|
8
|
|
|
|
(42)
|
|
Transfers into Level 3
(b)
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
Balance, end of period
|
|
$
|
149
|
|
|
|
29
|
|
|
|
222
|
|
|
|
400
|
|
|
|
The amount of total gains (losses) for the period included in earnings attributable to the change
in unrealized gains or losses relating to assets still held at September 30, 2016
(c)
|
|
$
|
-
|
|
|
|
33
|
|
|
|
(14)
|
|
|
|
19
|
|
|
|
(a)
|
Net interest rate derivatives include derivative assets and liabilities of
$
33
and
$
4
, respectively, as of
September 30, 2016
. Net equity derivatives include derivative assets and liabilities of
$
325
and
$
103
, respectively, as of
September 30, 2016
.
|
(b)
|
Includes certain residential mortgage loans originated as held for sale that were transferred to held for
investment.
|
(c)
|
Includes interest income and expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
For the three months ended September 30, 2015 ($ in millions)
|
|
Residential
Mortgage
Loans
|
|
|
Interest Rate
Derivatives,
Net
(a)
|
|
|
Equity
Derivatives,
Net
(a)
|
|
|
Total
Fair Value
|
|
|
|
Balance, beginning of period
|
|
$
|
178
|
|
|
|
10
|
|
|
|
445
|
|
|
|
633
|
|
Total gains (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
1
|
|
|
|
38
|
|
|
|
122
|
|
|
|
161
|
|
Settlements
|
|
|
(8)
|
|
|
|
(32)
|
|
|
|
5
|
|
|
|
(35)
|
|
Transfers into Level 3
(b)
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
Balance, end of period
|
|
$
|
173
|
|
|
|
16
|
|
|
|
572
|
|
|
|
761
|
|
|
|
The amount of total gains for the period included in earnings attributable to the change in
unrealized gains or losses relating to assets still held at September 30, 2015
(c)
|
|
$
|
1
|
|
|
|
19
|
|
|
|
122
|
|
|
|
142
|
|
|
|
(a)
|
Net interest rate derivatives include derivative assets and liabilities of $19 and $3, respectively, as of
September 30, 2015. Net equity derivatives include derivative assets and liabilities of $630 and $58, respectively, as of September 30, 2015.
|
(b)
|
Includes certain residential mortgage loans held for sale that were transferred to held for investment.
|
(c)
|
Includes interest income and expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
For the nine months ended September 30, 2016 ($ in millions)
|
|
Residential
Mortgage
Loans
|
|
|
Interest Rate
Derivatives,
Net
(a)
|
|
|
Equity
Derivatives,
Net
(a)
|
|
|
Total
Fair Value
|
|
|
|
Balance, beginning of period
|
|
$
|
167
|
|
|
|
12
|
|
|
|
201
|
|
|
|
380
|
|
Total gains (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
3
|
|
|
|
127
|
|
|
|
3
|
|
|
|
133
|
|
Purchases
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
(2)
|
|
Settlements
|
|
|
(30)
|
|
|
|
(108)
|
|
|
|
18
|
|
|
|
(120)
|
|
Transfers into Level 3
(b)
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
Balance, end of period
|
|
$
|
149
|
|
|
|
29
|
|
|
|
222
|
|
|
|
400
|
|
|
|
The amount of total gains for the period included in earnings attributable to the change in
unrealized gains or losses relating to assets still held at September 30, 2016
(c)
|
|
$
|
3
|
|
|
|
34
|
|
|
|
3
|
|
|
|
40
|
|
|
|
(a)
|
Net interest rate derivatives include derivative assets and liabilities of
$33
and
$4
, respectively, as of
September 30, 2016
. Net equity derivatives include derivative assets and liabilities of
$325
and
$103
, respectively, as of
September 30, 2016
.
|
(b)
|
Includes certain residential mortgage loans held for sale that were transferred to held for investment.
|
(c)
|
Includes interest income and expense.
|
111
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
For the nine months ended September 30, 2015 ($ in millions)
|
|
Residential
Mortgage
Loans
|
|
|
Interest Rate
Derivatives,
Net
(a)
|
|
|
Equity
Derivatives,
Net
(a)
|
|
|
Total
Fair Value
|
|
|
|
Balance, beginning of period
|
|
$
|
108
|
|
|
|
10
|
|
|
|
366
|
|
|
|
484
|
|
Total gains (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
2
|
|
|
|
90
|
|
|
|
188
|
|
|
|
280
|
|
Purchases
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(1)
|
|
Settlements
|
|
|
(23)
|
|
|
|
(83)
|
|
|
|
18
|
|
|
|
(88)
|
|
Transfers into Level 3
(b)
|
|
|
86
|
|
|
|
-
|
|
|
|
-
|
|
|
|
86
|
|
|
|
Balance, end of period
|
|
$
|
173
|
|
|
|
16
|
|
|
|
572
|
|
|
|
761
|
|
|
|
The amount of total gains for the period included in earnings attributable to the change in
unrealized gains or losses relating to assets still held at September 30, 2015
(c)
|
|
$
|
2
|
|
|
|
20
|
|
|
|
188
|
|
|
|
210
|
|
|
|
(a)
|
Net interest rate derivatives include derivative assets and liabilities of $19 and $3, respectively, as of
September 30, 2015. Net equity derivatives include derivative assets and liabilities of $630 and $58, respectively, as of September 30, 2015.
|
(b)
|
Includes certain residential mortgage loans originated as held for sale that were transferred to held for
investment.
|
(c)
|
Includes interest income and expense.
|
The total gains and losses included in earnings for assets and liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) were recorded in the Condensed Consolidated Statements of Income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30,
|
|
|
|
|
For the nine months ended
September 30,
|
|
($ in millions)
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
|
Mortgage banking net revenue
|
|
$
|
|
|
42
|
|
|
|
39
|
|
|
|
|
|
129
|
|
|
|
91
|
|
Corporate banking revenue
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Other noninterest income
|
|
|
|
|
(14
|
)
|
|
|
122
|
|
|
|
|
|
3
|
|
|
|
188
|
|
Total gains
|
|
$
|
|
|
28
|
|
|
|
161
|
|
|
|
|
|
133
|
|
|
|
280
|
|
The total gains and losses included in earnings attributable to changes in unrealized gains and losses
related to Level 3 assets and liabilities still held at September 30, 2016 and 2015 were recorded in the Condensed Consolidated Statements of Income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30,
|
|
|
|
|
For the nine months ended
September 30,
|
|
($ in millions)
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
|
Mortgage banking net revenue
|
|
$
|
|
|
33
|
|
|
|
20
|
|
|
|
|
|
36
|
|
|
|
21
|
|
Corporate banking revenue
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Other noninterest income
|
|
|
|
|
(14
|
)
|
|
|
122
|
|
|
|
|
|
3
|
|
|
|
188
|
|
Total gains
|
|
$
|
|
|
19
|
|
|
|
142
|
|
|
|
|
|
40
|
|
|
|
210
|
|
The following tables present information as of September 30, 2016 and 2015 about significant unobservable
inputs related to the Bancorps material categories of Level 3 financial assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016 ($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instrument
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Significant Unobservable
Inputs
|
|
Ranges of
Inputs
|
|
|
Weighted-
Average
|
|
Residential mortgage loans
|
|
$
|
149
|
|
|
Loss rate model
|
|
Interest rate risk factor
Credit risk
factor
|
|
|
(5.0) - 15.7%
0 - 80.3%
|
|
|
5.1%
1.2%
|
|
IRLCs, net
|
|
|
33
|
|
|
Discounted cash flow
|
|
Loan closing rates
|
|
|
6.5 - 94.0%
|
|
|
76.2%
|
|
Stock warrant associated with Vantiv Holding, LLC
|
|
|
325
|
|
|
Black-Scholes option-
pricing model
|
|
Expected term (years)
Expected volatility
(a)
|
|
|
2.0 - 12.8
20.2 - 26.6%
|
|
|
5.8
23.6%
|
|
Swap associated with the sale of Visa, Inc. Class B shares
|
|
|
(103)
|
|
|
Discounted cash flow
|
|
Timing of the resolution of the Covered Litigation
|
|
|
12/31/2018 -
12/31/2022
|
|
|
NM
|
|
(a)
|
Based on historical and implied volatilities of Vantiv, Inc. and comparable companies assuming similar
expected terms.
|
112
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2015 ($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instrument
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Significant Unobservable
Inputs
|
|
Ranges of
Inputs
|
|
|
Weighted-
Average
|
|
Residential mortgage loans
|
|
$
|
173
|
|
|
Loss rate model
|
|
Interest rate risk factor
Credit risk
factor
|
|
|
(8.0) - 16.3%
0 - 80.5%
|
|
|
4.0%
0.9%
|
|
IRLCs, net
|
|
|
19
|
|
|
Discounted cash flow
|
|
Loan closing rates
|
|
|
14.9 - 87.6%
|
|
|
61.3%
|
|
Stock warrant associated with Vantiv
Holding, LLC
|
|
|
630
|
|
|
Black-Scholes option-
pricing model
|
|
Expected term (years)
Expected volatility
(a)
|
|
|
2.0 - 13.8
22.7 - 32.4%
|
|
|
5.9
26.7%
|
|
Swap associated with the sale of Visa, Inc.
Class B shares
|
|
|
(58)
|
|
|
Discounted cash flow
|
|
Timing of the resolution of the Covered Litigation
|
|
|
12/31/2016 -
3/31/2021
|
|
|
NM
|
|
(a)
|
Based on historical and implied volatilities of Vantiv, Inc. and comparable companies assuming similar
expected terms.
|
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis. These assets and liabilities are not measured at fair value
on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.
The following tables provide the fair value hierarchy and carrying amount of all assets that were held as of September 30, 2016 and 2015 and
for which a nonrecurring fair value adjustment was recorded during the three and nine months ended September 30, 2016 and 2015, and the related gains and losses from fair value adjustments on assets sold during the period as well as assets still
held as of the end of the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
Total (Losses) Gains
|
|
Total (Losses) Gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016 ($ in millions)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
For the three months
ended September 30, 2016
|
|
For the nine months
ended September 30, 2016
|
Commercial loans held for sale
|
|
$
|
|
|
-
|
|
|
|
-
|
|
|
|
85
|
|
|
|
85
|
|
|
|
(21)
|
|
|
|
(28)
|
|
Commercial and industrial loans
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
321
|
|
|
|
321
|
|
|
|
(52)
|
|
|
|
(118)
|
|
Commercial mortgage loans
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58
|
|
|
|
58
|
|
|
|
(1)
|
|
|
|
(2)
|
|
Commercial construction loans
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Commercial leases
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
MSRs
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
619
|
|
|
|
619
|
|
|
|
7
|
|
|
|
(125)
|
|
OREO
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
46
|
|
|
|
(5)
|
|
|
|
(14)
|
|
Bank premises and equipment
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67
|
|
|
|
67
|
|
|
|
(28)
|
|
|
|
(31)
|
|
Operating lease equipment
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39
|
|
|
|
39
|
|
|
|
(4)
|
|
|
|
(9)
|
|
Private equity investments
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63
|
|
|
|
63
|
|
|
|
(9)
|
|
|
|
(9)
|
|
Total
|
|
$
|
|
|
-
|
|
|
|
-
|
|
|
|
1,298
|
|
|
|
1,298
|
|
|
|
(113)
|
|
|
|
(335)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
Total Losses
|
|
Total (Losses) Gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2015 ($ in millions)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
For the three months
ended September 30, 2015
|
|
For the nine months
ended September 30, 2015
|
Commercial loans held for sale
|
|
$
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
14
|
|
|
|
-
|
|
|
|
3
|
|
Residential mortgage loans held for sale
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96
|
|
|
|
96
|
|
|
|
-
|
|
|
|
(2)
|
|
Automobile loans held for sale
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
Credit cards held for sale
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
4
|
|
|
|
(1)
|
|
|
|
(1)
|
|
Commercial and industrial loans
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
290
|
|
|
|
290
|
|
|
|
(57)
|
|
|
|
(98)
|
|
Commercial mortgage loans
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
112
|
|
|
|
112
|
|
|
|
(19)
|
|
|
|
(36)
|
|
Commercial construction loans
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
9
|
|
|
|
(2)
|
|
|
|
(2)
|
|
Residential mortgage loans
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55
|
|
|
|
55
|
|
|
|
-
|
|
|
|
(1)
|
|
MSRs
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
756
|
|
|
|
756
|
|
|
|
(77)
|
|
|
|
(38)
|
|
OREO
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64
|
|
|
|
64
|
|
|
|
(3)
|
|
|
|
(16)
|
|
Bank premises and equipment
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79
|
|
|
|
79
|
|
|
|
(1)
|
|
|
|
(102)
|
|
Operating lease equipment
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53
|
|
|
|
53
|
|
|
|
(2)
|
|
|
|
(36)
|
|
Total
|
|
$
|
|
|
-
|
|
|
|
-
|
|
|
|
1,534
|
|
|
|
1,534
|
|
|
|
(162)
|
|
|
|
(329)
|
|
113
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables present information as of September 30, 2016 and 2015 about significant
unobservable inputs related to the Bancorps material categories of Level 3 financial assets and liabilities measured on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016 ($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Instrument
|
|
|
Fair Value
|
|
|
|
Valuation Technique
|
|
|
|
Significant Unobservable
Inputs
|
|
|
Ranges of
Inputs
|
|
Weighted-Average
|
Commercial loans held for sale
|
|
$
|
85
|
|
|
|
Appraised value
|
|
|
|
Appraised value
Cost to sell
|
|
|
NM
NM
|
|
NM
10.0%
|
Commercial and industrial loans
|
|
|
321
|
|
|
|
Appraised value
|
|
|
|
Collateral value
|
|
|
NM
|
|
NM
|
Commercial mortgage loans
|
|
|
58
|
|
|
|
Appraised value
|
|
|
|
Collateral value
|
|
|
NM
|
|
NM
|
MSRs
|
|
|
619
|
|
|
|
Discounted cash flow
|
|
|
|
Prepayment speed
|
|
|
0-100%
|
|
(Fixed) 14.9%
(Adjustable) 27.1%
|
|
|
|
|
|
|
|
|
|
|
|
OAS spread (bps)
|
|
|
100-1,515
|
|
(Fixed) 615
(Adjustable) 724
|
OREO
|
|
|
46
|
|
|
|
Appraised value
|
|
|
|
Appraised value
|
|
|
NM
|
|
NM
|
Bank premises and equipment
|
|
|
67
|
|
|
|
Appraised value
|
|
|
|
Appraised value
|
|
|
NM
|
|
NM
|
Operating lease equipment
|
|
|
39
|
|
|
|
Appraised value
|
|
|
|
Appraised value
|
|
|
NM
|
|
NM
|
Private equity investments
|
|
|
63
|
|
|
|
Liquidity discount
applied to funds net asset value
|
|
|
|
Liquidity discount
|
|
|
5.0-37.5%
|
|
12.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2015 ($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instrument
|
|
Fair Value
|
|
|
Valuation Technique
|
|
|
Significant Unobservable
Inputs
|
|
|
Ranges of
Inputs
|
|
Weighted-Average
|
Commercial loans held for sale
|
|
|
$ 14
|
|
|
|
Discounted cash flow
|
|
|
|
Discount spread
|
|
|
NM
|
|
4.4%
|
Residential mortgage loans held for sale
|
|
|
96
|
|
|
|
Loss rate model
|
|
|
|
Interest rate risk factor
|
|
|
(7.5) - 0.1%
|
|
(1.6)%
|
|
|
|
|
|
|
|
|
|
|
|
Credit risk factor
|
|
|
NM
|
|
0.1%
|
Automobile loans held for sale
|
|
|
2
|
|
|
|
Discounted cash flow
|
|
|
|
Discount spread
|
|
|
NM
|
|
3.1%
|
Credit cards held for sale
|
|
|
4
|
|
|
|
Comparable transactions
|
|
|
|
Estimated sales proceeds
from comparable transactions
|
|
|
NM
|
|
NM
|
Commercial and industrial loans
|
|
|
290
|
|
|
|
Appraised value
|
|
|
|
Collateral value
|
|
|
NM
|
|
NM
|
Commercial mortgage loans
|
|
|
112
|
|
|
|
Appraised value
|
|
|
|
Collateral value
|
|
|
NM
|
|
NM
|
Commercial construction loans
|
|
|
9
|
|
|
|
Appraised value
|
|
|
|
Collateral value
|
|
|
NM
|
|
NM
|
Residential mortgage loans
|
|
|
55
|
|
|
|
Appraised value
|
|
|
|
Appraised value
|
|
|
NM
|
|
NM
|
MSRs
|
|
|
756
|
|
|
|
Discounted cash flow
|
|
|
|
Prepayment speed
|
|
|
1.0 - 100%
|
|
(Fixed) 11.7%
(Adjustable) 32.7%
|
|
|
|
|
|
|
|
|
|
|
|
OAS spread (bps)
|
|
|
304-1,525
|
|
(Fixed) 706
(Adjustable) 668
|
OREO
|
|
|
64
|
|
|
|
Appraised value
|
|
|
|
Appraised value
|
|
|
NM
|
|
NM
|
Bank premises and equipment
|
|
|
79
|
|
|
|
Appraised value
|
|
|
|
Appraised value
|
|
|
NM
|
|
NM
|
Operating lease equipment
|
|
|
53
|
|
|
|
Appraised value
|
|
|
|
Appraised value
|
|
|
NM
|
|
NM
|
Commercial loans held for sale
The Bancorp had fair value adjustments on $112 million and $137 million of commercial loans transferred from the portfolio to loans held for
sale that upon transfer were measured at the lower of cost or fair value during the three and nine months ended September 30, 2016, respectively. The Bancorp had fair value adjustments on an immaterial amount and $26 million of commercial loans
transferred from the portfolio to loans held for sale that upon transfer were measured at the lower of cost or fair value during the three and nine months ended September 30, 2015, respectively. These fair value adjustments totaled $21 million and
$26 million during the three and nine months ended September 30, 2016, respectively. These fair value adjustments totaled an immaterial amount and $1 million during the three and nine months ended September 30, 2015, respectively. The fair value
adjustments were generally based on market trades, appraisals of the underlying collateral or were estimated by discounting future cash flows using the current market rates of loans to borrowers with similar credit characteristics, similar remaining
maturities, prepayment speeds and loss severities and were, therefore, classified within Level 3 of the valuation hierarchy. Additionally, fair value adjustments on existing loans held for sale were immaterial for both the three and nine months
ended September 30, 2016 and were immaterial and $1 million for the three and nine months ended September 30, 2015, respectively. The fair value adjustments were also based on appraisals of the underlying collateral. The Bancorp recognized an
immaterial amount of gains on the sale of commercial loans held for sale during both the three months ended September 30, 2016 and September 30, 2015. The Bancorp recognized $2 million in losses on the sale of commercial loans held for sale during
the nine months ended September 30, 2016 compared to $5 million in gains on the sale of commercial loans held for sale during the nine months ended September 30, 2015.
114
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The Accounting department determines the procedures for the valuation of commercial loans
held for sale using appraised value which may include a comparison to recently executed transactions of similar type loans. A monthly review of the portfolio is performed for reasonableness. Quarterly, appraisals approaching a year old are updated
and the Real Estate Valuation group, which reports to the Bancorps Chief Risk Officer, in conjunction with the Commercial Line of Business reviews the third party appraisals for reasonableness. Additionally, the Commercial Line of Business
Finance department, which reports to the Bancorps Chief Financial Officer, in conjunction with the Accounting department reviews all loan appraisal values, carry values and vintages. The Treasury department, which reports to the Bancorps
Chief Financial Officer, is responsible for the estimate of fair value adjustments when a discounted future cash flow valuation technique is employed.
Residential mortgage loans held for sale
During the three months ended September 30, 2015, the Bancorp did not transfer any residential mortgage loans from the portfolio to loans held
for sale. During the nine months ended September 30, 2015, the Bancorp transferred $233 million of residential mortgage loans from the portfolio to loans held for sale that upon transfer were measured at the lower of cost or fair value using
significant unobservable inputs. Fair values were estimated based on mortgage-backed securities prices, interest rate risk and an internally developed credit component. These loans had fair value adjustments during the three and nine months ended
September 30, 2015, respectively, totaling an immaterial amount and $1 million. The Secondary Marketing department, which reports to the Bancorps Head of the Consumer Bank, in conjunction with the Consumer Credit Risk department, which reports
to the Bancorps Chief Risk Officer, is responsible for determining the valuation methodology for residential mortgage loans held for investment. The Secondary Marketing department reviews loss severity assumptions quarterly to determine if
adjustments are necessary based on decreases in observable housing market data. This group also reviews trades in comparable benchmark securities and adjusts the values of loans as necessary. Consumer Credit Risk is responsible for the credit
component of the fair value which is based on internally developed loss rate models that take into account historical loss rates and loss severities based on underlying collateral values.
Commercial loans held for investment
During the three and nine months ended September 30, 2016 and 2015, the Bancorp recorded nonrecurring impairment adjustments to certain
commercial and industrial loans, commercial mortgage loans, commercial construction loans and commercial leases held for investment. Larger commercial loans included within aggregate borrower relationship balances exceeding $1 million that exhibit
probable or observed credit weaknesses are subject to individual review for impairment. The Bancorp considers the current value of collateral, credit quality of any guarantees, the guarantors liquidity and willingness to cooperate, the loan
structure and other factors when evaluating whether an individual loan is impaired. When the loan is collateral dependent, the fair value of the loan is generally based on the fair value of the underlying collateral supporting the loan and therefore
these loans are classified within Level 3 of the valuation hierarchy. In cases where the carrying value exceeds the fair value, an impairment loss is recognized. The fair values and recognized impairment losses are reflected in the previous tables.
Commercial Credit Risk, which reports to the Bancorps Chief Risk Officer, is responsible for preparing and reviewing the fair value estimates for commercial loans held for investment.
Residential mortgage loans
During the
three months ended March 31, 2015, the Bancorp transferred approximately $55 million of restructured residential mortgage loans from held for sale to the portfolio as the Bancorp no longer had the intent to sell the loans. Upon transfer, the Bancorp
recognized a nonrecurring fair value adjustment of $1 million on these loans, which had previously been transferred to held for sale in the fourth quarter of 2014.
MSRs
Mortgage interest rates increased
during the three months ended September 30, 2016 and the Bancorp recognized a recovery of temporary impairment in certain classes of the MSR portfolio and the carrying value was adjusted to the fair value. Mortgage interest rates decreased during
the nine months ended September 30, 2016 as well as during both the three and nine months ended September 30, 2015 and the Bancorp recognized temporary impairment in all classes of the MSR portfolio and the carrying value was adjusted to the fair
value. MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, the precise terms and conditions typically are not readily available. Accordingly, the Bancorp estimates the fair value of MSRs using
internal OAS models with certain unobservable inputs, primarily prepayment speed assumptions, OAS and weighted-average lives, resulting in a classification within Level 3 of the valuation hierarchy. Refer to Note 11 for further information on the
assumptions used in the valuation of the Bancorps MSRs. The Secondary Marketing department and Treasury department are responsible for determining the valuation methodology for MSRs. Representatives from Secondary Marketing, Treasury,
Accounting and Risk Management are responsible for reviewing key assumptions used in the internal OAS model. Two external valuations of the MSR portfolio are obtained from third parties that use valuation models in order to assess the reasonableness
of the internal OAS model. Additionally, the Bancorp participates in peer surveys that provide additional confirmation of the reasonableness of key assumptions utilized in the MSR valuation process and the resulting MSR prices.
OREO
During the three and nine months
ended September 30, 2016 and 2015, the Bancorp recorded nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO and measured at the lower of carrying amount or fair value. These nonrecurring losses
were primarily due to declines in real estate values of the properties recorded in OREO. These losses included $2 million and $7 million in losses, recorded as charge-offs, on new OREO properties transferred from loans during the three and nine
months ended September 30, 2016, respectively, and $2 million and $10 million for the three and nine months ended September 30, 2015, respectively. These losses also included $3 million and $7 million in losses for the three and nine months ended
September 30, 2016, respectively, and $1 million and $6 million in losses for the three and nine months ended September 30, 2015, respectively, recorded as negative fair value adjustments on OREO in other noninterest expense in the Condensed
Consolidated Statements of Income subsequent to their transfer from loans. As discussed in the following paragraphs, the fair value amounts are generally based on appraisals of the property values, resulting in a classification within Level 3 of the
valuation hierarchy. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. The previous tables reflect the fair value measurements of the properties before deducting the estimated costs to
sell.
115
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The Real Estate Valuation department, which reports to the Bancorps Chief Risk
Officer, is solely responsible for managing the appraisal process and evaluating the appraisal for commercial properties transferred to OREO. All appraisals on commercial OREO properties are updated on at least an annual basis.
The Real Estate Valuation department reviews the BPO data and internal market information to determine the initial charge-off on residential
real estate loans transferred to OREO. Once the foreclosure process is completed, the Bancorp performs an interior inspection to update the initial fair value of the property. These properties are reviewed at least every 30 days after the initial
interior inspections are completed. The Asset Manager receives a monthly status report for each property which includes the number of showings, recently sold properties, current comparable listings and overall market conditions.
Bank premises and equipment
The
Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. These properties are written down to their lower of cost or market values. At
least annually thereafter, the Bancorp will review these properties for market fluctuations. The fair value amounts are generally based on appraisals of the property values, resulting in a classification within Level 3 of the valuation hierarchy.
Corporate Facilities, which reports to the Bancorps Chief Administrative Officer, in conjunction with Accounting, are responsible for preparing and reviewing the fair value estimates for bank premises. For further information on bank premises
and equipment and discussion on changes to the branch network, refer to Note 7.
Operating lease equipment
During both the three and nine months ended September 30, 2016 and 2015, the Bancorp recorded nonrecurring impairment adjustments to certain
operating lease equipment. When evaluating whether an individual asset is impaired, the Bancorp considers the current fair value of the asset, the changes in overall market demand for the asset and the rate of change in advancements associated with
technological improvements that impact the demand for the specific asset under review. As part of this ongoing assessment, the Bancorp determined that the carrying values of certain operating lease equipment were not recoverable and as a result, the
Bancorp recorded an impairment loss equal to the amount by which the carrying value of the assets exceeded the fair value. The fair value amounts were generally based on appraised values of the assets, resulting in a classification within Level 3 of
the valuation hierarchy. The Commercial Leasing department, which reports to the Bancorps Chief Operating Officer, is responsible for preparing and reviewing the fair value estimates for operating lease equipment.
Private equity investments
In December
2013, the U.S. banking agencies issued final rules to implement section 619 of the DFA, known as the Volcker Rule, which places limitations on banking organizations ability to own, sponsor or have certain relationships with certain private
equity funds. On July 7, 2016, the FRB announced a third extension of the conformance period, providing the industry until July 21, 2017 to conform investments in and relationships with covered funds that were in place prior to December 31, 2013.
The extension does not apply to investments in and relationships with a covered fund made after December 31, 2013. The Bancorp recognized $9 million of OTTI primarily associated with certain nonconforming investments affected by the Volcker Rule
during both the three and nine months ended September 30, 2016. The Bancorp performed nonrecurring fair value measurements on a fund by fund basis to determine whether OTTI existed. The Bancorp estimated the fair value of a fund by using the net
asset value reported by the fund manager, and in some cases, applying an estimated market discount to the reported net asset value of the fund. Because the length of time until the investment will become redeemable is generally not certain, these
funds were classified within Level 3 of the valuation hierarchy. An adverse change in the reported net asset values or estimated market discounts, where applicable, would result in a decrease in the fair value estimate. In cases where the carrying
value exceeds the fair value, an impairment loss is recognized. The Bancorps Private Equity department, which reports to the Chief Strategy Officer, in conjunction with Accounting, is responsible for preparing and reviewing the fair value
estimates.
Fair Value Option
The Bancorp elected to measure certain residential mortgage loans held for sale under the fair value option as allowed under U.S. GAAP.
Electing to measure residential mortgage loans held for sale at fair value reduces certain timing differences and better matches changes in the value of these assets with changes in the value of derivatives used as economic hedges for these assets.
Managements intent to sell residential mortgage loans classified as held for sale may change over time due to such factors as changes in the overall liquidity in markets or changes in characteristics specific to certain loans held for sale.
Consequently, these loans may be reclassified to loans held for investment and maintained in the Bancorps loan portfolio. In such cases, the loans will continue to be measured at fair value.
Fair value changes recognized in earnings for instruments held at September 30, 2016 and 2015 for which the fair value option was elected, as
well as the changes in fair value of the underlying IRLCs, included gains of $49 million and $32 million for the nine months ended September 30, 2016 and 2015, respectively. These gains are reported in mortgage banking net revenue in the Condensed
Consolidated Statements of Income.
Valuation adjustments related to instrument-specific credit risk for residential mortgage loans
measured at fair value negatively impacted the fair value of those loans by $2 million at both September 30, 2016 and December 31, 2015. Interest on residential mortgage loans measured at fair value is accrued as it is earned using the effective
interest method and is reported as interest income in the Condensed Consolidated Statements of Income.
116
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table summarizes the difference between the fair value and the unpaid
principal balance for residential mortgage loans measured at fair value as of:
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
Aggregate
Fair Value
|
|
|
Aggregate Unpaid
Principal Balance
|
|
|
Difference
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans measured at fair value
|
|
$
|
1,103
|
|
|
|
1,054
|
|
|
49
|
Past due loans of 90 days or more
|
|
|
2
|
|
|
|
2
|
|
|
-
|
Nonaccrual loans
|
|
|
1
|
|
|
|
1
|
|
|
-
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans measured at fair value
|
|
$
|
686
|
|
|
|
669
|
|
|
17
|
Past due loans of 90 days or more
|
|
|
2
|
|
|
|
2
|
|
|
-
|
Nonaccrual loans
|
|
|
2
|
|
|
|
2
|
|
|
-
|
Fair Value of Certain Financial Instruments
The following tables summarize the carrying amounts and estimated fair values for certain financial instruments, excluding financial
instruments measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Carrying
Amount
|
|
|
Fair Value Measurements Using
|
|
|
Total
Fair Value
|
As of September 30, 2016 ($ in millions)
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
2,164
|
|
|
|
2,164
|
|
|
|
-
|
|
|
|
-
|
|
|
2,164
|
Other securities
|
|
|
606
|
|
|
|
-
|
|
|
|
606
|
|
|
|
-
|
|
|
606
|
Held-to-maturity securities
|
|
|
56
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56
|
|
|
56
|
Other short-term investments
|
|
|
2,995
|
|
|
|
2,995
|
|
|
|
-
|
|
|
|
-
|
|
|
2,995
|
Loans held for sale
|
|
|
106
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106
|
|
|
106
|
Portfolio loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
41,987
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43,257
|
|
|
43,257
|
Commercial mortgage loans
|
|
|
6,770
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,714
|
|
|
6,714
|
Commercial construction loans
|
|
|
3,891
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,629
|
|
|
3,629
|
Commercial leases
|
|
|
3,981
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,718
|
|
|
3,718
|
Residential mortgage loans
|
|
|
14,398
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,282
|
|
|
15,282
|
Home equity
|
|
|
7,806
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,636
|
|
|
8,636
|
Automobile loans
|
|
|
10,307
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,037
|
|
|
10,037
|
Credit card
|
|
|
2,075
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,450
|
|
|
2,450
|
Other consumer loans and leases
|
|
|
630
|
|
|
|
-
|
|
|
|
-
|
|
|
|
642
|
|
|
642
|
Unallocated ALLL
|
|
|
(115
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Total portfolio loans and
leases, net
|
|
$
|
91,730
|
|
|
|
-
|
|
|
|
-
|
|
|
|
94,365
|
|
|
94,365
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
101,271
|
|
|
|
-
|
|
|
|
101,309
|
|
|
|
-
|
|
|
101,309
|
Federal funds purchased
|
|
|
126
|
|
|
|
126
|
|
|
|
-
|
|
|
|
-
|
|
|
126
|
Other short-term borrowings
|
|
|
3,494
|
|
|
|
-
|
|
|
|
3,494
|
|
|
|
-
|
|
|
3,494
|
Long-term debt
|
|
|
16,890
|
|
|
|
16,927
|
|
|
|
720
|
|
|
|
-
|
|
|
17,647
|
117
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Carrying
Amount
|
|
|
Fair Value Measurements Using
|
|
|
Total
Fair Value
|
|
As of December 31, 2015 ($ in millions)
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
2,540
|
|
|
|
2,540
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,540
|
|
Other securities
|
|
|
604
|
|
|
|
-
|
|
|
|
604
|
|
|
|
-
|
|
|
|
604
|
|
Held-to-maturity securities
|
|
|
70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70
|
|
|
|
70
|
|
Other short-term investments
|
|
|
2,671
|
|
|
|
2,671
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,671
|
|
Loans held for sale
|
|
|
384
|
|
|
|
-
|
|
|
|
-
|
|
|
|
384
|
|
|
|
384
|
|
Portfolio loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
41,479
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,802
|
|
|
|
41,802
|
|
Commercial mortgage loans
|
|
|
6,840
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,656
|
|
|
|
6,656
|
|
Commercial construction loans
|
|
|
3,190
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,918
|
|
|
|
2,918
|
|
Commercial leases
|
|
|
3,807
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,533
|
|
|
|
3,533
|
|
Residential mortgage loans
|
|
|
13,449
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,061
|
|
|
|
14,061
|
|
Home equity
|
|
|
8,234
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,948
|
|
|
|
8,948
|
|
Automobile loans
|
|
|
11,453
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,170
|
|
|
|
11,170
|
|
Credit card
|
|
|
2,160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,551
|
|
|
|
2,551
|
|
Other consumer loans and leases
|
|
|
646
|
|
|
|
-
|
|
|
|
-
|
|
|
|
643
|
|
|
|
643
|
|
Unallocated ALLL
|
|
|
(115
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total portfolio loans and
leases, net
|
|
$
|
91,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92,282
|
|
|
|
92,282
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
103,205
|
|
|
|
-
|
|
|
|
103,219
|
|
|
|
-
|
|
|
|
103,219
|
|
Federal funds purchased
|
|
|
151
|
|
|
|
151
|
|
|
|
-
|
|
|
|
-
|
|
|
|
151
|
|
Other short-term borrowings
|
|
|
1,507
|
|
|
|
-
|
|
|
|
1,507
|
|
|
|
-
|
|
|
|
1,507
|
|
Long-term debt
(a)
|
|
|
15,810
|
|
|
|
15,603
|
|
|
|
625
|
|
|
|
-
|
|
|
|
16,228
|
|
(a)
|
Upon adoption of ASU 2015-03 on January 1, 2016, the December 31, 2015 Condensed Consolidated Balance Sheet
was adjusted to reflect the classification of $34 of debt issuance costs from other assets to long-term debt. For further information, refer to Note 3.
|
Cash and due from banks, other securities, other short-term investments, deposits, federal funds purchased and other short-term borrowings
For financial instruments with a short-term or no stated maturity, prevailing market rates and limited credit risk, carrying amounts approximate fair value. Those financial instruments include cash and due from banks, FHLB and FRB restricted
stock, other short-term investments, certain deposits (demand, interest checking, savings, money market, foreign office deposits and other deposits), federal funds purchased, and other short-term borrowings excluding FHLB borrowings. Fair values for
other time deposits, certificates of deposit $100,000 and over and FHLB borrowings were estimated using a DCF calculation that applies prevailing LIBOR/swap interest rates and a spread for new issuances with similar terms.
Held-to-maturity securities
The
Bancorps held-to-maturity securities are primarily composed of instruments that provide income tax credits as the economic return on the investment. The fair value of these instruments is estimated based on current U.S. Treasury tax credit
rates.
Loans held for sale
Fair
values for commercial loans held for sale were valued based on executable bids when available, or on DCF models incorporating appraisals of the underlying collateral, as well as assumptions about investor return requirements and amounts and timing
of expected cash flows. Fair values for residential mortgage loans held for sale were valued based on estimated third-party valuations utilizing recent sales data from similar transactions. Broker opinion statements were also obtained as additional
evidence to support the third-party valuations. Fair values for other consumer loans held for sale were based on contractual values upon which the loans may be sold to a third party, and approximate their carrying value.
Portfolio loans and leases, net
Fair
values were estimated based on either appraisals of the underlying collateral or by discounting future cash flows using the current market rates of loans to borrowers with similar credit characteristics, similar remaining maturities, prepayment
speeds and loss severities. The Bancorp estimates fair values at the transaction level whenever possible. For certain products with a large number of homogenous transactions, the Bancorp employs a pool approach. This approach involves stratifying
and sorting the entire population of transactions into a smaller number of pools with like characteristics. Characteristics may include maturity date, coupon, origination date and principal amortization method.
Long-term debt
Fair value of long-term
debt was based on quoted market prices, when available, or a DCF calculation using LIBOR/swap interest rates and, in some cases, Fifth Third credit and/or debt instrument spreads for new issuances with similar terms.
118
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
23. Business Segments
The Bancorp reports on four business segments: Commercial Banking, Branch Banking, Consumer Lending and Wealth and Asset Management (formerly
Investment Advisors). Results of the Bancorps business segments are presented based on its management structure and management accounting practices. The structure and accounting practices are specific to the Bancorp; therefore, the financial
results of the Bancorps business segments are not necessarily comparable with similar information for other financial institutions. The Bancorp refines its methodologies from time to time as managements accounting practices and
businesses change.
The Bancorp manages interest rate risk centrally at the corporate level by employing an FTP methodology. This
methodology insulates the business segments from interest rate volatility, enabling them to focus on serving customers through the origination of loans and acceptance of deposits. The FTP system assigns charge rates and credit rates to classes of
assets and liabilities, respectively, based on expected duration and the U.S. swap curve. Matching duration allocates interest income and interest expense to each business segment so its resulting net interest income is insulated from interest rate
risk. In a rising rate environment, the Bancorp benefits from the widening spread between deposit costs and wholesale funding costs. However, the Bancorps FTP system credits this benefit to deposit-providing businesses, such as Branch Banking
and Wealth and Asset Management, on a duration-adjusted basis. The net impact of the FTP methodology is captured in General Corporate and Other.
The Bancorp adjusts the FTP charge and credit rates as dictated by changes in interest rates for various interest-earning assets and
interest-bearing liabilities and by the review of the estimated durations for the indeterminate-lived deposits. The credit rate provided for demand deposit accounts is reviewed annually based upon the account type, its estimated duration and the
corresponding federal funds, U.S. swap curve or swap rate. The credit rates for several deposit products were reset January 1, 2016 to reflect the current market rates and updated market assumptions. These rates were generally higher than those in
place during 2015, thus net interest income for deposit-providing businesses was positively impacted during 2016. FTP charge rates on assets were affected by the prevailing level of interest rates and by the duration and repricing characteristics of
the portfolio. As overall market rates increased, the FTP charge increased for asset-generating businesses, thus negatively affecting net interest income during 2016. Credit rates for deposit products and charge rates for loan products may be reset
periodically in response to changes in market conditions.
During the first quarter of 2016, the Bancorp refined its methodology for
allocating provision expense to the business segments to include charges or benefits associated with changes in criticized commercial loan levels in addition to actual net charge-offs experienced by the loans and leases owned by each business
segment. The results of operations and financial position for the three and nine months ended September 30, 2015 were adjusted to reflect this change. Provision expense attributable to loan and lease growth and changes in ALLL factors are captured
in General Corporate and Other. The financial results of the business segments include allocations for shared services and headquarters expenses. Additionally, the business segments form synergies by taking advantage of cross-sell opportunities and
when funding operations by accessing the capital markets as a collective unit.
The results of operations and financial position for the
three and nine months ended September 30, 2015 were adjusted to reflect changes in internal expense allocation methodologies.
The
following is a description of each of the Bancorps business segments and the products and services they provide to their respective client bases.
Commercial Banking
offers credit intermediation, cash management and financial services to large and middle-market businesses and
government and professional customers. In addition to the traditional lending and depository offerings, Commercial Banking products and services include global cash management, foreign exchange and international trade finance, derivatives and
capital markets services, asset-based lending, real estate finance, public finance, commercial leasing and syndicated finance.
Branch
Banking
provides a full range of deposit and loan and lease products to individuals and small businesses through 1,191 full-service banking centers. Branch Banking offers depository and loan products, such as checking and savings accounts, home
equity loans and lines of credit, credit cards and loans for automobiles and other personal financing needs, as well as products designed to meet the specific needs of small businesses, including cash management services.
Consumer Lending
includes the Bancorps residential mortgage, home equity, automobile and other indirect lending activities.
Direct lending activities include the origination, retention and servicing of residential mortgage and home equity loans or lines of credit, sales and securitizations of those loans, pools of loans or lines of credit and all associated hedging
activities. Indirect lending activities include extending loans to consumers through correspondent lenders and automobile dealers.
Wealth and Asset Management
provides a full range of investment alternatives for individuals, companies and not-for-profit
organizations. In the second quarter of 2016, the Investment Advisors segment name was changed to Wealth and Asset Management to better reflect the services provided by the business segment. Wealth and Asset Management is made up of four main
businesses: FTS, an indirect wholly-owned subsidiary of the Bancorp; ClearArc Capital, Inc., an indirect wholly-owned subsidiary of the Bancorp; Fifth Third Private Bank; and Fifth Third Institutional Services. FTS offers full service retail
brokerage services to individual clients and broker dealer services to the institutional marketplace. ClearArc Capital, Inc. provides asset management services. Fifth Third Private Bank offers holistic strategies to affluent clients in wealth
planning, investing, insurance and wealth protection. Fifth Third Institutional Services provides advisory services for institutional clients including states and municipalities.
119
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables present the results of operations and assets by business segment for
the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 ($ in millions)
|
|
Commercial
Banking
|
|
|
Branch
Banking
|
|
|
Consumer
Lending
|
|
|
Wealth
and Asset
Management
|
|
|
General
Corporate
and Other
|
|
|
Eliminations
|
|
|
Total
|
Net interest income
|
|
$
|
456
|
|
|
|
414
|
|
|
|
63
|
|
|
|
40
|
|
|
|
(66
|
)
|
|
|
-
|
|
|
907
|
Provision for (benefit from) loan and lease losses
|
|
|
(18
|
)
|
|
|
34
|
|
|
|
12
|
|
|
|
-
|
|
|
|
52
|
|
|
|
-
|
|
|
80
|
Net interest income after provision for loan and lease losses
|
|
|
474
|
|
|
|
380
|
|
|
|
51
|
|
|
|
40
|
|
|
|
(118
|
)
|
|
|
-
|
|
|
827
|
Total noninterest income
|
|
|
228
(c)
|
|
|
|
163
(b)
|
|
|
|
71
|
|
|
|
99
|
|
|
|
312
|
|
|
|
(33)
(a)
|
|
|
840
|
Total noninterest expense
|
|
|
349
|
|
|
|
402
|
|
|
|
117
|
|
|
|
103
|
|
|
|
35
|
|
|
|
(33
|
)
|
|
973
|
Income before income taxes
|
|
|
353
|
|
|
|
141
|
|
|
|
5
|
|
|
|
36
|
|
|
|
159
|
|
|
|
-
|
|
|
694
|
Applicable income tax expense
|
|
|
74
|
|
|
|
50
|
|
|
|
2
|
|
|
|
13
|
|
|
|
39
|
|
|
|
-
|
|
|
178
|
Net income
|
|
|
279
|
|
|
|
91
|
|
|
|
3
|
|
|
|
23
|
|
|
|
120
|
|
|
|
-
|
|
|
516
|
Less: Net income attributable to noncontrolling
interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Net income attributable to Bancorp
|
|
|
279
|
|
|
|
91
|
|
|
|
3
|
|
|
|
23
|
|
|
|
120
|
|
|
|
-
|
|
|
516
|
Dividends on preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
15
|
Net income available to common shareholders
|
|
$
|
279
|
|
|
|
91
|
|
|
|
3
|
|
|
|
23
|
|
|
|
105
|
|
|
|
-
|
|
|
501
|
Total goodwill
|
|
$
|
613
|
|
|
|
1,655
|
|
|
|
-
|
|
|
|
148
|
|
|
|
-
|
|
|
|
-
|
|
|
2,416
|
Total assets
|
|
$
|
59,392
|
|
|
|
54,955
|
|
|
|
22,430
|
|
|
|
8,437
|
|
|
|
(1,935
|
)
(d)
|
|
|
-
|
|
|
143,279
|
(a)
|
Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the
Condensed Consolidated Statements of Income.
|
(b)
|
Includes impairment charges of
$28
for branches and land. For more information refer to
Note 7 and Note 22.
|
(c)
|
Includes impairment charges of
$
4
for operating lease equipment.
For more information refer to Note 22.
|
(d)
|
Includes bank premises and equipment of
$45
classified as held for sale. For more
information, refer to Note 7.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015 ($ in millions)
|
|
Commercial
Banking
|
|
|
Branch
Banking
|
|
|
Consumer
Lending
|
|
|
Wealth
and Asset
Management
|
|
|
General
Corporate
and Other
|
|
|
Eliminations
|
|
|
Total
|
Net interest income
|
|
$
|
413
|
|
|
|
395
|
|
|
|
62
|
|
|
|
33
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
901
|
Provision for (benefit from) loan and lease losses
|
|
|
195
|
|
|
|
37
|
|
|
|
11
|
|
|
|
-
|
|
|
|
(87
|
)
|
|
|
-
|
|
|
156
|
Net interest income after provision for loan and lease losses
|
|
|
218
|
|
|
|
358
|
|
|
|
51
|
|
|
|
33
|
|
|
|
85
|
|
|
|
-
|
|
|
745
|
Total noninterest income
|
|
|
228
(c)
|
|
|
|
197
(b)
|
|
|
|
76
|
|
|
|
102
|
|
|
|
148
|
|
|
|
(38)
(a)
|
|
|
713
|
Total noninterest expense
|
|
|
334
|
|
|
|
404
|
|
|
|
107
|
|
|
|
112
|
|
|
|
24
|
|
|
|
(38
|
)
|
|
943
|
Income before income taxes
|
|
|
112
|
|
|
|
151
|
|
|
|
20
|
|
|
|
23
|
|
|
|
209
|
|
|
|
-
|
|
|
515
|
Applicable income tax expense (benefit)
|
|
|
(9
|
)
|
|
|
53
|
|
|
|
7
|
|
|
|
9
|
|
|
|
74
|
|
|
|
-
|
|
|
134
|
Net income
|
|
|
121
|
|
|
|
98
|
|
|
|
13
|
|
|
|
14
|
|
|
|
135
|
|
|
|
-
|
|
|
381
|
Less: Net income attributable to noncontrolling
interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Net income attributable to Bancorp
|
|
|
121
|
|
|
|
98
|
|
|
|
13
|
|
|
|
14
|
|
|
|
135
|
|
|
|
-
|
|
|
381
|
Dividends on preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
15
|
Net income available to common shareholders
|
|
$
|
121
|
|
|
|
98
|
|
|
|
13
|
|
|
|
14
|
|
|
|
120
|
|
|
|
-
|
|
|
366
|
Total goodwill
|
|
$
|
613
|
|
|
|
1,655
|
|
|
|
-
|
|
|
|
148
|
|
|
|
-
|
|
|
|
-
|
|
|
2,416
|
Total
assets
(e)
|
|
$
|
59,383
|
|
|
|
52,180
|
|
|
|
22,805
|
|
|
|
8,965
|
|
|
|
(1,450
|
)
(d)
|
|
|
-
|
|
|
141,883
|
(a)
|
Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the
Condensed Consolidated Statements of Income.
|
(b)
|
Includes impairment charges of $2 for branches and land. For more information, refer to Note 7 and Note 22.
|
(c)
|
Includes impairment charges of $2 for operating lease equipment. For more information, refer to Note 22.
|
(d)
|
Includes bank premises and equipment of $81 classified as held for sale. For more information, refer to Note
7.
|
(e)
|
Upon adoption of ASU 2015-03 on January 1, 2016, the September 30, 2015 Condensed Consolidated Balance Sheet
was adjusted to reflect the reclassification of $35 of debt issuance costs from other assets to long-term debt. For further information refer to Note 3.
|
120
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables present the results of operations and assets by business segment for
the nine months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 ($ in millions)
|
|
Commercial
Banking
|
|
|
Branch
Banking
|
|
|
Consumer
Lending
|
|
|
Wealth
and Asset
Management
|
|
|
General
Corporate
and Other
|
|
|
Eliminations
|
|
|
Total
|
|
Net interest income
|
|
$
|
1,367
|
|
|
|
1,272
|
|
|
|
185
|
|
|
|
127
|
|
|
|
(239
|
)
|
|
|
-
|
|
|
|
2,712
|
|
Provision for loan and lease losses
|
|
|
119
|
|
|
|
104
|
|
|
|
32
|
|
|
|
1
|
|
|
|
33
|
|
|
|
-
|
|
|
|
289
|
|
Net interest income after provision for loan and lease losses
|
|
|
1,248
|
|
|
|
1,168
|
|
|
|
153
|
|
|
|
126
|
|
|
|
(272
|
)
|
|
|
-
|
|
|
|
2,423
|
|
Total noninterest income
|
|
|
683
(c)
|
|
|
|
566
(b)
|
|
|
|
234
|
|
|
|
302
|
|
|
|
390
|
|
|
|
(100)
(a)
|
|
|
|
2,075
|
|
Total noninterest expense
|
|
|
1,065
|
|
|
|
1,223
|
|
|
|
358
|
|
|
|
317
|
|
|
|
79
|
|
|
|
(100
|
)
|
|
|
2,942
|
|
Income before income taxes
|
|
|
866
|
|
|
|
511
|
|
|
|
29
|
|
|
|
111
|
|
|
|
39
|
|
|
|
-
|
|
|
|
1,556
|
|
Applicable income tax expense
|
|
|
151
|
|
|
|
181
|
|
|
|
11
|
|
|
|
38
|
|
|
|
4
|
|
|
|
-
|
|
|
|
385
|
|
Net income
|
|
|
715
|
|
|
|
330
|
|
|
|
18
|
|
|
|
73
|
|
|
|
35
|
|
|
|
-
|
|
|
|
1,171
|
|
Less: Net income attributable to noncontrolling
interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
(4)
|
|
Net income attributable to Bancorp
|
|
|
715
|
|
|
|
330
|
|
|
|
18
|
|
|
|
73
|
|
|
|
39
|
|
|
|
-
|
|
|
|
1,175
|
|
Dividends on preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52
|
|
|
|
-
|
|
|
|
52
|
|
Net income (loss) available to common shareholders
|
|
$
|
715
|
|
|
|
330
|
|
|
|
18
|
|
|
|
73
|
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
1,123
|
|
Total goodwill
|
|
$
|
613
|
|
|
|
1,655
|
|
|
|
-
|
|
|
|
148
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,416
|
|
Total assets
|
|
$
|
59,392
|
|
|
|
54,955
|
|
|
|
22,430
|
|
|
|
8,437
|
|
|
|
(1,935)
(d)
|
|
|
|
-
|
|
|
|
143,279
|
|
(a)
|
Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the
Condensed Consolidated Statements of Income.
|
(b)
|
Includes impairment charges of
$
31
for branches and land. For more
information refer to Note 7 and Note 22.
|
(c)
|
Includes impairment charges of
$
9
for operating lease equipment.
For more information refer to Note 22.
|
(d)
|
Includes bank premises and equipment of
$
45
classified as held for
sale. For more information, refer to Note 7.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015 ($ in millions)
|
|
Commercial
Banking
|
|
|
Branch
Banking
|
|
|
Consumer
Lending
|
|
|
Wealth
and Asset
Management
|
|
|
General
Corporate
and Other
|
|
|
Eliminations
|
|
|
Total
|
|
Net interest income
|
|
$
|
1,207
|
|
|
|
1,148
|
|
|
|
187
|
|
|
|
91
|
|
|
|
3
|
|
|
|
-
|
|
|
|
2,636
|
|
Provision for loan and lease losses
|
|
|
271
|
|
|
|
116
|
|
|
|
33
|
|
|
|
3
|
|
|
|
(118
|
)
|
|
|
-
|
|
|
|
305
|
|
Net interest income after provision for loan and lease losses
|
|
|
936
|
|
|
|
1,032
|
|
|
|
154
|
|
|
|
88
|
|
|
|
121
|
|
|
|
-
|
|
|
|
2,331
|
|
Total noninterest income
|
|
|
630
(c)
|
|
|
|
468
(b)
|
|
|
|
327
|
|
|
|
315
|
|
|
|
274
|
|
|
|
(114)
(a)
|
|
|
|
1,900
|
|
Total noninterest expense
|
|
|
1,031
|
|
|
|
1,207
|
|
|
|
325
|
|
|
|
342
|
|
|
|
23
|
|
|
|
(114
|
)
|
|
|
2,814
|
|
Income before income taxes
|
|
|
535
|
|
|
|
293
|
|
|
|
156
|
|
|
|
61
|
|
|
|
372
|
|
|
|
-
|
|
|
|
1,417
|
|
Applicable income tax expense
|
|
|
43
|
|
|
|
103
|
|
|
|
56
|
|
|
|
21
|
|
|
|
144
|
|
|
|
-
|
|
|
|
367
|
|
Net income
|
|
|
492
|
|
|
|
190
|
|
|
|
100
|
|
|
|
40
|
|
|
|
228
|
|
|
|
-
|
|
|
|
1,050
|
|
Less: Net income attributable to noncontrolling
interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
(6)
|
|
Net income attributable to Bancorp
|
|
|
492
|
|
|
|
190
|
|
|
|
100
|
|
|
|
40
|
|
|
|
234
|
|
|
|
-
|
|
|
|
1,056
|
|
Dividends on preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52
|
|
|
|
-
|
|
|
|
52
|
|
Net income available to common shareholders
|
|
$
|
492
|
|
|
|
190
|
|
|
|
100
|
|
|
|
40
|
|
|
|
182
|
|
|
|
-
|
|
|
|
1,004
|
|
Total goodwill
|
|
$
|
613
|
|
|
|
1,655
|
|
|
|
-
|
|
|
|
148
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,416
|
|
Total
assets
(e)
|
|
$
|
59,383
|
|
|
|
52,180
|
|
|
|
22,805
|
|
|
|
8,965
|
|
|
|
(1,450)
(d)
|
|
|
|
-
|
|
|
|
141,883
|
|
(a)
|
Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the
Condensed Consolidated Statements of Income.
|
(b)
|
Includes impairment charges of $104 for branches and land. For more information refer to Note 7 and Note 22.
|
(c)
|
Includes impairment charges of $36 for operating lease equipment. For more information refer to Note 22.
|
(d)
|
Includes bank premises and equipment of $81 classified as held for sale. For more information, refer to Note
7.
|
(e)
|
Upon adoption of ASU 2015-03 on January 1, 2016, the September 30, 2015 Condensed Consolidated Balance Sheet
was adjusted to reflect the reclassification of $35 of debt issuance costs from other assets to long-term debt. For further information refer to Note 3.
|
121