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 accounted for utilizing the measurement
alternative to fair value which permits carrying the investment at its cost basis, as adjusted for impairments and observable price changes. 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, comprehensive income, cash flows and changes in equity for the three months ended March 31, 2018 and 2017 are not necessarily indicative of the results to be expected for
the full year. Financial information as of December 31, 2017 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.
The
Bancorp adopted the following new accounting standards effective January 1, 2018:
The Bancorp
generally measures revenue based on the amount of consideration the Bancorp expects to be entitled for the transfer of goods or services to a customer, then recognizes this revenue when or as the Bancorp satisfies its performance obligations under
the contract, except in transactions where U.S. GAAP provides other applicable guidance. When the amount of consideration is variable, the Bancorp will only recognize revenue to the extent that it is probable that the cumulative amount recognized
will not be subject to a significant reversal in the future.
Substantially all of the Bancorps contracts with customers have expected durations of one year or less and payments are typically due when or as the services are rendered or shortly
thereafter. When third parties are involved in providing goods or services to customers, the Bancorp recognizes revenue on a gross basis when it has control over those goods or services prior to transfer to the customer; otherwise, revenue is
recognized for the net amount of any fee or commission. The Bancorp excludes sales taxes from the recognition of revenue and recognizes the incremental costs of obtaining contracts as an expense if the period of amortization for those costs would be
one year or less.
The Bancorps interest income is derived from loans and leases, securities and other short-term investments. The
Bancorp recognizes interest income in accordance with the applicable guidance in U.S. GAAP for these assets. Refer to the Portfolio Loans and Leases and Securities sections in Note 1 of the Bancorps Annual Report on Form
10-K
for the year ended December 31, 2017 for further information. The following provides additional information about the components of noninterest income:
The following accounting standards were issued but not yet adopted by the Bancorp as of March 31, 2018:
The following tables provide the amortized cost, unrealized gains and losses and fair value for the major categories of the
available-for-sale
debt and other securities and
held-to-maturity
investment securities
portfolios as of:
The following table provides the fair value of trading debt
securities and equity securities as of:
The following table presents net realized gains and losses that were recognized in income
from
available-for-sale
debt and other securities as well as total (losses) gains that were recognized in income from trading debt securities and equity securities:
At March 31, 2018 and December 31, 2017, investment securities with a fair value of $7.1 billion and $7.8 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
debt and other securities and
held-to-maturity
investment securities as of March 31, 2018 are shown in the following table:
The following table provides the fair value and gross unrealized
losses on
available-for-sale
debt 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 both March 31, 2018 and December 31, 2017, an immaterial amount of unrealized losses in the
available-for-sale
debt and other securities portfolio were represented by
non-rated
securities.
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 and lease
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 classified based upon
product or collateral as of:
Total portfolio loans and leases are recorded net of unearned income, which totaled $507 million as of
March 31, 2018 and $523 million as of December 31, 2017. Additionally, portfolio loans and leases are recorded net of unamortized premiums and discounts, deferred direct loan origination fees and costs and fair value adjustments
(associated with acquired loans or loans designated as fair value upon origination) which totaled a net premium of $289 million and $282 million as of March 31, 2018 and December 31, 2017, respectively.
The Bancorps FHLB and FRB advances are generally secured by loans. The Bancorp had loans of $13.2 billion and $13.0 billion
at March 31, 2018 and December 31, 2017, respectively, pledged at the FHLB, and loans of $40.7 billion and $39.8 billion at March 31, 2018 and December 31, 2017, respectively, pledged at the FRB.
The following table presents a summary of the total loans and leases owned by the Bancorp as
of:
The Bancorp disaggregates ALLL balances and transactions in the ALLL by portfolio segment. Credit quality related disclosures for loans and
leases are further disaggregated by class.
Allowance for Loan and Lease Losses
The following tables summarize transactions in the ALLL by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2018 ($ in millions)
|
|
Commercial
|
|
Residential
Mortgage
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Balance, beginning of period
|
|
$ 753
|
|
89
|
|
234
|
|
120
|
|
1,196
|
Losses
charged-off
|
|
(35)
|
|
(4)
|
|
(64)
|
|
-
|
|
(103)
|
Recoveries of losses previously
charged-off
|
|
6
|
|
1
|
|
15
|
|
-
|
|
22
|
Provision for (benefit from) loan and lease losses
|
|
(11)
|
|
3
|
|
37
|
|
(6)
|
|
23
|
Balance, end of period
|
|
$ 713
|
|
89
|
|
222
|
|
114
|
|
1,138
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2017 ($ in millions)
|
|
Commercial
|
|
Residential
Mortgage
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Balance, beginning of period
|
|
$ 831
|
|
96
|
|
214
|
|
112
|
|
1,253
|
Losses
charged-off
|
|
(46)
|
|
(6)
|
|
(55)
|
|
-
|
|
(107)
|
Recoveries of losses previously
charged-off
|
|
4
|
|
1
|
|
13
|
|
-
|
|
18
|
Provision for loan and lease losses
|
|
37
|
|
5
|
|
32
|
|
-
|
|
74
|
Balance, end of period
|
|
$ 826
|
|
96
|
|
204
|
|
112
|
|
1,238
|
|
The following tables provide a summary of the ALLL and related loans and leases classified by portfolio
segment:
|
As of March 31, 2018 ($ in millions)
|
|
Commercial
|
|
Residential
Mortgage
|
|
Consumer
|
|
Unallocated
|
|
Total
|
ALLL:
(a)
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$ 113
|
|
64
|
|
40
|
|
-
|
|
217
|
Collectively evaluated for impairment
|
|
600
|
|
25
|
|
182
|
|
-
|
|
807
|
Unallocated
|
|
-
|
|
-
|
|
-
|
|
114
|
|
114
|
Total ALLL
|
|
$ 713
|
|
89
|
|
222
|
|
114
|
|
1,138
|
Portfolio loans and leases:
(b)
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$ 573
|
|
666
|
|
308
|
|
-
|
|
1,547
|
Collectively evaluated for impairment
|
|
56,256
|
|
14,759
|
|
19,270
|
|
-
|
|
90,285
|
Loans acquired with deteriorated credit quality
|
|
-
|
|
2
|
|
-
|
|
-
|
|
2
|
Total portfolio loans and leases
|
|
$ 56,829
|
|
15,427
|
|
19,578
|
|
-
|
|
91,834
|
(a) Includes
$
1
related to leveraged leases at
March
31, 2018
.
(b) Excludes
$
136
of residential mortgage loans measured at fair value and includes
$
670
of leveraged leases, net of unearned income at
March
31,
2018
.
|
As of December 31, 2017 ($ in millions)
|
|
Commercial
|
|
Residential
Mortgage
|
|
Consumer
|
|
Unallocated
|
|
Total
|
ALLL:
(a)
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$ 94
|
|
64
|
|
42
|
|
-
|
|
200
|
Collectively evaluated for impairment
|
|
659
|
|
25
|
|
192
|
|
-
|
|
876
|
Unallocated
|
|
-
|
|
-
|
|
-
|
|
120
|
|
120
|
Total ALLL
|
|
$ 753
|
|
89
|
|
234
|
|
120
|
|
1,196
|
Portfolio loans and leases:
(b)
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$ 560
|
|
665
|
|
320
|
|
-
|
|
1,545
|
Collectively evaluated for impairment
|
|
55,835
|
|
14,787
|
|
19,664
|
|
-
|
|
90,286
|
Loans acquired with deteriorated credit quality
|
|
-
|
|
2
|
|
-
|
|
-
|
|
2
|
Total portfolio loans and leases
|
|
$ 56,395
|
|
15,454
|
|
19,984
|
|
-
|
|
91,833
|
(a)
|
Includes $1 related to leveraged leases at December 31, 2017.
|
(b)
|
Excludes $137 of residential mortgage loans measured at fair value and includes $674 of leveraged leases,
net of unearned income at December 31, 2017.
|
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.
66
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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 March 31, 2018 ($ in millions)
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
|
|
Commercial and industrial loans
|
|
|
$
|
39,385
|
|
|
|
|
1,074
|
|
|
|
|
1,173
|
|
|
3
|
|
|
|
41,635
|
|
|
|
|
|
|
Commercial mortgage owner-occupied loans
|
|
|
|
3,150
|
|
|
|
|
81
|
|
|
|
|
99
|
|
|
-
|
|
|
|
3,330
|
|
|
|
|
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
|
3,079
|
|
|
|
|
8
|
|
|
|
|
92
|
|
|
-
|
|
|
|
3,179
|
|
|
|
|
|
|
Commercial construction loans
|
|
|
|
4,692
|
|
|
|
|
74
|
|
|
|
|
-
|
|
|
-
|
|
|
|
4,766
|
|
|
|
|
|
|
Commercial leases
|
|
|
|
3,776
|
|
|
|
|
79
|
|
|
|
|
64
|
|
|
-
|
|
|
|
3,919
|
|
|
|
|
|
|
Total commercial loans and
leases
|
|
|
$
|
54,082
|
|
|
|
|
1,316
|
|
|
|
|
1,428
|
|
|
3
|
|
|
|
56,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017 ($ in millions)
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
|
|
Commercial and industrial loans
|
|
|
$
|
38,813
|
|
|
|
|
1,115
|
|
|
|
|
1,235
|
|
|
7
|
|
|
|
41,170
|
|
|
|
|
|
|
Commercial mortgage owner-occupied loans
|
|
|
|
3,207
|
|
|
|
|
75
|
|
|
|
|
80
|
|
|
-
|
|
|
|
3,362
|
|
|
|
|
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
|
3,117
|
|
|
|
|
28
|
|
|
|
|
97
|
|
|
-
|
|
|
|
3,242
|
|
|
|
|
|
|
Commercial construction loans
|
|
|
|
4,553
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
-
|
|
|
|
4,553
|
|
|
|
|
|
|
Commercial leases
|
|
|
|
3,922
|
|
|
|
|
72
|
|
|
|
|
74
|
|
|
-
|
|
|
|
4,068
|
|
|
|
|
|
|
Total commercial loans and
leases
|
|
|
$
|
53,612
|
|
|
|
|
1,290
|
|
|
|
|
1,486
|
|
|
7
|
|
|
|
56,395
|
|
|
|
|
|
|
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. 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 of the Notes to Consolidated Financial Statements included in the Bancorps Annual Report on Form
10-K
for the year ended December 31, 2017 for additional delinquency and nonperforming information.
67
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
($ in millions)
|
|
|
|
Performing
|
|
Nonperforming
|
|
Performing
|
|
Nonperforming
|
Residential mortgage loans
(a)
|
|
$
|
|
15,399
|
|
28
|
|
15,424
|
|
30
|
Home equity
|
|
|
|
6,683
|
|
74
|
|
6,940
|
|
74
|
Automobile loans
|
|
|
|
9,017
|
|
1
|
|
9,111
|
|
1
|
Credit card
|
|
|
|
2,162
|
|
26
|
|
2,273
|
|
26
|
Other consumer loans
|
|
|
|
1,614
|
|
1
|
|
1,559
|
|
-
|
Total residential mortgage and consumer loans
|
|
$
|
|
34,875
|
|
130
|
|
35,307
|
|
131
|
(a)
|
Excludes
$
136
and $137 of residential
mortgage loans measured at fair value at
March
31, 2018
and December 31, 2017, respectively.
|
Age Analysis of Past Due Loans and Leases
The following tables summarize the Bancorps recorded investment in portfolio loans and leases, by age and class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Past Due
|
|
|
|
|
|
90 Days Past
|
|
|
|
Loans and
|
|
|
30-89
|
|
|
90 Days
|
|
|
Total
|
|
|
Total Loans
|
|
|
Due and Still
|
|
As of March 31, 2018 ($ in millions)
|
|
Leases
(b)(c)
|
|
|
Days
(c)
|
|
|
or More
(c)
|
|
|
Past Due
|
|
|
and Leases
|
|
|
Accruing
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
41,502
|
|
|
|
46
|
|
|
|
87
|
|
|
|
133
|
|
|
|
41,635
|
|
|
|
7
|
|
Commercial mortgage owner-occupied loans
|
|
|
3,316
|
|
|
|
6
|
|
|
|
8
|
|
|
|
14
|
|
|
|
3,330
|
|
|
|
1
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
3,109
|
|
|
|
67
|
|
|
|
3
|
|
|
|
70
|
|
|
|
3,179
|
|
|
|
-
|
|
Commercial construction loans
|
|
|
4,766
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,766
|
|
|
|
-
|
|
Commercial leases
|
|
|
3,914
|
|
|
|
-
|
|
|
|
5
|
|
|
|
5
|
|
|
|
3,919
|
|
|
|
-
|
|
Residential mortgage loans
(a)
|
|
|
15,304
|
|
|
|
32
|
|
|
|
91
|
|
|
|
123
|
|
|
|
15,427
|
|
|
|
62
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
6,636
|
|
|
|
66
|
|
|
|
55
|
|
|
|
121
|
|
|
|
6,757
|
|
|
|
-
|
|
Automobile loans
|
|
|
8,927
|
|
|
|
81
|
|
|
|
10
|
|
|
|
91
|
|
|
|
9,018
|
|
|
|
9
|
|
Credit card
|
|
|
2,115
|
|
|
|
39
|
|
|
|
34
|
|
|
|
73
|
|
|
|
2,188
|
|
|
|
28
|
|
Other consumer loans
|
|
|
1,605
|
|
|
|
9
|
|
|
|
1
|
|
|
|
10
|
|
|
|
1,615
|
|
|
|
-
|
|
Total portfolio loans and
leases
|
|
$
|
91,194
|
|
|
|
346
|
|
|
|
294
|
|
|
|
640
|
|
|
|
91,834
|
|
|
|
107
|
|
(a)
|
Excludes
$
136
of residential mortgage loans measured at fair value
at
March
31, 2018
.
|
(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
March
31, 2018
,
$
79
of these loans were
30-89
days past due and
$
317
were 90 days or more past due. The Bancorp recognized
$
2
of losses
during the three months ended
March
31, 2018
due to claim denials and curtailments associated with these insured or guaranteed loans.
|
(c)
|
Includes accrual and nonaccrual loans and leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Past Due
|
|
|
|
|
|
90 Days Past
|
|
|
|
Loans and
|
|
|
30-89
|
|
|
90 Days
|
|
|
Total
|
|
|
Total Loans
|
|
|
Due and Still
|
|
As of December 31, 2017 ($ in millions)
|
|
Leases
(b)(c)
|
|
|
Days
(c)
|
|
|
or More
(c)
|
|
|
Past Due
|
|
|
and Leases
|
|
|
Accruing
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
41,027
|
|
|
|
42
|
|
|
|
101
|
|
|
|
143
|
|
|
|
41,170
|
|
|
|
3
|
|
Commercial mortgage owner-occupied loans
|
|
|
3,351
|
|
|
|
3
|
|
|
|
8
|
|
|
|
11
|
|
|
|
3,362
|
|
|
|
-
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
3,235
|
|
|
|
-
|
|
|
|
7
|
|
|
|
7
|
|
|
|
3,242
|
|
|
|
-
|
|
Commercial construction loans
|
|
|
4,552
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
4,553
|
|
|
|
-
|
|
Commercial leases
|
|
|
4,065
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
|
|
4,068
|
|
|
|
-
|
|
Residential mortgage loans
(a)
|
|
|
15,301
|
|
|
|
66
|
|
|
|
87
|
|
|
|
153
|
|
|
|
15,454
|
|
|
|
57
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
6,888
|
|
|
|
70
|
|
|
|
56
|
|
|
|
126
|
|
|
|
7,014
|
|
|
|
-
|
|
Automobile loans
|
|
|
8,992
|
|
|
|
107
|
|
|
|
13
|
|
|
|
120
|
|
|
|
9,112
|
|
|
|
10
|
|
Credit card
|
|
|
2,230
|
|
|
|
36
|
|
|
|
33
|
|
|
|
69
|
|
|
|
2,299
|
|
|
|
27
|
|
Other consumer loans
|
|
|
1,554
|
|
|
|
5
|
|
|
|
-
|
|
|
|
5
|
|
|
|
1,559
|
|
|
|
-
|
|
Total portfolio loans and
leases
|
|
$
|
91,195
|
|
|
|
333
|
|
|
|
305
|
|
|
|
638
|
|
|
|
91,833
|
|
|
|
97
|
|
(a)
|
Excludes $137 of residential mortgage loans measured at fair value at December 31, 2017.
|
(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, 2017, $95 of these loans were
30-89
days past due and $290 were 90 days or more past due. The Bancorp recognized $2 of losses during the
three months ended March 31, 2017 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 $1 million that exhibit probable or
observed credit weaknesses are subject to individual review for impairment. The Bancorp also performs an individual review on loans and leases that are restructured in a TDR. The Bancorp considers the current value of collateral, credit quality of
any guarantees, the loan structure and other factors when evaluating whether an individual loan or lease is impaired. Other factors may include the geography and industry of the borrower, size and financial condition of the borrower, cash flow and
leverage of the borrower and the Bancorps evaluation of the borrowers management. Smaller-balance homogenous loans or leases that are collectively evaluated for impairment are not included in the following tables.
68
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables summarize the Bancorps impaired portfolio loans and leases, by
class, that were subject to individual review, which includes all portfolio loans and leases restructured in a TDR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018 ($ in millions)
|
|
Unpaid
Principal
Balance
|
|
Recorded
Investment
|
|
ALLL
|
|
|
With a related ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
$
|
414
|
|
|
|
|
358
|
|
|
|
|
109
|
|
|
|
|
|
|
Commercial mortgage owner-occupied loans
|
|
|
|
4
|
|
|
|
|
3
|
|
|
|
|
1
|
|
|
|
|
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
|
-
|
|
|
|
|
|
|
Commercial leases
|
|
|
|
8
|
|
|
|
|
8
|
|
|
|
|
3
|
|
|
|
|
|
|
Restructured residential mortgage loans
|
|
|
|
460
|
|
|
|
|
457
|
|
|
|
|
64
|
|
|
|
|
|
|
Restructured consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
|
129
|
|
|
|
|
130
|
|
|
|
|
25
|
|
|
|
|
|
|
Automobile loans
|
|
|
|
6
|
|
|
|
|
5
|
|
|
|
|
1
|
|
|
|
|
|
|
Credit card
|
|
|
|
49
|
|
|
|
|
44
|
|
|
|
|
14
|
|
|
|
|
|
|
Total impaired portfolio
loans and leases with a related ALLL
|
|
|
$
|
1,072
|
|
|
|
|
1,007
|
|
|
|
|
217
|
|
|
|
|
|
|
With no related ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
$
|
188
|
|
|
|
|
161
|
|
|
|
|
-
|
|
|
|
|
|
|
Commercial mortgage owner-occupied loans
|
|
|
|
17
|
|
|
|
|
13
|
|
|
|
|
-
|
|
|
|
|
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
|
28
|
|
|
|
|
28
|
|
|
|
|
-
|
|
|
|
|
|
|
Restructured residential mortgage loans
|
|
|
|
228
|
|
|
|
|
209
|
|
|
|
|
-
|
|
|
|
|
|
|
Restructured consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
|
129
|
|
|
|
|
126
|
|
|
|
|
-
|
|
|
|
|
|
|
Automobile loans
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
-
|
|
|
|
|
|
|
Total impaired portfolio
loans with no related ALLL
|
|
|
$
|
593
|
|
|
|
|
540
|
|
|
|
|
-
|
|
|
|
|
|
|
Total impaired portfolio loans and leases
|
|
|
$
|
1,665
|
|
|
|
|
1,547
|
(a)
|
|
|
|
217
|
|
|
|
|
|
|
(a)
|
Includes
$
249
,
$
654
and
$
262
, respectively, of commercial, residential mortgage and consumer portfolio TDRs on accrual status and
$
154
,
$
12
and
$
46
, respectively, of commercial, residential mortgage and consumer portfolio TDRs on nonaccrual status at
March
31, 2018
.
|
69
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017 ($ in millions)
|
|
Unpaid
Principal
Balance
|
|
Recorded
Investment
|
|
ALLL
|
|
|
With a related ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
$
|
433
|
|
|
|
|
358
|
|
|
|
|
87
|
|
|
|
|
|
|
Commercial mortgage owner-occupied loans
|
|
|
|
16
|
|
|
|
|
14
|
|
|
|
|
7
|
|
|
|
|
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
|
4
|
|
|
|
|
3
|
|
|
|
|
-
|
|
|
|
|
|
|
Commercial leases
|
|
|
|
4
|
|
|
|
|
4
|
|
|
|
|
-
|
|
|
|
|
|
|
Restructured residential mortgage loans
|
|
|
|
469
|
|
|
|
|
465
|
|
|
|
|
64
|
|
|
|
|
|
|
Restructured consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
|
172
|
|
|
|
|
172
|
|
|
|
|
27
|
|
|
|
|
|
|
Automobile loans
|
|
|
|
8
|
|
|
|
|
7
|
|
|
|
|
1
|
|
|
|
|
|
|
Credit card
|
|
|
|
52
|
|
|
|
|
45
|
|
|
|
|
14
|
|
|
|
|
|
|
Total impaired portfolio
loans and leases with a related ALLL
|
|
|
$
|
1,158
|
|
|
|
|
1,068
|
|
|
|
|
200
|
|
|
|
|
|
|
With no related ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
$
|
151
|
|
|
|
|
131
|
|
|
|
|
-
|
|
|
|
|
|
|
Commercial mortgage owner-occupied loans
|
|
|
|
18
|
|
|
|
|
15
|
|
|
|
|
-
|
|
|
|
|
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
|
35
|
|
|
|
|
35
|
|
|
|
|
-
|
|
|
|
|
|
|
Restructured residential mortgage loans
|
|
|
|
218
|
|
|
|
|
200
|
|
|
|
|
-
|
|
|
|
|
|
|
Restructured consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
|
97
|
|
|
|
|
94
|
|
|
|
|
-
|
|
|
|
|
|
|
Automobile loans
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
|
-
|
|
|
|
|
|
|
Total impaired portfolio
loans with no related ALLL
|
|
|
$
|
521
|
|
|
|
|
477
|
|
|
|
|
-
|
|
|
|
|
|
|
Total impaired portfolio loans and leases
|
|
|
$
|
1,679
|
|
|
|
|
1,545
|
(a)
|
|
|
|
200
|
|
|
|
|
|
|
(a)
|
Includes $249, $652 and $275, respectively, of commercial, residential mortgage and consumer portfolio TDRs
on accrual status and $150, $13 and $45, respectively, of commercial, residential mortgage and consumer portfolio TDRs on nonaccrual status at December 31, 2017.
|
The following tables summarize the Bancorps average impaired portfolio loans and leases, by class, and interest income, by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
March 31, 2018
|
|
|
For the three months ended
March 31, 2017
|
|
($ in millions)
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
497
|
|
|
|
5
|
|
|
|
683
|
|
|
|
1
|
|
Commercial mortgage owner-occupied
loans
(a)
|
|
|
22
|
|
|
|
-
|
|
|
|
43
|
|
|
|
-
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
34
|
|
|
|
-
|
|
|
|
89
|
|
|
|
1
|
|
Commercial leases
|
|
|
6
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
Restructured residential mortgage loans
|
|
|
665
|
|
|
|
6
|
|
|
|
654
|
|
|
|
6
|
|
Restructured consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
258
|
|
|
|
3
|
|
|
|
298
|
|
|
|
3
|
|
Automobile loans
|
|
|
9
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
Credit card
|
|
|
48
|
|
|
|
1
|
|
|
|
51
|
|
|
|
1
|
|
Total average impaired
portfolio loans and leases
|
|
$
|
1,539
|
|
|
|
15
|
|
|
|
1,835
|
|
|
|
12
|
|
(a)
|
Excludes five restructured loans associated with a consolidated VIE in which the Bancorp had no continuing
credit risk due to the risk being assumed by a third party, with an average recorded investment of $26 for the three months ended March 31, 2017. An immaterial amount of interest income was recognized during the three months ended
March 31, 2017. Refer to Note 9 for further discussion on the deconsolidation of the VIE associated with these loans in the third quarter of 2017.
|
70
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Nonperforming Assets
Nonperforming assets include nonaccrual loans and leases for which ultimate collectability of the full amount of the principal and/or interest
is uncertain; restructured commercial and credit card loans which have not yet met the requirements to be classified as a performing asset; restructured consumer loans which are 90 days past due based on the restructured terms unless the loan is
both well-secured and in the process of collection; and certain other assets, including OREO and other repossessed property.
The
following table presents the Bancorps nonaccrual loans and leases, by class, and OREO and other repossessed property as of:
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
299
|
|
|
|
276
|
|
Commercial mortgage owner-occupied loans
|
|
|
11
|
|
|
|
19
|
|
Commercial mortgage nonowner-occupied loans
|
|
|
4
|
|
|
|
7
|
|
Commercial leases
|
|
|
8
|
|
|
|
4
|
|
Total nonaccrual portfolio
commercial loans and leases
|
|
|
322
|
|
|
|
306
|
|
Residential mortgage loans
|
|
|
28
|
|
|
|
30
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
74
|
|
|
|
74
|
|
Automobile loans
|
|
|
1
|
|
|
|
1
|
|
Credit card
|
|
|
26
|
|
|
|
26
|
|
Other consumer loans
|
|
|
1
|
|
|
|
-
|
|
Total nonaccrual portfolio consumer loans
|
|
|
102
|
|
|
|
101
|
|
Total nonaccrual portfolio loans and leases
(a)(b)
|
|
$
|
452
|
|
|
|
437
|
|
OREO and other repossessed property
|
|
|
52
|
|
|
|
52
|
|
Total nonperforming portfolio assets
(a)(b)
|
|
$
|
504
|
|
|
|
489
|
|
(a)
|
Excludes
$
24
and $6 of nonaccrual loans held
for sale at
March
31, 2018
and December 31, 2017, respectively.
|
(b)
|
Includes
$
5
and $3
of
nonaccrual government insured commercial loans whose repayments are insured by the SBA at
March
31, 2018
and December 31, 2017, respectively, of which
$
2
and $3 are restructured nonaccrual government insured commercial loans at both
March
31, 2018
and December 31, 2017, 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 $213 million and $235 million as of March 31, 2018 and December 31, 2017, 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 of the Notes to Consolidated Financial Statements included in the Bancorps Annual Report on Form
10-K
for the year ended December 31, 2017 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. 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.
The Bancorp had commitments to lend additional funds to borrowers whose terms have been modified in a TDR, consisting of line of credit and
letter of credit commitments of $33 million and $79 million, respectively, as of March 31, 2018 compared with $53 million and $78 million, respectively, as of December 31, 2017.
71
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables provide a summary of loans and leases, by class, modified in a TDR by
the Bancorp during the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018 ($ 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
|
|
|
12
|
|
|
|
$ 72
|
|
|
|
13
|
|
|
-
|
Commercial mortgage owner-occupied loans
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Residential mortgage loans
|
|
|
247
|
|
|
|
33
|
|
|
|
1
|
|
|
-
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
25
|
|
|
|
2
|
|
|
|
-
|
|
|
-
|
Automobile loans
|
|
|
20
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Credit card
|
|
|
1,965
|
|
|
|
10
|
|
|
|
2
|
|
|
-
|
Total portfolio
loans
|
|
|
2,271
|
|
|
|
$ 117
|
|
|
|
16
|
|
|
-
|
(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.
|
March 31, 2017 ($ 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
|
|
|
33
|
|
|
|
$ 97
|
|
|
|
1
|
|
|
2
|
Commercial mortgage owner-occupied loans
|
|
|
5
|
|
|
|
2
|
|
|
|
-
|
|
|
-
|
Commercial mortgage nonowner-occupied loans
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Residential mortgage loans
|
|
|
203
|
|
|
|
29
|
|
|
|
2
|
|
|
-
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
31
|
|
|
|
2
|
|
|
|
-
|
|
|
-
|
Automobile loans
|
|
|
30
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Credit card
|
|
|
1,756
|
|
|
|
7
|
|
|
|
1
|
|
|
-
|
Total portfolio
loans
|
|
|
2,059
|
|
|
|
$ 137
|
|
|
|
4
|
|
|
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 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 an 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 March 31, 2018 and 2017 and
were within twelve months of the restructuring date:
|
|
|
|
|
|
|
|
|
March 31, 2018 ($ in millions)
(a)
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
Commercial loans:
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
1
|
|
|
$
|
1
|
|
Commercial mortgage owner-occupied loans
|
|
|
2
|
|
|
|
-
|
|
Residential mortgage loans
|
|
|
48
|
|
|
|
7
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
2
|
|
|
|
-
|
|
Credit card
|
|
|
242
|
|
|
|
1
|
|
Total portfolio
loans
|
|
|
295
|
|
|
|
$ 9
|
|
(a)
|
Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality.
|
72
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017 ($ in millions)
(a)
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
|
|
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
2
|
|
|
$
|
1
|
|
|
|
|
|
Residential mortgage loans
|
|
|
57
|
|
|
|
9
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
Credit card
|
|
|
450
|
|
|
|
2
|
|
|
|
|
|
Total portfolio
loans
|
|
|
514
|
|
|
$
|
13
|
|
|
|
|
|
(a)
|
Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality.
|
73
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
7. Bank Premises and Equipment
The following table provides a summary of bank premises and equipment as of:
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
March 31, 2018
|
|
|
|
|
December 31, 2017
|
|
Land and improvements
(a)
|
|
|
$
|
636
|
|
|
|
|
644
|
|
Buildings
(a)
|
|
|
|
1,661
|
|
|
|
|
1,679
|
|
Equipment
|
|
|
|
1,921
|
|
|
|
|
1,876
|
|
Leasehold improvements
|
|
|
|
399
|
|
|
|
|
399
|
|
Construction in progress
(a)
|
|
|
|
76
|
|
|
|
|
93
|
|
Bank premises and equipment held for sale:
|
|
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
|
|
12
|
|
|
|
|
17
|
|
Buildings
|
|
|
|
8
|
|
|
|
|
9
|
|
Equipment
|
|
|
|
-
|
|
|
|
|
1
|
|
Accumulated depreciation and amortization
|
|
|
|
(2,747)
|
|
|
|
|
(2,715)
|
|
Total bank premises and
equipment
|
|
|
$
|
1,966
|
|
|
|
|
2,003
|
|
(a)
|
At
March
31, 2018
and December 31,
2017, land and improvements, buildings and construction in progress included
$
89
and $91, 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.
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 $8 million and $3 million for the three months ended March 31,
2018 and 2017, respectively. The recognized impairment losses were recorded in other noninterest income in the Condensed Consolidated Statements of Income.
8. Intangible Assets
Intangible assets
consist of core deposit intangibles, customer relationships,
non-compete
agreements, trade names and rent intangibles. Intangible assets are amortized on either a straight-line or an accelerated basis over
their estimated useful lives. The increase in gross carrying amount of intangible assets from the year ended December 31, 2017 reflects acquisition activity during the first quarter of 2018.
The details of the Bancorps intangible assets are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying
|
|
Accumulated
|
|
Net Carrying
|
($ in millions)
|
|
Amount
|
|
Amortization
|
|
Amount
|
As of March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
|
$
|
34
|
|
|
|
|
(29
|
)
|
|
|
|
5
|
|
Customer relationships
|
|
|
|
19
|
|
|
|
|
(1
|
)
|
|
|
|
18
|
|
Non-compete
agreements
|
|
|
|
14
|
|
|
|
|
(11
|
)
|
|
|
|
3
|
|
Other
|
|
|
|
6
|
|
|
|
|
(2
|
)
|
|
|
|
4
|
|
Total intangible
assets
|
|
|
$
|
73
|
|
|
|
|
(43
|
)
|
|
|
|
30
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
|
$
|
34
|
|
|
|
|
(29
|
)
|
|
|
|
5
|
|
Customer relationships
|
|
|
|
16
|
|
|
|
|
-
|
|
|
|
|
16
|
|
Non-compete
agreements
|
|
|
|
13
|
|
|
|
|
(10
|
)
|
|
|
|
3
|
|
Other
|
|
|
|
6
|
|
|
|
|
(3
|
)
|
|
|
|
3
|
|
Total intangible
assets
|
|
|
$
|
69
|
|
|
|
|
(42
|
)
|
|
|
|
27
|
|
As of March 31, 2018, all of the Bancorps intangible assets were being amortized. Amortization
expense recognized on intangible assets was $1 million and immaterial for the three months ended March 31, 2018 and 2017, respectively. The Bancorps projections of amortization expense shown in the following table is based on
existing balances as of March 31, 2018. Future amortization expense may vary from these projections.
Estimated amortization expense for the remainder of 2018 through 2022 is as follows:
|
|
|
|
|
($ in millions)
|
|
Total
|
|
Remainder of 2018
|
|
$
|
4
|
|
2019
|
|
|
5
|
|
2020
|
|
|
3
|
|
2021
|
|
|
2
|
|
2022
|
|
|
2
|
|
74
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
9. 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 at risk 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile Loan
|
|
CDC
|
|
|
March 31, 2018 ($ in millions)
|
|
Securitizations
|
|
Investments
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other short-term investments
|
|
|
$
|
66
|
|
|
|
|
-
|
|
|
66
|
Commercial mortgage loans
|
|
|
|
-
|
|
|
|
|
20
|
|
|
20
|
Automobile loans
|
|
|
|
1,115
|
|
|
|
|
-
|
|
|
1,115
|
ALLL
|
|
|
|
(6)
|
|
|
|
|
-
|
|
|
(6)
|
Other assets
|
|
|
|
6
|
|
|
|
|
-
|
|
|
6
|
Total assets
|
|
|
$
|
1,181
|
|
|
|
|
20
|
|
|
1,201
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
$
|
2
|
|
|
|
|
-
|
|
|
2
|
Long-term debt
|
|
|
|
1,031
|
|
|
|
|
-
|
|
|
1,031
|
Total liabilities
|
|
|
$
|
1,033
|
|
|
|
|
-
|
|
|
1,033
|
Noncontrolling interests
|
|
|
$
|
-
|
|
|
|
|
20
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile Loan
|
|
CDC
|
|
|
December 31, 2017 ($ in millions)
|
|
Securitizations
|
|
Investments
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other short-term investments
|
|
|
$
|
62
|
|
|
|
|
-
|
|
|
62
|
Commercial mortgage loans
|
|
|
|
-
|
|
|
|
|
20
|
|
|
20
|
Automobile loans
|
|
|
|
1,277
|
|
|
|
|
-
|
|
|
1,277
|
ALLL
|
|
|
|
(6)
|
|
|
|
|
-
|
|
|
(6)
|
Other assets
|
|
|
|
7
|
|
|
|
|
-
|
|
|
7
|
Total assets
|
|
|
$
|
1,340
|
|
|
|
|
20
|
|
|
1,360
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
$
|
2
|
|
|
|
|
-
|
|
|
2
|
Long-term debt
|
|
|
|
1,190
|
|
|
|
|
-
|
|
|
1,190
|
Total liabilities
|
|
|
$
|
1,192
|
|
|
|
|
-
|
|
|
1,192
|
Noncontrolling interests
|
|
|
$
|
-
|
|
|
|
|
20
|
|
|
20
|
Automobile loan securitizations
In a securitization transaction that occurred in the third quarter of 2017, the Bancorp transferred an aggregate amount of $1.1 billion
in consumer automobile loans to a bankruptcy remote trust which was deemed to be a VIE. This trust then subsequently issued approximately $1.0 billion of asset-backed notes, of which approximately $261 million were retained by the Bancorp.
Additionally, in prior years the Bancorp completed securitization transactions in which the Bancorp transferred certain consumer automobile loans to bankruptcy remote trusts which were also 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 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.
75
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 hold 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.
During the third quarter of 2017, the
Bancorps indemnification guarantee for one of the CDC investments for which a Bancorp subsidiary served as the managing member expired and the Bancorp transferred its remaining ownership interest in the VIE to the investor member thus removing
the Bancorp from future operations of the VIE. As a result, the Bancorp deconsolidated the VIE during the third quarter of 2017 resulting in a decrease of $27 million in commercial mortgage loans, a decrease of $20 million in ALLL
associated with the commercial mortgage loans and a decrease of $18 million in indemnification guarantee exposure. The Bancorps maximum exposure related to the remaining indemnifications at March 31, 2018 and December 31, 2017
was $18 million and $17 million, respectively, which is based on an amount required to meet the investor members defined target rate of return.
Non-consolidated
VIEs
The following tables provide a summary of assets and liabilities carried on the Condensed Consolidated Balance Sheets related to
non-consolidated
VIEs for which the Bancorp holds an interest, but is not the primary beneficiary of the VIE, as well as the Bancorps maximum exposure to losses associated with its interests in the entities as
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Total
|
|
Maximum
|
March 31, 2018 ($ in millions)
|
|
Assets
|
|
Liabilities
|
|
Exposure
|
CDC investments
|
|
|
$
|
1,316
|
|
|
|
|
338
|
|
|
|
|
1,316
|
|
Private equity investments
|
|
|
|
95
|
|
|
|
|
-
|
|
|
|
|
140
|
|
Loans provided to VIEs
|
|
|
|
1,937
|
|
|
|
|
-
|
|
|
|
|
3,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Total
|
|
Maximum
|
December 31, 2017 ($ in millions)
|
|
Assets
|
|
Liabilities
|
|
Exposure
|
CDC investments
|
|
|
$
|
1,376
|
|
|
|
|
355
|
|
|
|
|
1,376
|
|
Private equity investments
|
|
|
|
102
|
|
|
|
|
-
|
|
|
|
|
150
|
|
Loans provided to VIEs
|
|
|
|
1,845
|
|
|
|
|
-
|
|
|
|
|
2,910
|
|
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 March 31, 2018 and December 31, 2017, 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 $336 million and $355 million at March 31, 2018 and December 31,
2017, respectively. The unfunded commitments as of March 31, 2018 are expected to be funded from 2018 to 2034.
76
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The Bancorp has accounted for all of its investments in qualified affordable housing tax
credits using the equity method of accounting. The following table summarizes the impact to the Condensed Consolidated Statements of Income relating to investments in qualified affordable housing investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated
|
|
|
|
|
For the three months ended
March 31,
|
|
($ in millions)
|
|
Statements of Income Caption
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Pre-tax
investment and impairment losses
(a)
|
|
Other noninterest expense
|
|
$
|
|
|
|
|
45
|
|
|
|
36
|
|
Tax credits and other benefits
|
|
Applicable income tax expense
|
|
|
|
|
|
|
(52
|
)
|
|
|
(56)
|
|
|
|
(a)
|
The Bancorp did not recognize impairment losses resulting from the forfeiture or ineligibility of tax
credits or other circumstances during both the three months ended
March
31, 2018
and 2017.
|
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 March 31, 2018 and December 31, 2017, the unfunded commitment amounts to the funds were $45 million and $48 million, respectively. As part of previous commitments, the
Bancorp made capital contributions to private equity investments of $3 million and $6 million during the three months ended March 31, 2018 and 2017, respectively. The Bancorp recognized $4 million and zero OTTI primarily
associated with certain nonconforming investments affected by the Volcker Rule during the three months ended March 31, 2018 and 2017, respectively. Refer to Note 21 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 both March 31, 2018 and December 31, 2017, the Bancorps unfunded commitments to these entities were $1.1 billion. The loans and unfunded commitments to these VIEs are included in the Bancorps overall analysis of the
ALLL and reserve for unfunded commitments, respectively. The Bancorp does not provide any implicit or explicit liquidity guarantees or principal value guarantees to these VIEs.
77
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
10. Sales of Receivables and Servicing Rights
Residential Mortgage Loan Sales
The Bancorp sold fixed and adjustable-rate residential mortgage loans during both the three months ended March 31, 2018 and 2017. In
those sales, the Bancorp obtained servicing responsibilities and provided certain standard representations and warranties, however the investors have no recourse to the Bancorps other assets for failure of debtors to pay when due. The Bancorp
receives annual servicing fees based on a percentage of the outstanding balance. The Bancorp identifies classes of servicing assets based on financial asset type and interest rates.
Information related to residential mortgage loan sales and the Bancorps mortgage banking activity, which is included in mortgage
banking net revenue in the Condensed Consolidated Statements of Income, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
March 31,
|
|
($ in millions)
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
|
|
Residential mortgage loan
sales
(a)
|
|
$
|
|
|
1,000
|
|
|
|
1,629
|
|
|
|
|
|
|
|
|
|
|
Origination fees and gains on loan sales
|
|
|
|
|
24
|
|
|
|
29
|
|
|
|
|
|
Gross mortgage servicing fees
|
|
|
|
|
53
|
|
|
|
47
|
|
|
|
|
|
(a)
|
Represents the unpaid principal balance at the time of the sale.
|
Servicing Rights
The Bancorp
measures all of its servicing rights at fair value with changes in fair value reported in mortgage banking net revenue in the Condensed Consolidated Statements of Income.
The following tables present changes in the servicing rights related to residential mortgage loans for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
|
|
|
|
858
|
|
|
|
744
|
|
|
|
|
|
Servicing rights originated - residential mortgage loans
|
|
|
|
|
|
|
16
|
|
|
|
26
|
|
|
|
|
|
Servicing rights acquired - residential mortgage loans
|
|
|
|
|
|
|
24
|
|
|
|
29
|
|
|
|
|
|
Changes in fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to changes in inputs or
assumptions
(a)
|
|
|
|
|
|
|
57
|
|
|
|
4
|
|
|
|
|
|
Other changes in fair value
(b)
|
|
|
|
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
|
|
Balance, end of
period
|
|
$
|
|
|
|
|
926
|
|
|
|
776
|
|
|
|
|
|
(a)
|
Primarily reflects changes in prepayment speed and OAS spread assumptions which are updated based on market
interest rates.
|
(b)
|
Primarily reflects changes due to collection of contractual cash flows and the passage of time.
|
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
and trading 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.
The following table presents activity
related to valuations of the MSR portfolio and the impact of the
non-qualifying
hedging strategy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
March 31,
|
|
($ in millions)
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
|
|
Securities losses, net -
non-qualifying
hedges on
MSRs
|
|
$
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
|
|
Changes in fair value and settlement of free-standing derivatives purchased to economically hedge
the MSR portfolio
(a)
|
|
|
|
|
(49
|
)
|
|
|
(1
|
)
|
|
|
|
|
MSR fair value adjustment
(a)
|
|
|
|
|
28
|
|
|
|
(23
|
)
|
|
|
|
|
(a)
|
Included in mortgage banking net revenue in the Condensed Consolidated Statements of Income.
|
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, securitization or purchase resulting from transactions completed during the three months ended March 31, 2018 and 2017 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
Rate
|
|
|
Weighted-
Average Life
(in years)
|
|
|
Prepayment
Speed
(annual)
|
|
|
OAS Spread
(bps)
|
|
|
|
|
|
Weighted-
Average Life
(in years)
|
|
|
Prepayment
Speed
(annual)
|
|
|
OAS Spread
(bps)
|
|
|
|
|
Residential mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing rights
|
|
|
Fixed
|
|
|
|
7.0
|
|
|
|
9.1
|
%
|
|
|
549
|
|
|
|
|
|
|
|
6.7
|
|
|
|
9.9
|
%
|
|
|
485
|
|
|
|
|
|
Servicing rights
|
|
|
Adjustable
|
|
|
|
2.6
|
|
|
|
30.0
|
|
|
|
637
|
|
|
|
|
|
|
|
2.3
|
|
|
|
34.9
|
|
|
|
700
|
|
|
|
|
|
78
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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 March 31, 2018 and December 31, 2017, the Bancorp serviced $61.0 billion and $60.0 billion, respectively,
of residential mortgage loans for other investors. The value of MSRs that continue to be held by the Bancorp is subject to credit, prepayment and interest rate risks on the sold financial assets.
At March 31, 2018, the sensitivity of the current fair value of residual cash flows to immediate 10%, 20% and 50% adverse changes in
prepayment speed assumptions and immediate 10% and 20% adverse changes in OAS spread are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment
Speed Assumption
|
|
|
|
|
|
OAS
Spread Assumption
|
|
|
|
|
|
Fair
|
|
|
Weighted-
Average Life
|
|
|
|
|
|
Impact of Adverse Change
on Fair Value
|
|
|
OAS
Spread
|
|
|
Impact of
Adverse Change
on Fair Value
|
|
($ in millions)
(a)
|
|
Rate
|
|
Value
|
|
|
(in years)
|
|
|
Rate
|
|
|
10%
|
|
|
20%
|
|
|
50%
|
|
|
(bps)
|
|
|
10%
|
|
|
20%
|
|
Residential mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing rights
|
|
Fixed
|
|
$
|
910
|
|
|
|
6.4
|
|
|
|
10.0
|
%
|
|
$
|
(35)
|
|
|
|
(68)
|
|
|
|
(156)
|
|
|
|
548
|
|
|
$
|
(19)
|
|
|
|
(36
|
)
|
Servicing rights
|
|
Adjustable
|
|
|
16
|
|
|
|
3.3
|
|
|
|
24.6
|
|
|
|
(1)
|
|
|
|
(2)
|
|
|
|
(4)
|
|
|
|
797
|
|
|
|
-
|
|
|
|
(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.
79
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
11. 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. TBA securities 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 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 with the exception of certain variation margin payments that are considered
legal settlements of the derivative contracts. For derivative contracts cleared through certain central clearing parties who have modified their rules to treat variation margin payments as settlements, the variation margin payments are applied to
net the fair value of the respective derivative contracts.
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
March 31, 2018 and December 31, 2017, the balance of collateral held by the Bancorp for derivative assets was $375 million and $409 million, respectively. For derivative contracts cleared through certain central clearing parties
who have modified their rules to treat variation margin payments as settlement of the derivative contract, the payments for variation margin of $85 million were applied to reduce the respective derivative contracts and were also not included in
the total amount of collateral held as of March 31, 2018. The credit component negatively impacting the fair value of derivative assets associated with customer accommodation contracts as of March 31, 2018 and December 31, 2017 was
$2 million and $3 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 March 31, 2018 and December 31, 2017, the balance of
collateral posted by the Bancorp for derivative liabilities was $322 million and $365 million, respectively, and $100 million of variation margin payments were applied to the respective derivative contracts to reduce the
Bancorps derivative liabilities as of March 31, 2018 and were also not included in the total amount of collateral posted. Certain of the Bancorps derivative liabilities contain credit-risk related contingent features that could
result in the requirement to post additional collateral upon the occurrence of specified events. As of March 31, 2018 and December 31, 2017, the fair value of the additional collateral that could be required to be posted as a result of the
credit-risk related contingent features being triggered was immaterial to the Condensed Consolidated Financial Statements.
The posting of collateral has been determined to remove the need for further consideration of credit risk. As a result,
the Bancorp determined that the impact of the Bancorps credit risk to the valuation of its derivative liabilities was immaterial to the Condensed Consolidated Financial Statements.
The Bancorp holds certain derivative instruments that qualify for hedge accounting treatment and are designated as either fair value hedges
or cash flow hedges. Derivative instruments that do not qualify for hedge accounting treatment, or for which hedge accounting is not established, are held as free-standing derivatives. All customer accommodation derivatives are held as free-standing
derivatives.
80
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables reflect the notional amounts and fair values for all derivative
instruments included in the Condensed Consolidated Balance Sheets as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018 ($ 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
|
|
$
|
|
|
3,705
|
|
|
|
|
|
248
|
|
|
4
|
Total fair value hedges
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
4
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps related to C&I loans
|
|
|
|
|
4,150
|
|
|
|
|
|
-
|
|
|
18
|
Total cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
18
|
Total derivatives designated as qualifying hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
22
|
Derivatives Not Designated as Qualifying Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free-standing derivatives - risk management and other business purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts related to MSR portfolio
|
|
|
|
|
12,135
|
|
|
|
|
|
53
|
|
|
20
|
Forward contracts related to residential mortgage loans held for sale
|
|
|
|
|
1,153
|
|
|
|
|
|
2
|
|
|
2
|
Swap associated with the sale of Visa, Inc. Class B Shares
|
|
|
|
|
1,993
|
|
|
|
|
|
-
|
|
|
165
|
Foreign exchange contracts
|
|
|
|
|
138
|
|
|
|
|
|
-
|
|
|
-
|
Total free-standing derivatives - risk management and other
business purposes
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
187
|
Free-standing derivatives - customer accommodation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
44,973
|
|
|
|
|
|
220
|
|
|
241
|
Interest rate lock commitments
|
|
|
|
|
667
|
|
|
|
|
|
11
|
|
|
-
|
Commodity contracts
|
|
|
|
|
4,843
|
|
|
|
|
|
199
|
|
|
195
|
TBA securities
|
|
|
|
|
46
|
|
|
|
|
|
-
|
|
|
-
|
Foreign exchange contracts
|
|
|
|
|
11,723
|
|
|
|
|
|
132
|
|
|
129
|
Total free-standing derivatives - customer
accommodation
|
|
|
|
|
|
|
|
|
|
|
562
|
|
|
565
|
Total derivatives not designated as qualifying hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
617
|
|
|
752
|
Total
|
|
|
|
|
|
|
|
$
|
|
|
865
|
|
|
774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 ($ 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
|
|
$
|
|
|
3,705
|
|
|
|
|
|
297
|
|
|
5
|
Total fair value hedges
|
|
|
|
|
|
|
|
|
|
|
297
|
|
|
5
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps related to C&I loans
|
|
|
|
|
4,475
|
|
|
|
|
|
-
|
|
|
12
|
Total cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
12
|
Total derivatives designated as qualifying hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
297
|
|
|
17
|
Derivatives Not Designated as Qualifying Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free-standing derivatives - risk management and other business purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts related to MSR portfolio
|
|
|
|
|
11,035
|
|
|
|
|
|
54
|
|
|
15
|
Forward contracts related to residential mortgage loans held for sale
|
|
|
|
|
1,284
|
|
|
|
|
|
1
|
|
|
1
|
Stock warrant
|
|
|
|
|
20
|
|
|
|
|
|
20
|
|
|
-
|
Swap associated with the sale of Visa, Inc. Class B Shares
|
|
|
|
|
1,900
|
|
|
|
|
|
-
|
|
|
137
|
Foreign exchange contracts
|
|
|
|
|
112
|
|
|
|
|
|
-
|
|
|
1
|
Total free-standing derivatives - risk management and other
business purposes
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
154
|
Free-standing derivatives - customer accommodation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
42,216
|
|
|
|
|
|
154
|
|
|
145
|
Interest rate lock commitments
|
|
|
|
|
446
|
|
|
|
|
|
8
|
|
|
-
|
Commodity contracts
|
|
|
|
|
4,125
|
|
|
|
|
|
165
|
|
|
167
|
TBA securities
|
|
|
|
|
26
|
|
|
|
|
|
-
|
|
|
-
|
Foreign exchange contracts
|
|
|
|
|
12,654
|
|
|
|
|
|
124
|
|
|
119
|
Total free-standing derivatives - customer
accommodation
|
|
|
|
|
|
|
|
|
|
|
451
|
|
|
431
|
Total derivatives not designated as qualifying hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
526
|
|
|
585
|
Total
|
|
|
|
|
|
|
|
$
|
|
|
823
|
|
|
602
|
81
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 designated fair value hedges of interest rate risk as of March 31, 2018, the
Bancorp performed an assessment of hedge effectiveness using regression analysis (quantitative approach) with changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the
hedged risk recorded in the same income statement line in current period net 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
|
|
|
|
|
For the three months
|
|
|
|
Statements of
|
|
|
|
|
ended March 31,
|
|
($ in millions)
|
|
Income Caption
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
Change in fair value of interest rate swaps hedging long-term debt
|
|
|
Interest on long-term debt
|
|
|
$
|
|
|
(63
|
)
|
|
|
(21
|
)
|
|
|
|
|
Change in fair value of hedged long-term debt attributable
to the risk being hedged
|
|
|
Interest on long-term debt
|
|
|
|
|
|
64
|
|
|
|
21
|
|
|
|
|
|
The following amounts were recorded in the Condensed Consolidated Balance Sheets related to cumulative basis
adjustments for fair value hedges as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
Balance Sheets Caption
|
|
|
|
March 31, 2018
|
|
Carrying amount of the hedged item
|
|
|
Long-term debt
|
|
|
$
|
4,219
|
|
|
|
|
|
Cumulative amount of fair value hedging adjustments
included in the carrying amount of the hedged items
|
|
|
Long-term debt
|
|
|
|
(231
|
)
|
|
|
|
|
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 for the variability in cash flows attributable to the contractually specified interest rate. 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 March 31, 2018, all hedges designated as cash flow hedges were assessed for effectiveness using regression
analysis. The entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is recorded in AOCI and reclassified from AOCI to current period earnings when the hedged item affects earnings. As of
March 31, 2018, the maximum length of time over which the Bancorp is hedging its exposure to the variability in future cash flows is 59 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 March 31, 2018 and December 31, 2017, $19 million and $9 million, respectively, of net deferred losses, net of tax, on cash flow hedges were recorded in AOCI in the Condensed
Consolidated Balance Sheets. As of March 31, 2018, $2 million in net unrealized gains, net of tax, recorded in AOCI are expected to be reclassified into earnings during the next twelve months. This amount could differ from amounts actually
recognized due to changes in interest rates, hedge
de-designations,
and the addition of other hedges subsequent to March 31, 2018.
During both the three months ended March 31, 2018 and 2017, there were no gains or losses reclassified from AOCI into earnings associated
with the discontinuance of cash flow hedges because it was probable that the original forecasted transaction would no longer occur by the end of the originally specified time period or within the additional period of time as defined by U.S. GAAP.
The following table presents the pretax net (losses) gains recorded in the Condensed Consolidated Statements of Income and in the
Condensed Consolidated Statements of Comprehensive Income relating to derivative instruments designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
2018
|
|
|
|
2017
(a)
|
|
|
|
|
|
Amount of pretax net losses recognized in OCI
|
|
$
|
|
|
(9)
|
|
|
|
(5)
|
|
|
|
|
|
Amount of pretax net gains reclassified from OCI into net
interest income
|
|
|
|
|
1
|
|
|
|
8
|
|
|
|
|
|
(a)
|
For the three months ended March 31, 2017, the amount of pretax net losses recognized in OCI
represented the effective portion of the cumulative gains or losses on cash flow hedges and ineffectiveness was reported within noninterest income. Upon the adoption of ASU
2017-12,
the Bancorp recorded a
cumulative effect adjustment to retained earnings effective January 1, 2018 related to the elimination of the separate measurement of ineffectiveness. Refer to Note 3 for additional information.
|
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, TBA securities 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.
82
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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.
In conjunction with the 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 21 for further discussion of significant inputs and assumptions used in the valuation of this instrument.
The net (losses) gains 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
Statements of
|
|
For the three months
ended March 31,
|
|
|
|
|
($ in millions)
|
|
Income Caption
|
|
2018
|
|
|
2017
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts related to residential mortgage loans held for sale
|
|
Mortgage banking net revenue
|
|
$
|
-
|
|
|
|
(21
|
)
|
|
|
|
|
Interest rate contracts related to MSR portfolio
|
|
Mortgage banking net revenue
|
|
|
(49)
|
|
|
|
(1
|
)
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts for risk management purposes
|
|
Other noninterest income
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
|
|
Equity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap associated with sale of Visa, Inc. Class B
Shares
|
|
Other noninterest income
|
|
|
(39)
|
|
|
|
(13
|
)
|
|
|
|
|
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, 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 either corporate banking revenue or other noninterest income 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 March 31, 2018 and December 31, 2017, the total notional
amount of the risk participation agreements was $3.4 billion and $2.8 billion, respectively, and the fair value was a liability of $6 million and $5 million at March 31, 2018 and December 31, 2017, respectively, which
is included in other liabilities in the Condensed Consolidated Balance Sheets. As of March 31, 2018, the risk participation agreements had a weighted-average remaining life of 4.2 years.
The Bancorps maximum exposure in the risk participation agreements is contingent on the fair value of the underlying interest rate
derivative contracts in an asset position at the time of default. The Bancorp monitors the credit risk associated with the underlying customers in the risk participation agreements through the same risk grading system currently utilized for
establishing loss reserves in its loan and lease portfolio.
Risk ratings of the notional amount of risk participation agreements under
this risk rating system are summarized in the following table as of:
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Pass
|
|
$
|
3,263
|
|
|
|
2,748
|
|
Special mention
|
|
|
77
|
|
|
|
66
|
|
Substandard
|
|
|
30
|
|
|
|
24
|
|
Total
|
|
$
|
3,370
|
|
|
|
2,838
|
|
83
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The net gains recorded in the Condensed Consolidated Statements of Income relating to
free-standing derivative instruments used for customer accommodation are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated
|
|
For the three months
ended March 31,
|
|
($ in millions)
|
|
Statements of Income Caption
|
|
2018
|
|
|
2017
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts for customers (contract revenue)
|
|
Corporate banking revenue
|
|
$
|
7
|
|
|
|
5
|
|
Interest rate lock commitments
|
|
Mortgage banking net revenue
|
|
|
13
|
|
|
|
22
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts for customers (contract revenue)
|
|
Corporate banking revenue
|
|
|
2
|
|
|
|
1
|
|
Commodity contracts for customers (credit portion of fair value adjustment)
|
|
Other noninterest expense
|
|
|
-
|
|
|
|
1
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts for customers (contract revenue)
|
|
Corporate banking revenue
|
|
|
14
|
|
|
|
13
|
|
Foreign exchange contracts for customers (contract revenue)
|
|
Other noninterest income
|
|
|
(2
|
)
|
|
|
-
|
|
Foreign exchange contracts for customers (credit portion of
fair value adjustment)
|
|
Other noninterest expense
|
|
|
1
|
|
|
|
1
|
|
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 on the Condensed Consolidated Balance Sheets on a gross basis, even when provisions allowing
for setoff are in place. However, for derivative contracts cleared through certain central clearing parties who have modified their rules to treat variation margin payments as settlements, the fair value of the respective derivative contracts are
reported net of the variation margin payments.
Collateral amounts included in the tables below consist primarily of cash and
highly-rated government-backed securities and do not include variation margin payments for derivative contracts with legal rights of setoff for both periods shown.
The following tables provide a summary of offsetting derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
Recognized in the
|
|
|
Gross Amounts Not Offset in the
Condensed Consolidated Balance Sheets
|
|
|
|
|
As of March 31, 2018 ($ in millions)
|
|
Condensed Consolidated
Balance Sheets
(a)
|
|
|
Derivatives
|
|
|
Collateral
(b)
|
|
|
Net Amount
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
854
|
|
|
|
(229
|
)
|
|
|
(341
|
)
|
|
|
284
|
|
Total assets
|
|
|
854
|
|
|
|
(229
|
)
|
|
|
(341
|
)
|
|
|
284
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
774
|
|
|
|
(229
|
)
|
|
|
(209
|
)
|
|
|
336
|
|
Total liabilities
|
|
$
|
774
|
|
|
|
(229
|
)
|
|
|
(209
|
)
|
|
|
336
|
|
(a)
|
Amount does not include 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
Recognized in the
|
|
|
Gross Amounts Not Offset in the
Condensed Consolidated Balance Sheets
|
|
|
|
|
As of December 31, 2017 ($ in millions)
|
|
Condensed Consolidated
Balance Sheets
(a)
|
|
|
Derivatives
|
|
|
Collateral
(b)
|
|
|
Net Amount
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
815
|
|
|
|
(213
|
)
|
|
|
(362
|
)
|
|
|
240
|
|
Total assets
|
|
|
815
|
|
|
|
(213
|
)
|
|
|
(362
|
)
|
|
|
240
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
602
|
|
|
|
(213
|
)
|
|
|
(155
|
)
|
|
|
234
|
|
Total liabilities
|
|
$
|
602
|
|
|
|
(213
|
)
|
|
|
(155
|
)
|
|
|
234
|
|
(a)
|
Amount does not include 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.
|
84
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
12. 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)
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Securities sold under repurchase agreements
|
|
|
$ 662
|
|
|
|
546
|
|
FHLB advances
|
|
|
400
|
|
|
|
3,125
|
|
Derivative collateral
|
|
|
273
|
|
|
|
341
|
|
Total other short-term borrowings
|
|
|
$ 1,335
|
|
|
|
4,012
|
|
The Bancorps securities sold under repurchase agreements are accounted for as secured borrowings and
are collateralized by securities included in
available-for-sale
debt 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. As of both March 31, 2018 and December 31, 2017, all securities sold
under repurchase agreements were secured by agency residential mortgage-backed securities with an overnight remaining contractual maturity.
13.
Long-Term Debt
On March 14, 2018, the Bancorp issued and sold $650 million of 3.95% senior fixed-rate notes, with a
maturity of ten years, due on March 14, 2028. These notes will be redeemable by the Bancorp, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount of the
notes to be redeemed plus accrued and unpaid interest thereon to, but excluding, the redemption date.
14. Capital Actions
Accelerated Share Repurchase Transactions
During the three months ended March 31, 2018, the Bancorp entered into or settled accelerated share repurchase transactions. As part of
these transactions, the Bancorp entered into forward contracts in which the final number of shares delivered at settlement was based generally on a discount to the average daily volume weighted-average price of the Bancorps common stock during
the term of these repurchase agreements. The accelerated share repurchases were treated as two separate transactions, (i) the acquisition of treasury shares on the repurchase date and (ii) a forward contract indexed to the Bancorps
common stock.
The following table presents a summary of the Bancorps accelerated share repurchase transactions that were entered
into or settled during the three months ended March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Date
|
|
Amount
($ in millions)
|
|
|
Shares Repurchased on
Repurchase Date
|
|
|
Shares Received
from Forward
Contract Settlement
|
|
|
Total Shares
Repurchased
|
|
|
Settlement Date
|
|
December 19, 2017
|
|
|
$ 273
|
|
|
|
7,727,273
|
|
|
|
824,367
|
|
|
|
8,551,640
|
|
|
|
March 19, 2018
|
|
February 12, 2018
|
|
|
318
|
|
|
|
8,691,318
|
|
|
|
1,015,731
|
|
|
|
9,707,049
|
|
|
|
March 26, 2018
|
|
85
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
15. 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 the following sections.
Commitments
The Bancorp has certain commitments to make future payments under contracts. The following table reflects a summary of
significant commitments as of:
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Commitments to extend credit
|
|
$
|
68,089
|
|
|
|
68,106
|
|
Letters of credit
|
|
|
2,164
|
|
|
|
2,185
|
|
Forward contracts related to residential mortgage loans held for sale
|
|
|
1,153
|
|
|
|
1,284
|
|
Noncancelable operating lease obligations
|
|
|
559
|
|
|
|
568
|
|
Purchase obligations
|
|
|
132
|
|
|
|
144
|
|
Capital commitments for private equity investments
|
|
|
45
|
|
|
|
48
|
|
Capital expenditures
|
|
|
27
|
|
|
|
37
|
|
Capital lease obligations
|
|
|
24
|
|
|
|
26
|
|
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 March 31, 2018 and December 31, 2017, the Bancorp had a reserve for unfunded commitments, including letters of credit, totaling $151 million and $161 million, respectively, included in other liabilities in the
Condensed Consolidated Balance Sheets. The Bancorp monitors the credit risk associated with commitments to extend credit using the same risk rating system utilized within its loan and lease portfolio.
Risk ratings under this risk rating system are summarized in the following table as of:
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Pass
|
|
$
|
67,323
|
|
|
|
67,254
|
|
Special mention
|
|
|
354
|
|
|
|
330
|
|
Substandard
|
|
|
412
|
|
|
|
522
|
|
Total commitments to extend
credit
|
|
$
|
68,089
|
|
|
|
68,106
|
|
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 March 31, 2018:
|
|
|
|
|
($ in millions)
|
|
|
|
Less than 1 year
(a)
|
|
$
|
1,174
|
|
1 - 5 years
(a)
|
|
|
981
|
|
Over 5 years
|
|
|
9
|
|
Total letters of
credit
|
|
$
|
2,164
|
|
(a)
|
Includes $6 and $1 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 approximately 99% of total letters of credit at both March 31, 2018 and December 31, 2017, and are considered guarantees in accordance with U.S. GAAP. Approximately 62% and 61% of the total standby letters of credit were
collateralized as of March 31, 2018 and December 31, 2017, 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 $15 million and $6 million at March 31,
2018 and December 31, 2017, respectively. The Bancorp monitors the credit risk associated with letters of credit using the same risk rating system utilized within its loan and lease portfolio.
86
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Risk ratings under this risk rating system are summarized in the following table as of:
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Pass
|
|
$
|
1,822
|
|
|
|
1,830
|
|
Special mention
|
|
|
60
|
|
|
|
67
|
|
Substandard
|
|
|
198
|
|
|
|
218
|
|
Doubtful
|
|
|
84
|
|
|
|
70
|
|
Total letters of
credit
|
|
$
|
2,164
|
|
|
|
2,185
|
|
At March 31, 2018 and December 31, 2017, 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 March 31, 2018 and December 31, 2017, total VRDNs in which the Bancorp was the remarketing agent or were supported by a Bancorp letter of
credit were $646 million and $602 million, respectively, of which FTS acted as the remarketing agent to issuers on $562 million and $508 million, 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 $320 million and $331 million of the VRDNs remarketed by FTS, in addition to $84 million and $94 million in VRDNs remarketed by
third parties at March 31, 2018 and December 31, 2017, respectively. These letters of credit are included in the total letters of credit balance provided in the previous table. The Bancorp held zero and $1 million of these VRDNs in
its portfolio and classified them as trading securities at March 31, 2018 and December 31, 2017, respectively.
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
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 16
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, indemnify or 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 of
the Notes to Consolidated Financial Statements included in the Bancorps Annual Report on Form
10-K
for the year ended December 31, 2017.
As of March 31, 2018 and December 31, 2017, the Bancorp maintained reserves related to loans sold with representation and warranty
provisions totaling $8 million and $9 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 March 31, 2018 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 $9 million in excess of amounts reserved. This estimate was derived by modifying the key assumptions 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.
87
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
For both the three months ended March 31, 2018 and 2017, the Bancorp paid an immaterial
amount in the form of make whole payments and repurchased $2 million in outstanding principal of loans to satisfy investor demands. Total repurchase demand requests during the three months ended March 31, 2018 and 2017 were $5 million
and $3 million, respectively. Total outstanding repurchase demand inventory was $2 million and $1 million at March 31, 2018 and December 31, 2017, respectively.
The following table summarizes activity in the reserve for representation and warranty provisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
March 31,
|
|
|
|
|
|
|
|
($ in millions)
|
|
2018
|
|
|
2017
|
|
|
|
Balance, beginning of period
|
|
$
|
9
|
|
|
|
13
|
|
|
|
Net reductions to the reserve
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
Balance, end of
period
|
|
$
|
8
|
|
|
|
12
|
|
|
|
The following tables provide a rollforward of unresolved claims by claimant type for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
|
|
|
|
|
|
Private Label
|
|
|
|
|
March 31, 2018 ($ in millions)
|
|
Units
|
|
|
Dollars
|
|
|
|
|
|
Units
|
|
|
Dollars
|
|
|
|
|
Balance, beginning of period
|
|
|
6
|
|
|
$
|
1
|
|
|
|
|
|
|
|
1
|
|
|
$
|
-
|
|
|
|
|
|
New demands
|
|
|
30
|
|
|
|
5
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Resolved demands
|
|
|
(22
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Balance, end of
period
|
|
|
14
|
|
|
$
|
2
|
|
|
|
|
|
|
|
1
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
|
|
|
|
|
|
Private Label
|
|
|
|
|
March 31, 2017 ($ in millions)
|
|
Units
|
|
|
Dollars
|
|
|
|
|
|
Units
|
|
|
Dollars
|
|
|
|
|
Balance, beginning of period
|
|
|
13
|
|
|
$
|
2
|
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
New demands
|
|
|
23
|
|
|
|
3
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Loan paydowns/payoffs
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Resolved demands
|
|
|
(24
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Balance, end of
period
|
|
|
11
|
|
|
$
|
1
|
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
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 $301 million and $312 million at March 31, 2018 and
December 31, 2017, respectively, and the delinquency rates were 2.7% and 3.0% at March 31, 2018 and December 31, 2017, respectively. The Bancorp maintained an estimated credit loss reserve on these loans sold with credit recourse of
$5 million at both March 31, 2018 and December 31, 2017 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 balances held by the brokerage clearing agent were $16 million and $15 million at March 31, 2018 and December 31, 2017, 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 March 31, 2018 and December 31, 2017.
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 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.
88
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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 21 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.
As of the date of the Bancorps sale of the Visa Class B Shares and through March 31, 2018, 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 $165 million at March 31, 2018 and $137 million at December 31, 2017. Refer to Note 11 and Note 21 for further information.
After the Bancorps sale of the Class B Shares, Visa has funded additional amounts into the litigation escrow account which have
resulted in further dilutive adjustments to the conversion of Class B Shares into Class A Shares, and along with other terms of the total return swap, required the Bancorp to make cash payments in varying amounts to the swap counterparty
as follows:
|
|
|
|
|
|
|
|
|
|
|
Period ($ 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
|
|
|
|
89
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
16. 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 (In re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation). 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 15 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. On March 27, 2017, the Supreme Court of the United States denied a petition for writ of certiorari seeking to review the Second
Circuits decision. 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 overturned settlement agreement, approximately 25% of the
funds paid into the class settlement escrow account were already returned to the control of the defendants. The remaining approximately 75% of the settlement funds paid by the Bancorp are maintained in the escrow account. More than 500 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 individual federal lawsuits were transferred to the United States
District Court for the Eastern District of New York. While the Bancorp is only named as a defendant in one of the individual federal lawsuits, it may have obligations pursuant to indemnification arrangements and/or the judgment or loss sharing
agreements noted above. Refer to Note 15 for further information.
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. On January 10, 2018, plaintiffs filed a motion to hear the immediate appeal of the dismissal of their breach of contract
claim. On March 28, 2018, the court granted plaintiffs motion and stayed the TILA claim pending that appeal. On April 26, 2018, plaintiffs filed their notice of appeal for the breach of contract claim with the U.S. Court of Appeals
for the Sixth Circuit.
Helton v. Fifth Third Bank
On August 31, 2015, trust beneficiaries filed an action against Fifth Third Bank, as trustee, in the Probate Court for Hamilton County,
Ohio (Helen Clarke Helton, et al. v. Fifth Third Bank). The plaintiffs allege breach of the duty to diversify, breach of the duty of impartiality, breach of trust/fiduciary duty, and unjust enrichment, based on Fifth Thirds alleged failure to
diversify assets held in two trusts for the plaintiffs benefit. The lawsuit seeks over $800 million in alleged damages, attorneys fees, removal of Fifth Third as trustee, and injunctive relief. Fifth Third denies all liability. On
April 20, 2018, the Court denied plaintiffs motion for summary judgment and granted summary judgment to Fifth Third, dismissing the case in its entirety.
Upsher-Smith Laboratories, Inc. v. Fifth Third Bank
On February 12, 2016, Upsher-Smith Laboratories, Inc. (Upsher-Smith) filed suit against Fifth Third Bank in the Fourth
Judicial District, Hennepin County, Minnesota (Upsher-Smith Laboratories Inc. v. Fifth Third Bank), alleging that Fifth Third improperly implemented foreign exchange transactions requested by plaintiffs authorized employee who allegedly was
the victim of fraud by a third party. Plaintiff asserts claims for breach of contract and the implied covenant of good faith and fair dealing under Article
4A-202
of the Uniform Commercial Code, with losses
allegedly totaling almost $40 million. Fifth Third denies all liability in this matter. On March 3, 2016, Fifth Third removed the case to the United States District Court for the District of Minnesota. No trial date has been scheduled.
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.
90
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Governmental Investigations and Proceedings
The Bancorp and/or its affiliates are or may become 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 FRB, CFPB, SEC, FINRA, U.S. Department of Justice, etc., as well as state and other governmental authorities and
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 or reputational harm 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. Additionally,
in some cases, regulatory authorities may take supervisory actions that are considered to be confidential supervisory information which may not be publicly disclosed.
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
$22 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.
17.
Related Party Transactions
On January 16, 2018, Vantiv, Inc. completed its previously announced acquisition of Worldpay Group
plc. with the resulting combined company named Worldpay, Inc. As a result of this transaction, the Bancorp recognized a gain of $414 million in other noninterest income during the first quarter of 2018 associated with the dilution in its
ownership interest in Vantiv Holding, LLC from approximately 8.6% to approximately 4.9%. The Bancorps remaining interest in Vantiv Holding, LLC of $632 million continues to be accounted for as an equity method investment given the nature
of Vantiv Holding, LLCs structure as a limited liability company and contractual arrangements between Vantiv Holding, LLC and the Bancorp.
18.
Income Taxes
The applicable income tax expense was $132 million and $91 million for the three months ended March 31,
2018 and 2017, respectively. The effective tax rates for the three months ended March 31, 2018 and 2017 were 15.8% and 22.9%, respectively. The decrease in the effective tax rate for the three months ended March 31, 2018 compared to the
same period in the prior year was primarily related to the reduction in the federal statutory corporate tax rate partially offset by changes to previously deductible items associated with the enactment of the TCJA.
While it is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the Bancorps uncertain tax
positions could increase or decrease during the next 12 months, the Bancorp believes it is unlikely that its unrecognized tax benefits will change by a material amount during the next 12 months.
91
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
19. Accumulated Other Comprehensive Income
The tables below present the activity of the components of OCI and AOCI for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OCI
|
|
Total AOCI
|
March 31, 2018 ($ in millions)
|
|
|
|
Pretax
Activity
|
|
Tax
Effect
|
|
Net
Activity
|
|
Beginning
Balance
(a)
|
|
Net
Activity
|
|
Ending
Balance
|
Unrealized holding losses on
available-for-sale
debt securities arising during period
|
|
$
|
|
|
|
(594
|
)
|
|
|
|
134
|
|
|
|
|
(460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net losses on
available-for-sale
debt securities included in net income
|
|
|
|
|
|
9
|
|
|
|
|
(2
|
)
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses on
available-for-sale
debt securities
|
|
|
|
|
|
(585
|
)
|
|
|
|
132
|
|
|
|
|
(453
|
)
|
|
|
|
135
|
|
|
|
|
(453
|
)
|
|
|
|
(318
|
)
|
Unrealized holding losses on
cash flow hedge derivatives arising during period
|
|
|
|
|
|
(9)
|
|
|
|
|
2
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net gains on cash flow
hedge derivatives included in net income
|
|
|
|
|
|
(1
|
)
|
|
|
|
-
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses on cash flow hedge derivatives
|
|
|
|
|
|
(10
|
)
|
|
|
|
2
|
|
|
|
|
(8
|
)
|
|
|
|
(11
|
)
|
|
|
|
(8
|
)
|
|
|
|
(19
|
)
|
Reclassification of amounts to net periodic benefit costs
|
|
|
|
|
|
1
|
|
|
|
|
-
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans, net
|
|
|
|
|
|
1
|
|
|
|
|
-
|
|
|
|
|
1
|
|
|
|
|
(53
|
)
|
|
|
|
1
|
|
|
|
|
(52
|
)
|
Total
|
|
$
|
|
|
|
(594
|
)
|
|
|
|
134
|
|
|
|
|
(460
|
)
|
|
|
|
71
|
|
|
|
|
(460
|
)
|
|
|
|
(389
|
)
|
(a) The Bancorps AOCI balance was adjusted
as of January 1, 2018 to reflect the adoption of new accounting standards. Refer to Note 3 for additional information.
|
|
|
|
|
|
Total OCI
|
|
Total AOCI
|
March 31, 2017 ($ 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
|
|
$
|
|
|
|
22
|
|
|
|
|
(7
|
)
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net losses on
available-for-sale
securities included in net income
|
|
|
|
|
|
2
|
|
|
|
|
(1
|
)
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on
available-for-sale
securities
|
|
|
|
|
|
24
|
|
|
|
|
(8
|
)
|
|
|
|
16
|
|
|
|
|
101
|
|
|
|
|
16
|
|
|
|
|
117
|
|
Unrealized holding losses on
cash flow hedge derivatives arising during period
|
|
|
|
|
|
(5
|
)
|
|
|
|
2
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net gains on cash flow
hedge derivatives included in net income
|
|
|
|
|
|
(8
|
)
|
|
|
|
3
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on cash flow hedge derivatives
|
|
|
|
|
|
(13
|
)
|
|
|
|
5
|
|
|
|
|
(8
|
)
|
|
|
|
10
|
|
|
|
|
(8
|
)
|
|
|
|
2
|
|
Reclassification of amounts to net periodic benefit costs
|
|
|
|
|
|
2
|
|
|
|
|
(1
|
)
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans, net
|
|
|
|
|
|
2
|
|
|
|
|
(1
|
)
|
|
|
|
1
|
|
|
|
|
(52
|
)
|
|
|
|
1
|
|
|
|
|
(51
|
)
|
Total
|
|
$
|
|
|
|
13
|
|
|
|
|
(4
|
)
|
|
|
|
9
|
|
|
|
|
59
|
|
|
|
|
9
|
|
|
|
|
68
|
|
92
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The table below presents reclassifications out of AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements
of
Income
Caption
|
|
|
|
|
For the three months ended
March 31,
|
|
Components of AOCI: ($ in millions)
|
|
|
|
|
|
2018
|
|
|
2017
|
|
Net unrealized
gains on
available-for-sale
securities:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses included in net income
|
|
Securities losses, net
|
|
$
|
|
|
|
|
(9
|
)
|
|
|
(2
|
)
|
|
|
Income before income taxes
|
|
|
|
|
|
|
(9
|
)
|
|
|
(2
|
)
|
|
|
Applicable income tax expense
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
|
|
Net income
|
|
|
|
|
|
|
(7
|
)
|
|
|
(1
|
)
|
Net unrealized
gains on cash flow hedge derivatives:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts related to C&I loans
|
|
Interest and fees on loans and leases
|
|
|
|
|
|
|
1
|
|
|
|
8
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
1
|
|
|
|
8
|
|
|
|
Applicable income tax expense
|
|
|
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
Net income
|
|
|
|
|
|
|
1
|
|
|
|
5
|
|
Net periodic
benefit costs:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
Employee benefits expense
(a)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
Income before income taxes
|
|
|
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
Applicable income tax expense
|
|
|
|
|
|
|
-
|
|
|
|
1
|
|
|
|
Net income
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for
the period
|
|
Net income
|
|
$
|
|
|
|
|
(7
|
)
|
|
|
3
|
|
(a)
|
This AOCI component is included in the computation of net periodic benefit cost. Refer to Note 22 of the
Notes to Consolidated Financial Statements included in the Bancorps Annual Report on Form
10-K
for the year ended December 31, 2017 for further information.
|
(b)
|
Amounts in parentheses indicate reductions to net income.
|
93
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
20. Earnings Per Share
The following table provides the calculation of earnings per share and the reconciliation of earnings per share and earnings per diluted
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
For the three months ended March 31,
(in millions, except per share data)
|
|
|
|
|
|
Income
|
|
Average
Shares
|
|
|
Per Share
Amount
|
|
|
Income
|
|
|
Average
Shares
|
|
|
Per Share
Amount
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
|
|
$
|
|
689
|
|
|
|
|
|
|
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
Less: Income allocated to participating securities
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders
|
|
|
|
$
|
|
681
|
|
|
690
|
|
|
|
0.99
|
|
|
|
286
|
|
|
|
748
|
|
|
|
0.38
|
|
Earnings Per Diluted Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
|
|
$
|
|
689
|
|
|
|
|
|
|
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based awards
|
|
|
|
|
|
-
|
|
|
14
|
|
|
|
|
|
|
|
-
|
|
|
|
13
|
|
|
|
|
|
Net income available to common shareholders
plus assumed conversions
|
|
|
|
|
|
689
|
|
|
|
|
|
|
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
Less: Income allocated to participating securities
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders
plus assumed
conversions
|
|
|
|
$
|
|
681
|
|
|
704
|
|
|
|
0.97
|
|
|
|
286
|
|
|
|
761
|
|
|
|
0.38
|
|
Shares are excluded from the computation of earnings per diluted share when their inclusion has an
anti-dilutive effect on earnings per share. The diluted earnings per share computation for the three months ended March 31, 2018 and March 31, 2017 excludes 2 million and 6 million, respectively, of SARs and an immaterial amount
of stock options because their inclusion would have been anti-dilutive.
94
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
21. 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 of the Notes to Consolidated Financial Statements included in the Bancorps Annual Report on Form
10-K
for the year ended December 31, 2017.
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 as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
March 31, 2018 ($ in millions)
|
|
Level 1
(c)
|
|
|
Level 2
(c)
|
|
|
Level 3
|
|
|
Total Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
debt and other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies securities
|
|
$
|
96
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96
|
|
Obligations of states and political subdivisions securities
|
|
|
-
|
|
|
|
44
|
|
|
|
-
|
|
|
|
44
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage-backed securities
|
|
|
-
|
|
|
|
15,208
|
|
|
|
-
|
|
|
|
15,208
|
|
Agency commercial mortgage-backed securities
|
|
|
-
|
|
|
|
10,455
|
|
|
|
-
|
|
|
|
10,455
|
|
Non-agency
commercial mortgage-backed securities
|
|
|
-
|
|
|
|
3,190
|
|
|
|
-
|
|
|
|
3,190
|
|
Asset-backed securities and other debt securities
|
|
|
-
|
|
|
|
2,214
|
|
|
|
-
|
|
|
|
2,214
|
|
Available-for-sale
debt and other securities
(a)
|
|
|
96
|
|
|
|
31,111
|
|
|
|
-
|
|
|
|
31,207
|
|
Trading debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies securities
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
|
|
21
|
|
Obligations of states and political subdivisions securities
|
|
|
-
|
|
|
|
52
|
|
|
|
-
|
|
|
|
52
|
|
Agency residential mortgage-backed securities
|
|
|
-
|
|
|
|
364
|
|
|
|
-
|
|
|
|
364
|
|
Asset-backed securities and other debt securities
|
|
|
-
|
|
|
|
134
|
|
|
|
-
|
|
|
|
134
|
|
Trading debt securities
|
|
|
-
|
|
|
|
571
|
|
|
|
-
|
|
|
|
571
|
|
Equity securities
|
|
|
417
|
|
|
|
1
|
|
|
|
-
|
|
|
|
418
|
|
Residential mortgage loans held for sale
|
|
|
-
|
|
|
|
650
|
|
|
|
-
|
|
|
|
650
|
|
Residential mortgage loans
(b)
|
|
|
-
|
|
|
|
-
|
|
|
|
136
|
|
|
|
136
|
|
Commercial loans held for sale
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
16
|
|
MSRs
|
|
|
-
|
|
|
|
-
|
|
|
|
926
|
|
|
|
926
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
2
|
|
|
|
521
|
|
|
|
11
|
|
|
|
534
|
|
Foreign exchange contracts
|
|
|
-
|
|
|
|
132
|
|
|
|
-
|
|
|
|
132
|
|
Commodity contracts
|
|
|
34
|
|
|
|
165
|
|
|
|
-
|
|
|
|
199
|
|
Derivative assets
(d)
|
|
|
36
|
|
|
|
818
|
|
|
|
11
|
|
|
|
865
|
|
Total assets
|
|
$
|
549
|
|
|
|
33,167
|
|
|
|
1,073
|
|
|
|
34,789
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
2
|
|
|
|
276
|
|
|
|
7
|
|
|
|
285
|
|
Foreign exchange contracts
|
|
|
-
|
|
|
|
129
|
|
|
|
-
|
|
|
|
129
|
|
Equity contracts
|
|
|
-
|
|
|
|
-
|
|
|
|
165
|
|
|
|
165
|
|
Commodity contracts
|
|
|
56
|
|
|
|
139
|
|
|
|
-
|
|
|
|
195
|
|
Derivative liabilities
(e)
|
|
|
58
|
|
|
|
544
|
|
|
|
172
|
|
|
|
774
|
|
Short positions
(e)
|
|
|
93
|
|
|
|
33
|
|
|
|
-
|
|
|
|
126
|
|
Total liabilities
|
|
$
|
151
|
|
|
|
577
|
|
|
|
172
|
|
|
|
900
|
|
(a)
|
Excludes FHLB, FRB and DTCC restricted stock holdings totaling
$248
,
$362
and
$
2
, respectively, at
March
31, 2018
.
|
(b)
|
Includes residential mortgage loans originated as held for sale and subsequently transferred to held for
investment.
|
(c)
|
During the three months ended
March
31,
2018
, 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.
|
95
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Measurements Using
|
|
|
|
|
December 31, 2017 ($ in millions)
|
|
Level 1
(c)
|
|
|
Level 2
(c)
|
|
|
Level 3
|
|
|
Total Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
debt and other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies securities
|
|
$
|
98
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98
|
|
Obligations of states and political subdivisions securities
|
|
|
-
|
|
|
|
44
|
|
|
|
-
|
|
|
|
44
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage-backed securities
|
|
|
-
|
|
|
|
15,319
|
|
|
|
-
|
|
|
|
15,319
|
|
Agency commercial mortgage-backed securities
|
|
|
-
|
|
|
|
10,167
|
|
|
|
-
|
|
|
|
10,167
|
|
Non-agency
commercial mortgage-backed securities
|
|
|
-
|
|
|
|
3,293
|
|
|
|
-
|
|
|
|
3,293
|
|
Asset-backed securities and other debt securities
|
|
|
-
|
|
|
|
2,218
|
|
|
|
-
|
|
|
|
2,218
|
|
Available-for-sale
debt and other securities
(a)
|
|
|
98
|
|
|
|
31,041
|
|
|
|
-
|
|
|
|
31,139
|
|
Trading debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies securities
|
|
|
1
|
|
|
|
11
|
|
|
|
-
|
|
|
|
12
|
|
Obligations of states and political subdivisions securities
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
22
|
|
Residential mortgage-backed securities
|
|
|
-
|
|
|
|
395
|
|
|
|
-
|
|
|
|
395
|
|
Asset-backed securities and other debt securities
|
|
|
-
|
|
|
|
63
|
|
|
|
-
|
|
|
|
63
|
|
Trading debt securities
|
|
|
1
|
|
|
|
491
|
|
|
|
-
|
|
|
|
492
|
|
Equity securities
|
|
|
438
|
|
|
|
1
|
|
|
|
|
|
|
|
439
|
|
Residential mortgage loans held for sale
|
|
|
-
|
|
|
|
399
|
|
|
|
-
|
|
|
|
399
|
|
Residential mortgage loans
(b)
|
|
|
-
|
|
|
|
-
|
|
|
|
137
|
|
|
|
137
|
|
MSRs
|
|
|
-
|
|
|
|
-
|
|
|
|
858
|
|
|
|
858
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
1
|
|
|
|
505
|
|
|
|
8
|
|
|
|
514
|
|
Foreign exchange contracts
|
|
|
-
|
|
|
|
124
|
|
|
|
-
|
|
|
|
124
|
|
Equity contracts
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
20
|
|
Commodity contracts
|
|
|
39
|
|
|
|
126
|
|
|
|
-
|
|
|
|
165
|
|
Derivative assets
(d)
|
|
|
40
|
|
|
|
775
|
|
|
|
8
|
|
|
|
823
|
|
Total assets
|
|
$
|
577
|
|
|
|
32,707
|
|
|
|
1,003
|
|
|
|
34,287
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
1
|
|
|
|
172
|
|
|
|
5
|
|
|
|
178
|
|
Foreign exchange contracts
|
|
|
-
|
|
|
|
120
|
|
|
|
-
|
|
|
|
120
|
|
Equity contracts
|
|
|
-
|
|
|
|
-
|
|
|
|
137
|
|
|
|
137
|
|
Commodity contracts
|
|
|
38
|
|
|
|
129
|
|
|
|
-
|
|
|
|
167
|
|
Derivative liabilities
(e)
|
|
|
39
|
|
|
|
421
|
|
|
|
142
|
|
|
|
602
|
|
Short positions
(e)
|
|
|
25
|
|
|
|
6
|
|
|
|
-
|
|
|
|
31
|
|
Total liabilities
|
|
$
|
64
|
|
|
|
427
|
|
|
|
142
|
|
|
|
633
|
|
(a)
|
Excludes FHLB, FRB and DTCC restricted stock holdings totaling $248, $362 and $2, respectively, at
December 31, 2017.
|
(b)
|
Includes residential mortgage loans originated as held for sale and subsequently transferred to held for
investment.
|
(c)
|
During the year ended December 31, 2017, 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
debt and other securities, trading debt securities and
equity 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 may include federal agencies securities, obligations of states and political subdivisions securities, agency and non-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.
96
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Commercial loans held for sale
For commercial loans held for sale for which the fair value election has been made, fair value is estimated based upon quoted prices of
identical or similar assets in an active market, which are reviewed and approved by the Market Risk department, which reports to the Bancorps Chief Risk Officer. These loans are generally valued using a market approach based on observable
prices and are classified within Level 2 of the valuation hierarchy.
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.
MSRs
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 10 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 quarterly 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.
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 March 31, 2018 and December 31, 2017, derivatives classified as Level 3, which are valued using models containing unobservable inputs, consisted primarily of 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.
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 the fair value of the
derivative liability; conversely, a decrease in the loss estimate or an acceleration of the resolution of the Covered Litigation would result in a decrease in the fair value of the derivative liability. The Accounting and Treasury departments, both
of which report to the Bancorps Chief Financial Officer, 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 asset fair value of the IRLCs at March 31, 2018 was $11 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 $5 million and $9 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 $6 million and $13 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 $1 million and $2 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 $1 million and
$2 million, respectively. These sensitivities are hypothetical and should be used with caution, as changes in fair value based on a variation in assumptions typically cannot be extrapolated because the relationship of the change in assumptions
to the change in fair value may not be linear.
97
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The Consumer Line of Business Finance department, which reports to the Bancorps Chief
Financial Officer, and the aforementioned Secondary Marketing department are responsible for determining the valuation methodology for IRLCs. Secondary Marketing, in conjunction with a third party valuation provider, periodically review loan closing
rate assumptions and recent loan sales to determine if adjustments are needed for current market conditions not reflected in historical data.
Short
positions
Where quoted prices are available in an active market, short positions are classified within Level 1 of the valuation
hierarchy. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics or DCFs and therefore are classified within Level 2 of the valuation hierarchy.
The following tables are a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
For the three months ended March 31, 2018 ($ in millions)
|
|
Residential
Mortgage
Loans
|
|
|
MSRs
|
|
|
Interest Rate
Derivatives,
Net
(a)
|
|
|
Equity
Derivatives
|
|
|
Total
Fair Value
|
|
|
|
Balance, beginning of period
|
|
$
|
137
|
|
|
|
858
|
|
|
|
3
|
|
|
|
(137)
|
|
|
|
861
|
|
Total gains (losses) (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(2)
|
|
|
|
28
|
|
|
|
14
|
|
|
|
(39)
|
|
|
|
1
|
|
Purchases/originations
|
|
|
-
|
|
|
|
40
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
38
|
|
Settlements
|
|
|
(135)
|
|
|
|
-
|
|
|
|
(11)
|
|
|
|
11
|
|
|
|
(135)
|
|
Transfers into Level 3
(b)
|
|
|
136
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136
|
|
|
|
Balance, end of period
|
|
$
|
136
|
|
|
|
926
|
|
|
|
4
|
|
|
|
(165)
|
|
|
|
901
|
|
|
|
The amount of total (losses) gains for the period included
in earnings attributable to the change in unrealized gains or losses relating to instruments still held at March 31, 2018
(c)
|
|
$
|
(2)
|
|
|
|
28
|
|
|
|
11
|
|
|
|
(39)
|
|
|
|
(2)
|
|
(a) Net interest rate derivatives include
derivative assets and liabilities of
$
11
and
$
7
, respectively, as of
March
31,
2018
.
(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 March 31, 2017 ($ in millions)
|
|
Residential
Mortgage
Loans
|
|
|
MSRs
|
|
|
Interest Rate
Derivatives,
Net
(a)
|
|
|
Equity
Derivatives,
Net
(a)
|
|
|
Total
Fair Value
|
|
|
|
Balance, beginning of period
|
|
$
|
143
|
|
|
|
744
|
|
|
|
8
|
|
|
|
(91)
|
|
|
|
804
|
|
Total (losses) gains (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
-
|
|
|
|
(23)
|
|
|
|
23
|
|
|
|
(13)
|
|
|
|
(13)
|
|
Purchases/originations
|
|
|
-
|
|
|
|
55
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
54
|
|
Settlements
|
|
|
(5)
|
|
|
|
-
|
|
|
|
(19)
|
|
|
|
7
|
|
|
|
(17)
|
|
Transfers into Level 3
(b)
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
Balance, end of period
|
|
$
|
141
|
|
|
|
776
|
|
|
|
11
|
|
|
|
(97)
|
|
|
|
831
|
|
|
|
The amount of total (losses) gains for the period included in earnings attributable to the change
in unrealized gains or losses relating to instruments still held at March 31, 2017
(c)
|
|
$
|
-
|
|
|
|
(23)
|
|
|
|
16
|
|
|
|
(13)
|
|
|
|
(20)
|
|
|
|
(a)
|
Net interest rate derivatives include derivative assets and liabilities of $16 and $5, respectively, as of
March 31, 2017. Net equity derivatives include derivative assets and liabilities of $0 and $97, respectively, as of March 31, 2017.
|
(b)
|
Includes certain residential mortgage loans originated as held for sale that were transferred to held for
investment.
|
(c)
|
Includes interest income and expense.
|
The total gains and losses included in earnings for assets and liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) were recorded in the Condensed Consolidated Statements of Income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
|
|
|
March 31,
|
|
($ in millions)
|
|
|
|
|
2018
|
|
2017
|
|
|
|
Mortgage banking net revenue
|
|
$
|
|
|
|
39
|
|
-
|
|
|
|
|
Corporate banking revenue
|
|
|
|
|
|
1
|
|
-
|
|
|
|
|
Other noninterest income
|
|
|
|
|
|
(39)
|
|
(13)
|
|
|
|
|
Total gains (losses)
|
|
$
|
|
|
|
1
|
|
(13)
|
|
|
|
|
98
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The total losses included in earnings attributable to changes in unrealized gains and losses
related to Level 3 assets and liabilities still held at March 31, 2018 and 2017 were recorded in the Condensed Consolidated Statements of Income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
|
March 31,
|
($ in millions)
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Mortgage banking net revenue
|
|
$
|
|
|
36
|
|
|
|
(7
|
)
|
|
|
Corporate banking revenue
|
|
|
|
|
1
|
|
|
|
-
|
|
|
|
Other noninterest income
|
|
|
|
|
(39
|
)
|
|
|
(13
|
)
|
|
|
Total losses
|
|
$
|
|
|
(2
|
)
|
|
|
(20
|
)
|
|
|
The following tables present information as of March 31, 2018 and 2017 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 March 31, 2018 ($ in millions)
|
Financial Instrument
|
|
|
|
Fair Value
|
|
Valuation Technique
|
|
Significant Unobservable
Inputs
|
|
Ranges of
Inputs
|
|
Weighted-Average
|
Residential mortgage loans
|
|
$
|
|
136
|
|
Loss rate model
|
|
Interest rate risk factor
|
|
(12.6) - 14.1%
|
|
1.3%
|
|
|
|
|
|
|
|
|
Credit risk factor
|
|
0 - 46.2%
|
|
1.5%
|
MSRs
|
|
|
|
926
|
|
Discounted cash flow
|
|
Prepayment speed
|
|
0.5-98.1%
|
|
(Fixed) 10.0%
(Adjustable) 24.6%
|
|
|
|
|
|
|
|
|
OAS spread (bps)
|
|
446-1,515
|
|
(Fixed) 548
(Adjustable) 797
|
IRLCs, net
|
|
|
|
11
|
|
Discounted cash flow
|
|
Loan closing rates
|
|
9.5 - 102.7%
|
|
76.6%
|
Swap associated with the sale of Visa, Inc.
Class B Shares
|
|
|
|
(165)
|
|
Discounted cash flow
|
|
Timing of the resolution of the Covered Litigation
|
|
2/28/2021 - 12/31/2023
|
|
9/8/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017 ($ in millions)
|
Financial Instrument
|
|
|
|
Fair Value
|
|
Valuation Technique
|
|
Significant Unobservable
Inputs
|
|
Ranges of
Inputs
|
|
Weighted-Average
|
Residential mortgage loans
|
|
$
|
|
141
|
|
Loss rate model
|
|
Interest rate risk factor Credit risk factor
|
|
(10.6) - 15.4%
0 - 46.2%
|
|
2.3%
1.2%
|
|
|
|
|
|
|
|
MSRs
|
|
|
|
776
|
|
Discounted cash flow
|
|
Prepayment speed
|
|
0.7-100%
|
|
(Fixed) 11.2%
(Adjustable) 25.2%
|
|
|
|
|
|
|
|
|
OAS spread (bps)
|
|
430-1,515
|
|
(Fixed) 528
(Adjustable) 757
|
IRLCs, net
|
|
|
|
16
|
|
Discounted cash flow
|
|
Loan closing rates
|
|
12.3- 97.9%
|
|
72.2%
|
Swap associated with the sale of Visa, Inc.
Class B Shares
|
|
|
|
(97)
|
|
Discounted cash flow
|
|
Timing of the resolution of the Covered Litigation
|
|
12/31/2018 - 12/31/2022
|
|
8/24/2020
|
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 March 31, 2018 and 2017,
and for which a nonrecurring fair value adjustment was recorded during the three months ended March 31, 2018 and 2017, 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
|
|
|
|
As of March 31, 2018 ($ in millions)
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
For the three months
ended March 31, 2018
|
|
|
|
Commercial loans held for sale
|
|
$
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
5
|
|
|
|
(1)
|
|
|
|
Commercial and industrial loans
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
277
|
|
|
|
277
|
|
|
|
(44)
|
|
|
|
Commercial mortgage loans
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
4
|
|
|
|
6
|
|
|
|
Commercial leases
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
(2)
|
|
|
|
OREO
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
17
|
|
|
|
(3)
|
|
|
|
Bank premises and equipment
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
4
|
|
|
|
(8)
|
|
|
|
Operating lease equipment
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
|
|
12
|
|
|
|
(2)
|
|
|
|
Private equity investments
|
|
|
|
|
|
|
-
|
|
|
|
50
|
|
|
|
33
|
|
|
|
83
|
|
|
|
19
|
|
|
|
Total
|
|
$
|
|
|
|
|
-
|
|
|
|
50
|
|
|
|
354
|
|
|
|
404
|
|
|
|
(35)
|
|
|
|
99
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
Total Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017 ($ in millions)
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
For the three months
ended March 31, 2017
|
Commercial loans held for sale
|
|
$
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
|
(19)
|
Commercial and industrial loans
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
318
|
|
|
|
318
|
|
|
(26)
|
Commercial mortgage loans
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
|
|
25
|
|
|
(2)
|
Commercial leases
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
(1)
|
OREO
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
|
|
19
|
|
|
(4)
|
Bank premises and equipment
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
15
|
|
|
(3)
|
Operating lease equipment
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55
|
|
|
|
55
|
|
|
(20)
|
Total
|
|
$
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
435
|
|
|
|
435
|
|
|
(75)
|
The following tables present information as of March 31, 2018 and 2017 about significant unobservable
inputs related to the Bancorps material categories of Level 3 financial assets and liabilities measured on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018 ($ in millions)
|
|
|
|
|
|
|
|
Financial Instrument
|
|
|
|
|
Fair Value
|
|
Valuation Technique
|
|
Significant Unobservable Inputs
|
|
Ranges of
Inputs
|
|
|
Weighted-Average
|
Commercial loans held for sale
|
|
$
|
|
|
|
5
|
|
Appraised value
|
|
Appraised value
|
|
|
NM
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
Costs to sell
|
|
|
NM
|
|
|
10.0%
|
Commercial and industrial loans
|
|
|
|
|
|
277
|
|
Appraised value
|
|
Collateral value
|
|
|
NM
|
|
|
NM
|
Commercial mortgage loans
|
|
|
|
|
|
4
|
|
Appraised value
|
|
Collateral value
|
|
|
NM
|
|
|
NM
|
Commercial leases
|
|
|
|
|
|
2
|
|
Appraised value
|
|
Collateral value
|
|
|
NM
|
|
|
NM
|
OREO
|
|
|
|
|
|
17
|
|
Appraised value
|
|
Appraised value
|
|
|
NM
|
|
|
NM
|
Bank premises and equipment
|
|
|
|
|
|
4
|
|
Appraised value
|
|
Appraised value
|
|
|
NM
|
|
|
NM
|
Operating lease equipment
|
|
|
|
|
|
12
|
|
Appraised value
|
|
Appraised value
|
|
|
NM
|
|
|
NM
|
Private equity investments
|
|
|
|
|
|
29
|
|
Liquidity discount applied
to funds net asset value
|
|
Liquidity discount
|
|
|
0-43.0%
|
|
|
10.5%
|
|
|
|
|
|
|
4
|
|
Comparable company analysis
|
|
Market comparable transactions
|
|
|
NM
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017 ($ in millions)
|
|
|
|
|
|
|
|
Financial Instrument
|
|
|
|
|
Fair Value
|
|
Valuation Technique
|
|
Significant Unobservable Inputs
|
|
Ranges of
Inputs
|
|
|
Weighted-Average
|
Commercial loans held for sale
|
|
$
|
|
|
|
1
|
|
Appraised value
|
|
Appraised value
|
|
|
NM
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
Costs to sell
|
|
|
NM
|
|
|
10.0%
|
Commercial and industrial loans
|
|
|
|
|
|
318
|
|
Appraised value
|
|
Collateral value
|
|
|
NM
|
|
|
NM
|
Commercial mortgage loans
|
|
|
|
|
|
25
|
|
Appraised value
|
|
Collateral value
|
|
|
NM
|
|
|
NM
|
Commercial leases
|
|
|
|
|
|
2
|
|
Appraised value
|
|
Collateral value
|
|
|
NM
|
|
|
NM
|
OREO
|
|
|
|
|
|
19
|
|
Appraised value
|
|
Appraised value
|
|
|
NM
|
|
|
NM
|
Bank premises and equipment
|
|
|
|
|
|
15
|
|
Appraised value
|
|
Appraised value
|
|
|
NM
|
|
|
NM
|
Operating lease equipment
|
|
|
|
|
|
55
|
|
Appraised value
|
|
Appraised value
|
|
|
NM
|
|
|
NM
|
Commercial loans held for sale
During the three months ended March 31, 2018 and 2017 the Bancorp transferred $1 million and $18 million, respectively, of
commercial loans from the portfolio to loans held for sale that upon transfer were measured at lower of cost or fair value. These loans had fair value adjustments during the three months ended March 31, 2018 and 2017 totaling an immaterial
amount and $17 million, respectively, and were generally based on appraisals of the underlying collateral and were, therefore, classified within Level 3 of the valuation hierarchy. Additionally, there was $1 million and an immaterial
amount of fair value adjustments on existing commercial loans held for sale for the three months ended March 31, 2018 and 2017, respectively. The fair value adjustments were also based on appraisals of the underlying collateral. The Bancorp did
not recognize any gains or losses on the sale of commercial loans held for sale during the three months ended March 31, 2018. During the three months ended March 31, 2017, the Bancorp recognized a $2 million loss on the sale of
commercial loans held for sale.
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 review 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.
100
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Commercial loans held for investment
During the three months ended March 31, 2018 and 2017, the Bancorp recorded nonrecurring impairment adjustments to certain commercial and
industrial loans, commercial mortgage 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 were 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.
OREO
During both the three months
ended March 31, 2018 and 2017, 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. For the three months ended March 31, 2018 and 2017, these losses include $1 million and $2 million, respectively, recorded as charge-offs on new
OREO properties transferred from loans during the respective periods and $2 million 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.
The Real Estate Valuation department 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 were 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 were 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 and equipment. For further
information on bank premises and equipment refer to Note 7.
Operating lease equipment
During both the three months ended March 31, 2018 and 2017, 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. During the three months ended March 31, 2018 and 2017, the Bancorp recorded net losses of $2 million and $20 million, respectively, as a reduction to corporate banking revenue in the Condensed
Consolidated Statements of Income. 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
As a result
of adopting ASU
2016-01,
effective January 1, 2018, the Bancorp accounts for its private equity investments using the measurement alternative to fair value, except for those accounted for under the equity
method of accounting. Under the measurement alternative, the Bancorp carries each investment at its cost basis minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar
investments of the same issuer. The carrying value of the Bancorps private equity investments as of March 31, 2018 include a cumulative $35 million of positive adjustments as a result of such observable price changes. Because these
adjustments are based on observable transactions in inactive markets, they are classified in Level 2 of the fair value hierarchy.
101
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
For private equity investments which are accounted for using the measurement alternative to
fair value, the Bancorp qualitatively evaluates each investment quarterly to determine if impairment may exist. If necessary, the Bancorp then measures impairment by estimating the value of its investment and comparing that to the investments
carrying value, whether or not the Bancorp considers the impairment to be temporary. These valuations are typically developed using a discounted cash flow method, but other methods may be used if more appropriate for the circumstances. These
valuations are based on unobservable inputs and therefore are classified in Level 3 of the fair value hierarchy. The carrying value of the Bancorps private equity investments as of March 31, 2018 includes a cumulative
$10 million of impairment charges recognized since adoption of the measurement alternative to fair value on January 1, 2018.
The Bancorp recognized $6 million of OTTI primarily associated with certain nonconforming investments affected by the Volcker Rule
during the three months ended March 31, 2018. 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 the funds by applying an estimated
market discount to the reported net asset value of the fund or through a discounted cash flow analysis. 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 Head of Payments, Strategy and Digital Solutions, 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 and commercial 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. Electing to measure certain commercial loans held for sale at fair value reduces certain timing
differences and better reflects changes in fair value of these assets that are expected to the sold in the short term. Managements intent to sell residential mortgage or commercial 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
residential mortgage loans held at March 31, 2018 and 2017 for which the fair value option was elected, as well as the changes in fair value of the underlying IRLCs, included gains of $12 million and $22 million, respectively. These
gains are reported in mortgage banking net revenue in the Condensed Consolidated Statements of Income. Fair value changes recognized in earnings for commercial loans held at March 31, 2018 for which the fair value option was elected included
gains of an immaterial amount for the three months ended March 31, 2018. The Bancorp did not hold any commercial loans held for sale during the three months ended March 31, 2017. These gains are reported in corporate banking 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 $2 million at both March 31, 2018 and December 31, 2017. Valuation adjustments related to instrument-specific credit risk for commercial loans measured
at fair value had an immaterial impact on the fair value of those loans at March 31, 2018. The Bancorp did not hold any commercial loans held for sale at December 31, 2017. Interest on loans measured at fair value is accrued as it is
earned using the effective interest method and is reported as interest income in the Condensed Consolidated Statements of Income.
The
following table summarizes the difference between the fair value and the unpaid principal balance for residential mortgage and commercial loans measured at fair value as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018 ($ in millions)
|
|
|
|
Aggregate
Fair Value
|
|
|
Aggregate Unpaid
Principal Balance
|
|
|
Difference
|
|
Residential mortgage loans measured at fair value
|
|
|
|
$
|
786
|
|
|
|
774
|
|
|
|
12
|
|
Past due loans of 90 days or more
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
-
|
|
Nonaccrual loans
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
Commercial loans measured at fair value
|
|
|
|
|
16
|
|
|
|
16
|
|
|
|
-
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans measured at fair value
|
|
|
|
$
|
536
|
|
|
|
522
|
|
|
|
14
|
|
Past due loans of 90 days or more
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
-
|
|
Nonaccrual loans
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
102
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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
|
|
|
Fair Value Measurements Using
|
|
|
Total
|
|
As of March 31, 2018 ($ in millions)
|
|
|
|
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
|
|
2,038
|
|
|
|
2,038
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,038
|
|
Other short-term investments
|
|
|
|
|
1,747
|
|
|
|
1,747
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,747
|
|
Other securities
|
|
|
|
|
612
|
|
|
|
-
|
|
|
|
612
|
|
|
|
-
|
|
|
|
612
|
|
Held-to-maturity
securities
|
|
|
|
|
23
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23
|
|
|
|
23
|
|
Loans and leases held for sale
|
|
|
|
|
51
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
|
|
51
|
|
Portfolio loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
|
|
41,023
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,143
|
|
|
|
42,143
|
|
Commercial mortgage loans
|
|
|
|
|
6,446
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,395
|
|
|
|
6,395
|
|
Commercial construction loans
|
|
|
|
|
4,743
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,775
|
|
|
|
4,775
|
|
Commercial leases
|
|
|
|
|
3,904
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,520
|
|
|
|
3,520
|
|
Residential mortgage loans
|
|
|
|
|
15,338
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,716
|
|
|
|
15,716
|
|
Home equity
|
|
|
|
|
6,713
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,103
|
|
|
|
7,103
|
|
Automobile loans
|
|
|
|
|
8,979
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,708
|
|
|
|
8,708
|
|
Credit card
|
|
|
|
|
2,072
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,440
|
|
|
|
2,440
|
|
Other consumer loans
|
|
|
|
|
1,592
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,669
|
|
|
|
1,669
|
|
Unallocated ALLL
|
|
|
|
|
(114
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total portfolio loans and leases, net
|
|
$
|
|
|
90,696
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92,469
|
|
|
|
92,469
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
|
|
105,461
|
|
|
|
-
|
|
|
|
105,407
|
|
|
|
-
|
|
|
|
105,407
|
|
Federal funds purchased
|
|
|
|
|
178
|
|
|
|
178
|
|
|
|
-
|
|
|
|
-
|
|
|
|
178
|
|
Other short-term borrowings
|
|
|
|
|
1,335
|
|
|
|
-
|
|
|
|
1,335
|
|
|
|
-
|
|
|
|
1,335
|
|
Long-term debt
|
|
|
|
|
14,800
|
|
|
|
14,752
|
|
|
|
464
|
|
|
|
-
|
|
|
|
15,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Carrying
|
|
|
Fair Value Measurements Using
|
|
|
Total
|
|
As of December 31, 2017 ($ in millions)
|
|
|
|
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
|
|
2,514
|
|
|
|
2,514
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,514
|
|
Other short-term investments
|
|
|
|
|
2,753
|
|
|
|
2,753
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,753
|
|
Other securities
|
|
|
|
|
612
|
|
|
|
-
|
|
|
|
612
|
|
|
|
-
|
|
|
|
612
|
|
Held-to-maturity
securities
|
|
|
|
|
24
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24
|
|
|
|
24
|
|
Loans and leases held for sale
|
|
|
|
|
93
|
|
|
|
-
|
|
|
|
-
|
|
|
|
93
|
|
|
|
93
|
|
Portfolio loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
|
|
|
40,519
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,718
|
|
|
|
41,718
|
|
Commercial mortgage loans
|
|
|
|
|
6,539
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,490
|
|
|
|
6,490
|
|
Commercial construction loans
|
|
|
|
|
4,530
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,560
|
|
|
|
4,560
|
|
Commercial leases
|
|
|
|
|
4,054
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,705
|
|
|
|
3,705
|
|
Residential mortgage loans
|
|
|
|
|
15,365
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,996
|
|
|
|
15,996
|
|
Home equity
|
|
|
|
|
6,968
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,410
|
|
|
|
7,410
|
|
Automobile loans
|
|
|
|
|
9,074
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,832
|
|
|
|
8,832
|
|
Credit card
|
|
|
|
|
2,182
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,616
|
|
|
|
2,616
|
|
Other consumer loans
|
|
|
|
|
1,526
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,621
|
|
|
|
1,621
|
|
Unallocated ALLL
|
|
|
|
|
(120
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total portfolio loans and leases, net
|
|
$
|
|
|
90,637
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92,948
|
|
|
|
92,948
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
|
|
103,162
|
|
|
|
-
|
|
|
|
103,123
|
|
|
|
-
|
|
|
|
103,123
|
|
Federal funds purchased
|
|
|
|
|
174
|
|
|
|
174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
174
|
|
Other short-term borrowings
|
|
|
|
|
4,012
|
|
|
|
-
|
|
|
|
4,012
|
|
|
|
-
|
|
|
|
4,012
|
|
Long-term debt
|
|
|
|
|
14,904
|
|
|
|
15,045
|
|
|
|
529
|
|
|
|
-
|
|
|
|
15,574
|
|
103
Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
22. Business Segments
The Bancorp reports on four business segments: Commercial Banking, Branch Banking, Consumer Lending and Wealth and Asset Management. 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, the business segments are insulated
from most benchmark interest rate volatility, enabling them to focus on serving customers through the origination of loans and acceptance of deposits. The FTP methodology assigns charge rates and credit rates to classes of assets and liabilities,
respectively, based on the estimated amount and timing of cash flows for each transaction. Assigning the FTP rate based on matching the duration of cash flows allocates interest income and interest expense to each business segment so its resulting
net interest income is insulated from future changes in benchmark interest rates. The Bancorps FTP methodology also allocates the contribution to net interest income of the asset-generating and deposit-providing businesses on a
duration-adjusted basis to better attribute the driver of the performance. As the asset and liability durations are not perfectly matched, the residual impact of the FTP methodology is captured in General Corporate and Other. The charge and credit
rates are determined using the FTP rate curve, which is based on an estimate of Fifth Thirds marginal borrowing cost in the wholesale funding markets. The FTP curve is constructed using the U.S. swap curve, brokered CD pricing and unsecured
debt pricing.
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 behavioral assumptions, such as prepayment rates on interest-earning assets and the estimated durations for indeterminate-lived deposits. Key assumptions, including the credit rates
provided for deposit accounts, are reviewed annually. Credit rates for deposit products and charge rates for loan products may be reset more frequently in response to changes in market conditions. The credit rates for several deposit products were
reset January 1,
2018 to reflect the current market rates and updated market assumptions. These rates were generally higher than those in place during 2017, thus net interest income for deposit-providing business segments was positively
impacted during 2018. 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 business segments during 2018.
The Bancorps methodology for allocating provision for loan and lease losses
expense to the business segments includes 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. Provision for loan
and lease losses expense attributable to loan and lease growth and changes in ALLL factors is 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 months ended March 31, 2017 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 1,153
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. Wealth and Asset Management is made up of five main businesses: FTS, an indirect wholly-owned subsidiary of the Bancorp; ClearArc Capital, Inc.,
an indirect wholly-owned subsidiary of the Bancorp; Fifth Third Insurance Agency, 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 Insurance Agency, Inc. assists clients with their financial and risk management needs.
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.
104
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
|
General
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Branch
|
|
|
Consumer
|
|
|
and Asset
|
|
|
Corporate
|
|
|
|
|
|
|
|
March 31, 2018 ($ in millions)
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Lending
|
|
|
Management
|
|
|
and Other
|
|
|
Eliminations
|
|
|
Total
|
|
Net interest income
|
|
$
|
|
|
419
|
|
|
|
466
|
|
|
|
59
|
|
|
|
43
|
|
|
|
9
|
|
|
|
-
|
|
|
|
996
|
|
Provision for (benefit from) loan and lease losses
|
|
|
|
|
(20
|
)
|
|
|
44
|
|
|
|
12
|
|
|
|
16
|
|
|
|
(29
|
)
|
|
|
-
|
|
|
|
23
|
|
Net interest income after provision for loan and lease losses
|
|
|
|
|
439
|
|
|
|
422
|
|
|
|
47
|
|
|
|
27
|
|
|
|
38
|
|
|
|
-
|
|
|
|
973
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposits
|
|
|
|
|
71
|
|
|
|
66
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
137
|
|
Wealth and asset management revenue
|
|
|
|
|
1
|
|
|
|
37
|
|
|
|
-
|
|
|
|
109
|
|
|
|
-
|
|
|
|
(34)
(a)
|
|
|
|
113
|
|
Corporate banking revenue
|
|
|
|
|
86
|
(c)
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
Card and processing revenue
|
|
|
|
|
14
|
|
|
|
64
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79
|
|
Mortgage banking net revenue
|
|
|
|
|
-
|
|
|
|
1
|
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56
|
|
Other noninterest income
|
|
|
|
|
49
|
|
|
|
15
|
(b)
|
|
|
4
|
|
|
|
5
|
|
|
|
387
|
|
|
|
-
|
|
|
|
460
|
|
Securities losses, net
|
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
(11
|
)
|
Securities losses, net -
non-qualifying
hedges on MSRs
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
Total noninterest income
|
|
|
|
|
219
|
|
|
|
184
|
|
|
|
46
|
|
|
|
116
|
|
|
|
378
|
|
|
|
(34)
|
|
|
|
909
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and incentives
|
|
|
|
|
70
|
|
|
|
110
|
|
|
|
39
|
|
|
|
44
|
|
|
|
184
|
|
|
|
-
|
|
|
|
447
|
|
Employee benefits
|
|
|
|
|
18
|
|
|
|
26
|
|
|
|
11
|
|
|
|
10
|
|
|
|
45
|
|
|
|
-
|
|
|
|
110
|
|
Net occupancy expense
|
|
|
|
|
7
|
|
|
|
43
|
|
|
|
3
|
|
|
|
3
|
|
|
|
19
|
|
|
|
-
|
|
|
|
75
|
|
Technology and communications
|
|
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
64
|
|
|
|
-
|
|
|
|
68
|
|
Equipment expense
|
|
|
|
|
5
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
31
|
|
Card and processing expense
|
|
|
|
|
1
|
|
|
|
29
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
29
|
|
Other noninterest expense
|
|
|
|
|
281
|
|
|
|
215
|
|
|
|
52
|
|
|
|
74
|
|
|
|
(302
|
)
|
|
|
(34)
|
|
|
|
286
|
|
Total noninterest expense
|
|
|
|
|
384
|
|
|
|
437
|
|
|
|
106
|
|
|
|
131
|
|
|
|
22
|
|
|
|
(34)
|
|
|
|
1,046
|
|
Income (loss) before income taxes
|
|
|
|
|
274
|
|
|
|
169
|
|
|
|
(13
|
)
|
|
|
12
|
|
|
|
394
|
|
|
|
-
|
|
|
|
836
|
|
Applicable income tax expense (benefit)
|
|
|
|
|
15
|
|
|
|
35
|
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
82
|
|
|
|
-
|
|
|
|
132
|
|
Net income (loss)
|
|
|
|
|
259
|
|
|
|
134
|
|
|
|
(10
|
)
|
|
|
9
|
|
|
|
312
|
|
|
|
-
|
|
|
|
704
|
|
Total goodwill
|
|
$
|
|
|
630
|
|
|
|
1,655
|
|
|
|
-
|
|
|
|
177
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,462
|
|
Total assets
|
|
$
|
|
|
58,829
|
|
|
|
60,197
|
|
|
|
22,384
|
|
|
|
10,611
|
|
|
|
(10,521)
(d)
|
|
|
|
-
|
|
|
|
141,500
|
|
(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
$
8
for
branches and land. For more information refer to Note 7 and Note 21.
|
(c)
|
Includes impairment charges of
$
2
for operating lease equipment.
For more information refer to Note 21.
|
(d)
|
Includes bank premises and equipment of
$
20
classified as held for
sale. For more information refer to Note 7.
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|
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|
|
|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
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|
General
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|
|
|
|
|
|
|
|
|
|
Commercial
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|
Branch
|
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|
Consumer
|
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and Asset
|
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|
Corporate
|
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|
|
|
|
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|
March 31, 2017 ($ in millions)
|
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|
|
Banking
|
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|
Banking
|
|
|
Lending
|
|
|
Management
|
|
|
and Other
|
|
|
Eliminations
|
|
|
Total
|
|
Net interest income
|
|
$
|
|
|
425
|
|
|
|
430
|
|
|
|
61
|
|
|
|
38
|
|
|
|
(21
|
)
|
|
|
-
|
|
|
|
933
|
|
Provision for loan and lease losses
|
|
|
|
|
6
|
|
|
|
42
|
|
|
|
15
|
|
|
|
4
|
|
|
|
7
|
|
|
|
-
|
|
|
|
74
|
|
Net interest income after provision for loan and lease losses
|
|
|
|
|
419
|
|
|
|
388
|
|
|
|
46
|
|
|
|
34
|
|
|
|
(28
|
)
|
|
|
-
|
|
|
|
859
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposits
|
|
|
|
|
73
|
|
|
|
65
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
138
|
|
Wealth and asset management revenue
|
|
|
|
|
1
|
|
|
|
36
|
|
|
|
-
|
|
|
|
105
|
|
|
|
-
|
|
|
|
(34)
(a)
|
|
|
|
108
|
|
Corporate banking revenue
|
|
|
|
|
73
|
(c)
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74
|
|
Card and processing revenue
|
|
|
|
|
14
|
|
|
|
59
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74
|
|
Mortgage banking net revenue
|
|
|
|
|
-
|
|
|
|
1
|
|
|
|
51
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52
|
|
Other noninterest income
|
|
|
|
|
41
|
|
|
|
22
|
(b)
|
|
|
4
|
|
|
|
-
|
|
|
|
10
|
|
|
|
-
|
|
|
|
77
|
|
Total noninterest income
|
|
|
|
|
202
|
|
|
|
184
|
|
|
|
55
|
|
|
|
106
|
|
|
|
10
|
|
|
|
(34)
|
|
|
|
523
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and incentives
|
|
|
|
|
67
|
|
|
|
104
|
|
|
|
37
|
|
|
|
39
|
|
|
|
164
|
|
|
|
-
|
|
|
|
411
|
|
Employee benefits
|
|
|
|
|
18
|
|
|
|
27
|
|
|
|
11
|
|
|
|
9
|
|
|
|
46
|
|
|
|
-
|
|
|
|
111
|
|
Net occupancy expense
|
|
|
|
|
7
|
|
|
|
47
|
|
|
|
3
|
|
|
|
2
|
|
|
|
19
|
|
|
|
-
|
|
|
|
78
|
|
Technology and communications
|
|
|
|
|
3
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
53
|
|
|
|
-
|
|
|
|
58
|
|
Equipment expense
|
|
|
|
|
4
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
28
|
|
Card and processing expense
|
|
|
|
|
1
|
|
|
|
29
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
Other noninterest expense
|
|
|
|
|
260
|
|
|
|
192
|
|
|
|
54
|
|
|
|
67
|
|
|
|
(269
|
)
|
|
|
(34)
|
|
|
|
270
|
|
Total noninterest expense
|
|
|
|
|
360
|
|
|
|
413
|
|
|
|
106
|
|
|
|
117
|
|
|
|
24
|
|
|
|
(34)
|
|
|
|
986
|
|
Income (loss) before income taxes
|
|
|
|
|
261
|
|
|
|
159
|
|
|
|
(5
|
)
|
|
|
23
|
|
|
|
(42
|
)
|
|
|
-
|
|
|
|
396
|
|
Applicable income tax expense (benefit)
|
|
|
|
|
44
|
|
|
|
56
|
|
|
|
(2
|
)
|
|
|
8
|
|
|
|
(15
|
)
|
|
|
-
|
|
|
|
91
|
|
Net income (loss)
|
|
|
|
|
217
|
|
|
|
103
|
|
|
|
(3
|
)
|
|
|
15
|
|
|
|
(27
|
)
|
|
|
-
|
|
|
|
305
|
|
Total goodwill
|
|
$
|
|
|
613
|
|
|
|
1,655
|
|
|
|
-
|
|
|
|
151
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,419
|
|
Total assets
|
|
$
|
|
|
57,672
|
|
|
|
57,883
|
|
|
|
21,994
|
|
|
|
9,644
|
|
|
|
(6,993)
(d)
|
|
|
|
-
|
|
|
|
140,200
|
|
(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 $3 for branches and land. For more information refer to Note 7 and Note 21.
|
(c)
|
Includes impairment charges of $31 for operating lease equipment. For more information refer to Note 21.
|
(d)
|
Includes bank premises and equipment of $51 classified as held for sale. For more information refer to Note
7.
|
105