Fifth Third Announces First Quarter 2015 Net Income to Common Shareholders of $367 Million, or $0.44 Per Diluted Share

  • 1Q15 net income available to common shareholders of $367 million, or $0.44 per diluted common share
    • Includes a $70 million pre-tax (~$46 million after tax) positive valuation adjustment on the warrant Fifth Third holds in Vantiv, $37 million pre-tax (~$24 million after tax) gain on the sale of held-for-sale residential mortgage loans classified as troubled debt restructurings (TDRs), and a $17 million pre-tax (~$11 million after tax) charge related to the valuation of the Visa total return swap, resulting in a net $0.07 impact on earnings per share
  • 1Q15 return on average assets (ROA) of 1.12%; return on average common equity of 10.3%; return on average tangible common equity** of 12.3%
  • Pre-provision net revenue (PPNR)** of $584 million in 1Q15
    • Net interest income (FTE) of $852 million, down 4 percent sequentially and down 5 percent from 1Q14; net interest margin of 2.86%, down 10 basis points sequentially
      • Average portfolio loans of $90.5 billion, down $533 million sequentially due to the transfer of $720 million of residential mortgage TDRs to held-for-sale in 4Q14 (reduced average balances by $694 million); loans up $978 million from 1Q14 driven by increases in C&I loans
    • Noninterest income of $660 million compared with $653 million in the prior quarter; impacted by the gain on sale of residential mortgage TDRs in 1Q15 and valuations on the Vantiv warrant in both quarters
    • Noninterest expense of $923 million, up 1 percent from prior quarter driven by seasonally higher compensation-related expenses, partially offset by lower credit-related costs
  • Credit trends
    • Net charge-offs declined 46 percent year-over-year; 1Q15 net charge-offs of $91 million (0.41% of loans and leases) vs. 4Q14 NCOs of $191 million (0.83% of loans and leases) which included $87 million of charge-offs related to the transfer of residential mortgage TDRs to held-for-sale and 1Q14 NCOs of $168 million (0.76% of loans and leases)
    • Portfolio NPA ratio of 0.76% down 6 bps from 4Q14, NPL ratio of 0.57% down 7 bps from 4Q14; total nonperforming assets (NPAs) of $693 million, including loans held-for-sale (HFS), declined $90 million sequentially
    • 1Q15 provision expense of $69 million; $99 million in 4Q14 (including the $23 million impact related to the transfer of loans held-for-sale) and $69 million in 1Q14
  • Strong capital ratios*
    • Common equity Tier 1 ratio 9.62%
    • Tier 1 risk-based capital ratio 10.74%, Total risk-based capital ratio 14.16%, Leverage ratio 9.61%
    • Tangible common equity ratio** of 8.78%; 8.41% excluding securities portfolio unrealized gains/losses
  • 9 million reduction in average diluted share count
  • Book value per share of $17.85 up 3 percent from 4Q14 and up 10 percent from 1Q14; tangible book value per share** of $14.87

* Capital ratios estimated; presented under current U.S. capital regulations.
** Non-GAAP measure; see Reg. G reconciliation on page 32 in Exhibit 99.1 of 8-k filing dated 4/21/15.

CINCINNATI--()--Fifth Third Bancorp (Nasdaq: FITB) today reported first quarter 2015 net income of $382 million versus net income of $385 million in the fourth quarter of 2014 and $318 million in the first quarter of 2014. After preferred dividends, net income available to common shareholders was $367 million, or $0.44 per diluted share, in the first quarter of 2015, compared with $362 million, or $0.43 per diluted share, in the fourth quarter of 2014, and $309 million, or $0.36 per diluted share, in the first quarter of 2014.

First quarter 2015 included:

Income

  • $70 million positive valuation adjustment on the Vantiv warrant
  • $37 million gain on the sale of residential mortgage loans classified as troubled debt restructurings
  • ($17 million) charge related to the valuation of the Visa total return swap

Expenses

  • ($2 million) in litigation reserve charges

Fourth quarter 2014 included:

Income

  • $56 million positive valuation adjustment on the Vantiv warrant
  • $23 million annual payment received from Vantiv pursuant to tax receivable agreement
  • ($19 million) charge related to the valuation of the Visa total return swap

Expenses

  • $3 million reversal of litigation reserves

Results also included $23 million of provision expense related to the transfer of residential mortgage loans classified as troubled debt restructurings to held-for-sale.

First quarter 2014 included:

Income

  • ($36 million) negative valuation adjustment on the Vantiv warrant
  • $1 million benefit related to the valuation of the Visa total return swap

Expenses

  • ($51 million) in litigation reserve charges
Earnings Highlights                      
 
For the Three Months Ended   % Change
March December September June March
2015   2014   2014   2014   2014   Seq   Yr/Yr
Earnings ($ in millions)
Net income attributable to Bancorp $382 $385 $340 $439 $318 (1%) 20%
Net income available to common shareholders $367 $362 $328 $416 $309 1% 15%
 
Common Share Data
Earnings per share, basic 0.45 0.44 0.39 0.49 0.36 2% 25%
Earnings per share, diluted 0.44 0.43 0.39 0.49 0.36 2% 22%
Cash dividends per common share 0.13 0.13 0.13 0.13 0.12 - 8%
 
Financial Ratios
Return on average assets 1.12 % 1.13 % 1.02 % 1.34 % 1.00 % - 12%
Return on average common equity 10.3 10.0 9.2 11.9 9.0 2% 13%
Return on average tangible common equity(b) 12.3 12.1 11.1 14.4 11.0 2% 12%
Tier I risk-based capital(c) 10.74 10.83 10.83 10.80 10.45

(1%)

3%
Common equity Tier I(c) 9.62 N/A N/A N/A N/A N/A N/A
Tier I common equity(b) N/A 9.65 9.64 9.61 9.51 N/A N/A
Net interest margin(a) 2.86 2.96 3.10 3.15 3.22 (3%) (11%)
Efficiency(a) 61.0 59.6 62.1 58.2 64.9 2% (6%)
 
Common shares outstanding (in thousands) 815,190 824,047 834,262 844,489 847,569 (1%) (4%)
Average common shares outstanding
(in thousands):
Basic 810,210 819,057 829,392 838,492 845,860 (1%) (4%)
Diluted 818,672 827,831 838,324 848,245 857,924 (1%) (5%)
 
(a) Presented on a fully taxable equivalent basis.
(b) These ratios have been included herein to facilitate a greater understanding of the Bancorp's capital structure and financial condition. See the Regulation G Non-GAAP Reconciliation table for a reconciliation of these ratios to U.S. GAAP.
(c) Under the banking agencies' Basel III Final Rule, assets and credit equivalent amounts of off-balance sheet exposures are calculated according to the standardized approach for risk-weighted assets. The resulting values are added together resulting in the Bancorp's total risk-weighted assets used in the calculation of the tier I risk-based capital and common equity tier 1 ratios beginning January 1, 2015. Current period regulatory capital ratios are estimated.
The percentages in all of the tables in this earning release are calculated on actual dollar amounts and not the rounded dollar amounts.
NA: Not applicable.  

“Our results this quarter were solid despite the impact of expected first quarter seasonality and challenging market conditions, and reflect the strength of our franchise in generating strong shareholder returns resulting from our strategic decisions to build and invest in our businesses. We are very focused on growing businesses that will operate profitably in all environments by deepening our relationships with customers and managing our risk exposures to achieve optimal returns for our shareholders. Our quarterly results include the significant value that we have achieved in our Vantiv investment and the gain on the sale of our TDR loans, which is another step toward reducing future sources of potential volatility,” said Kevin Kabat, CEO of Fifth Third Bancorp.

“First quarter net income of $382 million, which reflected record investment advisory revenue and solid mortgage banking revenue growth, produced an ROA of 1.12% and ROE of 10.3%. These results included the impact of the NII decline associated with the changes in our deposit advance product in the quarter.

“Our loan growth, especially in the C&I category, was weaker at the end of last year which impacted the starting balances early in the quarter, but we were encouraged by better activity in February and March. Average loans increased 2 percent compared with the year ago quarter with continued strength in C&I lending, which was up 3 percent, and growth in commercial real estate and bankcard loans of 4 percent each.

“Credit results were very good, resulting in net charge-offs of 41 bps for the quarter, with commercial loan net charge-offs of 29 bps and consumer loan net charge-offs of 59 bps. Total delinquencies also continued to be at very low levels and were highlighted by total non-performing assets, which were down 11 percent compared with last quarter.

“Average core deposits were up 2 percent sequentially, with 6 percent growth in interest checking, and were up 7 percent year over year, with demand deposit growth of 10 percent.

“During the quarter, we received a non-objection from the Federal Reserve for our 2015 CCAR plan. That plan demonstrates the strength of Fifth Third’s current capital levels and our resiliency under stress conditions. We are pleased to be able to continue the measured return of capital to shareholders under our 2015 CCAR plan.”

Income Statement Highlights                    
                                       
For the Three Months Ended % Change
March December September June March
2015   2014   2014   2014   2014   Seq   Yr/Yr
Condensed Statements of Income ($ in millions)
Net interest income (taxable equivalent) $852 $888 $908 $905 $898 (4%) (5%)
Provision for loan and lease losses 69 99 71 76 69 (30%) -
Total noninterest income 660 653 520 736 564 1% 17%
Total noninterest expense   923   918   888   954   950   1%   (3%)
Income before income taxes (taxable equivalent)   520   524   469   611   443   (1%)   18%
 
Taxable equivalent adjustment 5 5 5 5 5 5% 2%
Applicable income taxes   133   134   124   167   119   (1%)   11%
Net income 382 385 340 439 319 (1%) 20%
Less: Net income attributable to noncontrolling interests   -   -     -   -   1   NM   (61%)
Net income attributable to Bancorp 382 385 340 439 318 (1%) 20%
Dividends on preferred stock   15   23   12   23   9   (35%)   60%
Net income available to common shareholders   367   362   328   416   309   1%   15%
Earnings per share, diluted   $ 0.44   $ 0.43   $ 0.39   $ 0.49   $ 0.36   2%   22%
 
             
Net Interest Income
                                       
For the Three Months Ended   % Change
March December September June March
2015   2014   2014   2014   2014   Seq   Yr/Yr
Interest Income ($ in millions)
Total interest income (taxable equivalent) $975 $1,016 $1,023 $1,013 $998 (4%) (2%)
Total interest expense   123     128     115     108     100     (4%)   22%
Net interest income (taxable equivalent)   $852     $888     $908     $905     $898     (4%)   (5%)
 
Average Yield
Yield on interest-earning assets (taxable equivalent) 3.28% 3.38% 3.49% 3.53% 3.58% (3%) (8%)
Rate paid on interest-bearing liabilities   0.60%     0.61%     0.56%     0.54%     0.51%     (3%)   16%
Net interest rate spread (taxable equivalent)   2.68%     2.77%     2.93%     2.99%     3.07%     (3%)   (13%)
Net interest margin (taxable equivalent) 2.86% 2.96% 3.10% 3.15% 3.22% (3%) (11%)
 
Average Balances ($ in millions)
Loans and leases, including held for sale $91,659 $91,581 $91,428 $91,241 $90,238 - 2%
Total securities and other short-term investments 29,038 27,604 24,927 23,940 22,940 5% 27%
Total interest-earning assets 120,697 119,185 116,355 115,181 113,178 1% 7%
Total interest-bearing liabilities 83,339 82,544 81,157 80,770 79,130 1% 5%
Bancorp shareholders' equity   15,820     15,644     15,486     15,157     14,862     1%   6%

Net interest income of $852 million on a fully taxable equivalent basis decreased $36 million from the fourth quarter, as expected, primarily driven by a $21 million negative impact of the previously announced changes to the Bancorp’s deposit advance product that were effective January 1, 2015. Additionally, net interest income was negatively impacted by $13 million due to fewer days in the quarter. Otherwise, the effects of lower deposit costs and increased investment securities balances generally offset the negative effect of loan repricing during the quarter.

The net interest margin was 2.86 percent, a decrease of 10 bps from the previous quarter primarily driven by a 7 basis point impact due to the changes to the deposit advance product, 3 basis point impact of loan repricing and 2 basis point impact of higher cash balances as we continue to experience strong deposit flows. Day count benefitted the net interest margin by 3 basis points in the quarter.

Compared with the first quarter of 2014, net interest income decreased $46 million and the net interest margin decreased 36 bps. The decline in net interest income was driven by the effect of the aforementioned changes to the deposit advance product as well as continued loan repricing. Otherwise, the impact of higher investment securities balances and loan balances generally offset the impact of higher interest expense resulting from increased long-term debt balances. The decline in the net interest margin was primarily driven by the impact of loan repricing.

Securities

Average securities and other short-term investments were $29.0 billion in the first quarter of 2015 compared with $27.6 billion in the previous quarter and $22.9 billion in the first quarter of 2014. Average securities of $23.2 billion increased $733 million from the prior quarter reflecting purchases of securities. Other short-term investments average balances of $5.9 billion increased $701 million sequentially. On an end of period basis, securities balances of $27.0 billion increased $4.0 billion driven by purchases of securities towards the end of the quarter and other short-term investments decreased $3.0 billion reflecting lower cash balances held at the Federal Reserve.

Loans              
                                       
For the Three Months Ended   % Change
March December September June March
2015   2014   2014   2014   2014   Seq   Yr/Yr
Average Portfolio Loans and Leases ($ in millions)
Commercial:
Commercial and industrial loans $41,426 $41,277 $41,477 $41,374 $40,377 - 3%
Commercial mortgage loans 7,241 7,480 7,633 7,885 7,981 (3%) (9%)
Commercial construction loans 2,197 1,909 1,563 1,362 1,116 15% 97%
Commercial leases   3,715     3,600     3,571     3,555     3,607     3%   3%
Subtotal - commercial loans and leases   54,579     54,266     54,244     54,176     53,081     1%   3%
Consumer:
Residential mortgage loans 12,433 13,046 12,785 12,611 12,659 (5%) (2%)
Home equity 8,802 8,937 9,009 9,101 9,194 (2%) (4%)
Automobile loans 11,933 12,073 12,105 12,070 12,023 (1%) (1%)
Credit card 2,321 2,324 2,295 2,232 2,230 - 4%
Other consumer loans and leases   440     395     361     359     343     11%   28%
Subtotal - consumer loans and leases   35,929     36,775     36,555     36,373     36,449     (2%)   (1%)
Total average loans and leases (excluding held for sale) $90,508 $91,041 $90,799 $90,549 $89,530 (1%) 1%
 
Average loans held for sale   1,151     540     629     692     708     NM   63%

Average loan and lease balances (excluding loans held-for-sale) decreased $533 million, or 1 percent, sequentially and increased $978 million, or 1 percent, from the first quarter of 2014. The sequential decrease in average loans and leases was primarily driven by declines in residential mortgage due to the transfer of certain residential mortgage loans classified as troubled debt restructurings to held-for-sale at the end of the fourth quarter of 2014, which reduced average loans by $694 million. The increase from the prior year was driven by increased commercial and industrial (C&I) balances. Period end loans and leases (excluding loans held-for-sale) of $91.2 billion increased $1.2 billion sequentially, and increased $1.5 billion, or 2 percent, from a year ago primarily driven by increases in C&I loans.

Average commercial portfolio loan and lease balances increased $313 million, or 1 percent, sequentially and increased $1.5 billion, or 3 percent, from the first quarter of 2014. Average C&I loans increased $149 million from the prior quarter and increased $1.0 billion from the first quarter of 2014. Within commercial real estate, average commercial mortgage balances continued to decline and average commercial construction balances increased for the ninth consecutive quarter. In total, average commercial real estate balances increased $49 million sequentially and $341 million from the prior year. Commercial line usage, on an end of period basis, was 32 percent of committed lines in the first quarter of 2015 compared with 32 percent in the fourth quarter of 2014 and 30 percent in the first quarter of 2014.

Average consumer portfolio loan and lease balances decreased $846 million, or 2 percent, sequentially and decreased $520 million, or 1 percent, year-over-year. Average residential mortgage loans decreased 5 percent sequentially and 2 percent from a year ago driven by loans transferred to held for sale at the end of the fourth quarter. Average auto loans declined 1 percent on a sequential and year-over-year basis. Average home equity loans declined 2 percent sequentially and 4 percent from the first quarter of 2014. Average credit card loans were flat sequentially and increased 4 percent from the first quarter of 2014.

Average loans held-for-sale balances of $1.2 billion increased $611 million sequentially primarily due to the transfer of certain residential mortgage loans classified as troubled debt restructurings to held-for-sale in the fourth quarter of 2014 and increased $443 million compared with the first quarter of 2014. Period end loans held-for-sale of $724 million decreased $537 million from the previous quarter due to $568 million of residential mortgage loans subsequently sold in the first quarter and decreased $56 million from the first quarter of 2014.

Deposits              
                                         
  For the Three Months Ended   % Change
March December September June March
2015   2014   2014   2014   2014   Seq   Yr/Yr
Average Deposits ($ in millions)
Demand $33,760 $33,301 $31,790 $31,275 $30,626 1% 10%
Interest checking 26,885 25,478 24,926 25,222 25,911 6% 4%
Savings 15,174 15,173 15,759 16,509 16,903 - (10%)
Money market 17,492 17,023 15,222 13,942 12,439 3% 41%
Foreign office(a)   861     1,439     1,663     2,200     2,017     (40%)   (57%)
Subtotal - Transaction deposits 94,172 92,414 89,360 89,148 87,896 2% 7%
Other time   4,022     3,936     3,800     3,693     3,616     2%   11%
Subtotal - Core deposits 98,194 96,350 93,160 92,841 91,512 2% 7%
Certificates - $100,000 and over   2,683     2,998     3,339     3,840     5,576     (11%)   (52%)
Total deposits   $100,877     $99,348     $96,499     $96,681     $97,088     2%   4%

(a)  Includes commercial customer Eurodollar sweep balances for which the Bancorp pays rates comparable to other commercial deposit accounts.

Average core deposits increased $1.8 billion sequentially and increased $6.7 billion, or 7 percent, from the first quarter of 2014. Average transaction deposits increased $1.8 billion from the fourth quarter of 2014 primarily driven by higher interest checking, money market account, and demand deposit balances, partially offset by lower foreign office balances. Year-over-year transaction deposits increased $6.3 billion, or 7 percent, driven by higher money market account, demand deposit, and interest checking balances, partially offset by lower savings and foreign office balances. Other time deposits increased 2 percent sequentially and 11 percent compared with the first quarter of 2014.

Average commercial transaction deposits increased 1 percent sequentially and 8 percent from the previous year. Sequential performance reflected higher interest checking balances partially offset by lower foreign office balances. Year-over-year growth reflected higher demand deposit, interest checking, and money market account balances as customers are holding higher balances partially offset by lower foreign office balances.

Average consumer transaction deposits increased 2 percent sequentially and increased 6 percent from the first quarter of 2014. The sequential performance reflected higher money market account, interest checking, and demand deposit balances partially offset by lower savings balances. Year-over-year growth was driven by increased money market account and demand deposit balances partially offset by lower savings and interest checking balances.

Wholesale Funding              
                                         
  For the Three Months Ended   % Change
March December September June March
2015   2014   2014   2014   2014   Seq   Yr/Yr
Average Wholesale Funding ($ in millions)
Certificates - $100,000 and over $2,683 $2,998 $3,339 $3,840 $5,576 (11%) (52%)
Federal funds purchased 172 161 520 606 547 7% (69%)
Other short-term borrowings 1,602 1,481 1,973 2,234 1,808 8% (11%)
Long-term debt   14,448     14,855     13,955     12,524     10,313     (3%)   40%
Total wholesale funding   $18,905     $19,495     $19,787     $19,204     $18,244     (3%)   4%

Average wholesale funding of $18.9 billion decreased $590 million, or 3 percent, sequentially and increased $661 million, or 4 percent, compared with the first quarter of 2014. The sequential decrease was driven by a decrease in long-term debt due to $500 million of bank-level subordinated debt that matured during the quarter as well as a decrease in certificates $100,000 and over, partially offset by an increase in other short-term borrowings. The year-over-year increase in average wholesale funding reflected an increase in long-term debt due to issuances during 2014, partially offset by a decrease in certificates $100,000 and over, federal funds purchased, and other short-term borrowings.

Noninterest Income              
                             
For the Three Months Ended   % Change
March December September June March
2015   2014   2014   2014   2014   Seq   Yr/Yr
Noninterest Income ($ in millions)
Service charges on deposits $ 135 $ 142 $ 145 $ 139 $ 133 (5%) 2%
Corporate banking revenue 92 120 100 107 104 (23%) (11%)
Mortgage banking net revenue 86 61 61 78 109 40% (21%)
Investment advisory revenue 108 100 103 102 102 7% 6%
Card and processing revenue 71 76 75 76 68 (6%) 5%
Other noninterest income 164 150 33 226 41 9% NM
Securities gains, net   4   4   3   8   7   16%   (34%)
Total noninterest income   $ 660   $ 653   $ 520   $ 736   $ 564   1%   17%

Noninterest income of $660 million increased $7 million sequentially and $96 million compared with prior year results. These comparisons reflect the impacts described below.

For the quarters ending March 31, 2015, December 31, 2014, and March 31, 2014, the impacts of Vantiv warrant valuation adjustments were a positive $70 million, positive $56 million, and negative $36 million, respectively. Quarterly results also included the impact of valuation adjustments of the Visa total return swap of negative $17 million, negative $19 million, and positive $1 million in the first quarter of 2015, the fourth quarter of 2014, and the first quarter of 2014, respectively. First quarter 2015 also included a $37 million gain on the sale of held-for-sale residential mortgage loans classified as troubled debt restructurings. Excluding these items and net securities gains in all periods, noninterest income of $566 million decreased $46 million, or 8 percent, from the previous quarter and decreased $26 million, or 4 percent, from the first quarter of 2014. The sequential decrease was primarily due to the $23 million annual payment recognized from Vantiv pursuant to the tax receivable agreement in the fourth quarter of 2014 and a decrease in corporate banking revenue, partially offset by increased mortgage banking revenue. The year-over-year decline was primarily due to lower mortgage banking net revenue and corporate banking revenue.

Service charges on deposits of $135 million, which were seasonally low in the first quarter, decreased 5 percent from the fourth quarter and increased 2 percent compared with the same quarter last year. The sequential decline was due to a 9 percent decrease in retail service charges due to lower overdraft occurrences as well as a 2 percent decrease in commercial service charges.

Corporate banking revenue of $92 million decreased $28 million from the fourth quarter of 2014 and $12 million from the first quarter of 2013. The sequential decrease was primarily due to a $21 million decline in syndication fees as a result of decreased activity in the market in the current quarter and compared with strong fourth quarter results, as well as a decline in business lending fees. The year-over-year decrease was driven by lower syndication fees, institutional sales revenue, and lease remarketing fees, partially offset by an increase in foreign exchange fees.

Mortgage banking net revenue was $86 million in the first quarter of 2015, up 40 percent from the fourth quarter of 2014 and down 21 percent from the first quarter of 2014. First quarter 2015 originations were $1.8 billion, compared with $1.7 billion in the previous quarter and $1.7 billion in the first quarter of 2014. First quarter 2015 originations resulted in gains of $44 million on mortgages sold, compared with gains of $36 million during the previous quarter and $41 million during the first quarter of 2014. The sequential and year-over-year increases were primarily driven by higher gain on sale margins due to increased refinance activity during the quarter given the low rate environment and slightly higher production. Mortgage servicing fees were $59 million this quarter, $60 million in the fourth quarter of 2014, and $62 million in the first quarter of 2014. Mortgage banking net revenue is also affected by net servicing asset valuation adjustments, which include mortgage servicing rights (MSR) amortization and MSR valuation adjustments (including mark-to-market adjustments on free-standing derivatives used to economically hedge the MSR portfolio). These net servicing asset valuation adjustments were negative $17 million in the first quarter of 2015 (reflecting MSR amortization of $34 million and MSR valuation adjustments of positive $17 million); negative $34 million in the fourth quarter of 2014 (MSR amortization of $32 million and MSR valuation adjustments of negative $2 million); and positive $6 million in the first quarter of 2014 (MSR amortization of $22 million and MSR valuation adjustments of positive $28 million). The mortgage servicing asset, net of the valuation reserve, was $788 million at quarter end on a servicing portfolio of $64 billion.

Investment advisory revenue of $108 million increased 7 percent from the fourth quarter and increased 6 percent year-over-year. The sequential increase was attributable to higher tax-related private client services revenue, which is seasonally stronger in the first quarter, as well as an increase in securities and brokerage fees due to a continued shift from transaction-based fees to recurring revenue streams. The year-over-year increase reflected an increase in personal asset management fees due to market-related growth and an increase in securities and brokerage fees.

Card and processing revenue of $71 million in the first quarter of 2015 decreased 6 percent sequentially and increased 5 percent from the first quarter of 2014. The sequential decrease reflected lower transaction volumes compared with seasonally strong fourth quarter volumes. The year-over-year increase reflects an increase in the number of actively used cards and an increase in customer spend volume.

Other noninterest income totaled $164 million in the first quarter of 2015, compared with $150 million in the previous quarter and $41 million in the first quarter of 2014. As previously described, the results included the impact of Vantiv warrant valuation adjustments, the gain on sale of troubled debt restructurings, and charges related to the valuation of the Visa total return swap. Excluding these items, other noninterest income of $74 million decreased approximately $39 million, or 35 percent, from the fourth quarter of 2014 and decreased approximately $2 million, or 3 percent, from the first quarter of 2014. The sequential decrease was primarily due to payments recognized from Vantiv pursuant to the tax receivable agreement of $23 million in the fourth quarter of 2014 as well as normal seasonality in Vantiv’s business as reflected in our equity method of earnings.

Net gains on investment securities were $4 million in the first quarter of 2015, compared with $4 million in the previous quarter and $7 million in the first quarter of 2014.

Noninterest Expense              
                             
For the Three Months Ended   % Change
March December September June March
2015   2014   2014   2014   2014   Seq   Yr/Yr
Noninterest Expense ($ in millions)
Salaries, wages and incentives $369 $366 $357 $368 $359 1% 3%
Employee benefits 99 79 75 79 101 26% (3%)
Net occupancy expense 79 77 78 79 80 2% (1%)
Technology and communications 55 54 53 52 53 2% 3%
Equipment expense 31 30 30 30 30 1% 3%
Card and processing expense 36 36 37 37 31 (2%) 14%
Other noninterest expense   254   276   258   309   296   (7%)   (13%)
Total noninterest expense   $923   $918   $888   $954   $950   1%   (3%)

Noninterest expense of $923 million increased 1 percent compared with the fourth quarter of 2014 and decreased 3 percent compared with the first quarter of 2014.

First quarter 2015 expenses included $2 million in charges to litigation reserves, compared with a $3 million reversal of litigation reserves in the fourth quarter of 2014 and $51 million in charges to litigation reserves in the first quarter of 2014. Excluding these items, noninterest expense of $921 million was flat sequentially and increased $22 million, or 2 percent, year-over-year. The sequential comparison was affected by a seasonal increase in FICA and unemployment tax expense recorded in employee benefits, partially offset by lower credit-related costs and the year-over-year increase reflected higher incentive-based compensation expense and increased credit-related costs.

Credit costs related to problem assets recorded as noninterest expense totaled $14 million in the first quarter of 2015, compared with $33 million in the fourth quarter of 2014, and $9 million in the first quarter of 2014. Credit-related expenses included provision for mortgage repurchases that was an immaterial amount in the first quarter of 2015 and the fourth quarter of 2014 and $3 million in the first quarter of 2014. (Realized mortgage repurchase losses were $3 million in the first quarter of 2015, compared with $2 million in the fourth quarter of 2014, and $10 million in the first quarter of 2014.) Provision for unfunded commitments was a benefit of $4 million in the current quarter, compared with an expense of $1 million last quarter and a benefit of $9 million a year ago. Derivative valuation adjustments related to customer credit risk were positive $2 million for the current quarter, negative $10 million in the fourth quarter, and positive $2 million for the year ago quarter. OREO expense was $7 million, compared with $4 million last quarter and $5 million a year ago. Other problem asset-related expenses were $13 million in the first quarter, compared with $17 million in the previous quarter, and $13 million in the same period last year.

Credit Quality          
                               
  For the Three Months Ended
March December September June March
2015   2014   2014   2014   2014
Total net losses charged off ($ in millions)
Commercial and industrial loans ($38) ($44) ($50) ($31) ($97)
Commercial mortgage loans (1) (10) (5) (9) (3)
Commercial construction loans - - - (8) (5)
Commercial leases - (1) - - -
Residential mortgage loans (6) (94) (9) (8) (15)
Home equity (14) (11) (14) (18) (16)
Automobile loans (8) (7) (7) (5) (8)
Credit card (21) (20) (23) (21) (19)
  Other consumer loans and leases   (3)     (4)     (7)     (1)     (5)
Total net losses charged off (91) (191) (115) (101) (168)
 
Total losses (115) (215) (146) (127) (190)
Total recoveries   24     24     31     26     22
Total net losses charged off ($91) ($191) ($115) ($101) ($168)
Ratios (annualized)
Net losses charged off as a percent of average loans and leases
(excluding held for sale) 0.41% 0.83% 0.50% 0.45% 0.76%
Commercial 0.29% 0.40% 0.40% 0.35% 0.79%
  Consumer   0.59%     1.47%     0.66%     0.60%     0.72%

Net charge-offs were $91 million, or 41 bps of average loans on an annualized basis, in the first quarter of 2015 compared with net charge-offs of $191 million, or 83 bps, in the fourth quarter of 2014 and $168 million, or 76 bps, in the first quarter of 2014. For comparison purposes, the fourth quarter of 2014 net charge-offs included $87 million (38 bps) related to the transfer of certain residential mortgage loans classified as troubled debt restructurings to held-for-sale and the first quarter of 2014 included three large credits that together resulted in combined charge-offs of $60 million (27 bps).

Commercial net charge-offs were $39 million, or 29 bps, and were down $16 million sequentially. C&I net charge-offs of $38 million decreased $6 million from the previous quarter and commercial real estate net charge-offs decreased $9 million from the previous quarter.

Consumer net charge-offs were $52 million, or 59 bps, down $84 million sequentially. Excluding consumer net charge-offs of $87 million related to the transfer of certain residential mortgage loans classified as troubled debt restructurings to held-for-sale in the fourth quarter of 2014, consumer net charge-offs were up $3 million sequentially. Net charge-offs on residential mortgage loans in the portfolio were $6 million, down $88 million from the previous quarter primarily reflecting the impact of the charge-offs in the fourth quarter of 2014 mentioned above. Home equity net charge-offs were $14 million, up $3 million from the fourth quarter of 2014, and net charge-offs in the auto portfolio of $8 million were up $1 million compared with the prior quarter. Net charge-offs on consumer credit card loans were $21 million, up $1 million from the fourth quarter. Net charge-offs on other consumer loans were $3 million, down $1 million compared with the previous quarter.

  For the Three Months Ended
March   December   September   June   March
2015   2014   2014   2014   2014
Allowance for Credit Losses ($ in millions)
Allowance for loan and lease losses, beginning $1,322 $1,414 $1,458 $1,483 $1,582
Total net losses charged off (91) (191) (115) (101) (168)
Provision for loan and lease losses   69     99     71     76     69
Allowance for loan and lease losses, ending 1,300 1,322 1,414 1,458 1,483
 
Reserve for unfunded commitments, beginning 135 134 142 153 162
Provision (benefit) for unfunded commitments (4) 1 (8) (11) (9)
Charge-offs   (1)     -     -     -     -
Reserve for unfunded commitments, ending 130 135 134 142 153
 
Components of allowance for credit losses:
Allowance for loan and lease losses 1,300 1,322 1,414 1,458 1,483
Reserve for unfunded commitments   130     135     134     142     153
Total allowance for credit losses $1,430 $1,457 $1,548 $1,600 $1,636
Allowance for loan and lease losses ratio
As a percent of loans and leases 1.42% 1.47% 1.56% 1.61% 1.65%
As a percent of nonperforming loans and leases(a) 247% 228% 228% 228% 202%
As a percent of nonperforming assets(a) 188% 178% 178% 175% 157%
 
(a) Excludes nonaccrual loans and leases in loans held for sale.                            

Provision for loan and lease losses totaled $69 million in the first quarter of 2015 and decreased $30 million from the fourth quarter of 2014 and was flat from the first quarter of 2014. The decrease from the prior quarter was driven by the $23 million impact in the fourth quarter of 2014 related to the transfer of certain residential mortgage loans classified as troubled debt restructurings to held-for-sale. The allowance for loan and lease losses declined $22 million sequentially reflecting the portfolio’s overall risk profile and charges to the allowance. The allowance represented 1.42 percent of total loans and leases outstanding as of quarter end, compared with 1.47 percent last quarter, and represented 247 percent of nonperforming loans and leases, and 188 percent of nonperforming assets.

      As of
March   December   September   June   March
Nonperforming Assets and Delinquent Loans ($ in millions) 2015   2014   2014   2014   2014
Nonaccrual portfolio loans and leases:
Commercial and industrial loans $61 $86 $102 $103 $153
Commercial mortgage loans 57 64 77 86 96
Commercial construction loans - - 2 3 3
Commercial leases 2 3 3 2 3
Residential mortgage loans 40 44 52 56 68
Home equity 71 72 69 73 75
Automobile loans - - - - -
  Other consumer loans and leases   -   -   -   -   -
Total nonaccrual loans and leases (excludes restructured loans) $231 $269 $305 $323 $398
Restructured loans - commercial (nonaccrual)(c) 205 214 201 202 209
  Restructured loans - consumer (nonaccrual)   90   96   114   115   126
Total nonaccrual portfolio loans and leases $526 $579 $620 $640 $733
Repossessed personal property 20 18 19 18 6
Other real estate owned(a)   145   147   157   174   207
Total nonperforming assets(b) $691 $744 $796 $832 $946
Nonaccrual loans held for sale 2 24 4 5 3
Restructured loans - (nonaccrual) held for sale   -   15   3   -   -
Total nonperforming assets including loans held for sale   $693   $783   $803   $837   $949
 
Restructured Consumer loans and leases (accrual) $943 $905 $1,610 $1,623 $1,682
Restructured Commercial loans and leases (accrual)(c) $774 $844 $885 $914 $847
 
Total loans and leases 90 days past due $78 $87 $87 $94 $94
Nonperforming loans and leases as a percent of portfolio loans,
leases and other assets, including other real estate owned(b) 0.57% 0.64% 0.68% 0.70% 0.82%
Nonperforming assets as a percent of portfolio loans, leases
and other assets, including other real estate owned(b) 0.76% 0.82% 0.88% 0.92% 1.05%
 
(a) Excludes government insured advances.
(b) Does not include nonaccrual loans held for sale.
(c) Excludes $21 million of restructured nonaccrual loans and $7 million of restructured accruing loans as of March 31, 2015, December 31, 2014, September 30, 2014, June 30, 2014, and March 31, 2014.
 

Total nonperforming assets, including loans held-for-sale, were $693 million, a decline of $90 million, or 11 percent, from the previous quarter. Nonperforming loans (NPLs) at quarter-end were $526 million or 0.57 percent of total loans, leases and OREO, and decreased $53 million, or 9 percent, from the previous quarter.

Commercial NPAs were $421 million, or 0.76 percent of commercial loans, leases and OREO, and decreased $40 million, or 9 percent, from the fourth quarter. Commercial NPLs were $325 million, or 0.59 percent of commercial loans and leases, and decreased $42 million from last quarter. C&I NPAs of $216 million decreased $30 million from the prior quarter. Commercial mortgage NPAs were $186 million, down $9 million from the previous quarter. Commercial construction NPAs were $16 million, flat from the previous quarter. Commercial lease NPAs were $3 million, down $1 million from the previous quarter. Commercial NPAs included $205 million of nonaccrual troubled debt restructurings (TDRs), compared with $214 million last quarter.

Consumer NPAs of $270 million, or 0.75 percent of consumer loans, leases and OREO, decreased $13 million from the fourth quarter. Consumer NPLs were $201 million, or 0.56 percent of consumer loans and leases and decreased $11 million from last quarter. Residential mortgage NPAs were $113 million, $13 million lower than last quarter. Home equity NPAs of $111 million increased $3 million sequentially and credit card NPAs of $38 million were down $3 million compared with the previous quarter. Consumer nonaccrual TDRs were $90 million in the first quarter of 2015, compared with $96 million in the fourth quarter of 2014.

First quarter OREO balances included in NPA balances were $145 million, down $2 million from the fourth quarter, and included $81 million in commercial OREO and $64 million in consumer OREO. Repossessed personal property of $20 million increased $2 million from the prior quarter.

Loans over 90 days past due and still accruing were $78 million, down $9 million from the fourth quarter of 2014. Commercial balances over 90 days past due were $3 million compared with less than $1 million in the prior quarter, and consumer balances 90 days past due of $75 million were down $12 million from the previous quarter. Loans 30-89 days past due of $203 million were down $47 million from the previous quarter. Commercial balances 30-89 days past due of $25 million were up $9 million sequentially and consumer balances 30-89 days past due of $178 million decreased $56 million from the fourth quarter. The above delinquencies figures exclude nonaccruals described previously.

Capital Position          
                               
For the Three Months Ended
March December September June March
2015   2014   2014   2014   2014
Capital Position
Average shareholders' equity to average assets 11.49% 11.54% 11.71% 11.57% 11.53%
Tangible equity(a) 9.38% 9.41% 9.65% 9.77% 9.61%
Tangible common equity (excluding unrealized gains/losses)(a) 8.41% 8.43% 8.64% 8.74% 8.79%
Tangible common equity (including unrealized gains/losses)(a) 8.78% 8.71% 8.84% 9.00% 8.93%
Tangible common equity as a percent of risk-weighted assets (excluding unrealized gains/losses) 9.59%(b) 9.70%(d) 9.70%(d) 9.67%(d) 9.57%(d)
 

Regulatory capital ratios:

Basel III
Transitional(c) Basel I(d)
Common equity Tier I 9.62%(b) N/A N/A N/A N/A
Tier I risk-based capital 10.74%(b) 10.83% 10.83% 10.80% 10.45%
Total risk-based capital 14.16%(b) 14.33% 14.34% 14.30% 14.02%
Tier I leverage 9.61% 9.66% 9.82% 9.86% 9.71%
Tier I common equity N/A 9.65%(a) 9.64%(a) 9.61%(a) 9.51%(a)
 
Book value per share 17.85 17.35 16.87 16.74 16.27
Tangible book value per share(a) 14.87 14.40 13.95 13.86 13.40
 
(a) These ratios have been included herein to facilitate a greater understanding of the Bancorp's capital structure and financial condition. See the Regulation G Non-GAAP Reconciliation table for a reconciliation of these ratios to U.S. GAAP.
(b) Under the banking agencies Basel III Final Rule, assets and credit equivalent amounts of off-balance sheet exposures are calculated based upon the standardized approach for risk-weighted assets. The resulting values are added together resulting in the Bancorp's total risk-weighted assets.
(c) Current period regulatory capital ratios are estimated.
(d) These capital ratios were calculated under the Supervisory Agencies general risk-based capital rules (Basel I) which was in effect prior to January 1, 2015.

Capital ratios remained strong during the quarter, reflecting growth in retained earnings, the payment of preferred dividends, and share repurchase activity. The common equity Tier 1 ratio was 9.62 percent, the tangible common equity to tangible assets ratio* was 8.41 percent (excluding unrealized gains/losses), and 8.78 percent (including unrealized gains/losses). The Tier 1 risk-based capital ratio was 10.74 percent, the total risk-based capital ratio was 14.16 percent, and the Leverage ratio was 9.61 percent.

The Basel III Final Rule was effective for the Fifth Third on January 1, 2015, subject to phase-in periods for certain of its components and other provisions. Transition provisions apply to the minimum regulatory capital ratios; regulatory capital adjustments and deductions; and non-qualifying capital instruments. Transition provisions for the regulatory capital adjustments and deductions will change the amount deducted from capital each calendar year until the transition period ends. As of March 31, 2015, Fifth Third’s regulatory capital adjustments and deductions were primarily impacted by the transition provision related to the deduction of intangible assets other than goodwill and mortgage servicing assets. Also, Fifth Third will make a one-time permanent election to not include AOCI in common equity Tier 1 capital in the March 31, 2015 regulatory filings.

Book value per share at March 31, 2015 was $17.85 and tangible book value per share* was $14.87, compared with the December 31, 2014 book value per share of $17.35 and tangible book value per share of $14.40.

As previously announced, Fifth Third entered into a share repurchase agreement with a counterparty on January 22, 2015, whereby Fifth Third would purchase approximately $180 million of its outstanding common stock. This transaction reduced Fifth Third’s first quarter share count by 8.54 million shares on January 27, 2015. Settlement of the forward contract related to this agreement is expected to occur on or before April 23, 2015. In addition, the settlement of the forward contract related to the October 20, 2014 $180 million share repurchase agreement occurred on January 5, 2015. An additional 0.79 million shares were repurchased upon completion of the agreement. In total, the incremental impact to the average diluted share count in the first quarter of 2015 was approximately 8.97 million shares due to share repurchase transactions in the first quarter of 2015 and the fourth quarter of 2014.

On March 11, 2015, Fifth Third announced that the FRB did not object to Fifth Third’s 2015 CCAR capital plan, which included the potential increase in the quarterly common stock dividend to $0.14 per share in 2016 and the potential repurchase of common shares during the CCAR period in an amount up to $765 million. In addition, the capital plan incorporated Fifth Third’s potential repurchases of common shares in the amount of any after-tax gains from the sale of Vantiv, Inc. (“Vantiv”) stock. These capital plans were intended to maintain common equity capital levels in the current range during the CCAR period. Any such actions would be based on environmental and market conditions, earnings results, our capital position, and other factors, as well as approval by the Fifth Third Board of Directors, at the time.

* Non-GAAP measure; see Reg. G reconciliation on page 32 in Exhibit 99.1 of 8-k filing dated 4/21/15.

Tax Rate

The effective tax rate was 25.9 percent this quarter compared with 25.9 percent in the fourth quarter of 2014 and 27.3 percent in the first quarter of 2014.

Other

Fifth Third Bank owns 43 million units representing a 22.8 percent interest in Vantiv Holding, LLC, convertible into shares of Vantiv, Inc., a publicly traded firm (NYSE: VNTV). Based upon Vantiv’s closing price of $37.70 on March 31, 2015, our interest in Vantiv was valued at approximately $1.6 billion. Next month in our 10-Q, we will update our disclosure of the carrying value of our interest in Vantiv stock, which was $394 million as of December 31, 2014. The difference between the market value and the book value of Fifth Third’s interest in Vantiv’s shares is not recognized in Fifth Third’s equity or capital. Additionally, Fifth Third has a warrant to purchase additional shares in Vantiv which is carried as a derivative asset at a fair value of $485 million as of March 31, 2015.

Conference Call

Fifth Third will host a conference call to discuss these financial results at 9:00 a.m. (Eastern Time) today. This conference call will be webcast live by Thomson Financial and may be accessed through the Fifth Third Investor Relations website at www.53.com (click on “About Fifth Third” then “Investor Relations”). Institutional investors can access the call via Thomson Financial’s password-protected event management site, StreetEvents (www.streetevents.com).

Those unable to listen to the live webcast may access a webcast replay through the Fifth Third Investor Relations website at the same web address. Additionally, a telephone replay of the conference call will be available beginning approximately two hours after the conference call until Tuesday, May 5, 2015 by dialing 800-585-8367 for domestic access or 404-537-3406 for international access (passcode 9854806#).

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of March 31, 2015, the Company had $140 billion in assets and operated 15 affiliates with 1,303 full-service Banking Centers, including 101 Bank Mart® locations, most open seven days a week, inside select grocery stores and 2,637 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Missouri, Georgia and North Carolina. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Investment Advisors. Fifth Third also has a 22.8% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest and, as of March 31, 2015, had $308 billion in assets under care, of which it managed $27 billion for individuals, corporations and not-for-profit organizations. Investor information and press releases can be viewed at www.53.com. Fifth Third’s common stock is traded on the NASDAQ® Global Select Market under the symbol “FITB.”

Forward-Looking Statements

This news release contains statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. They usually can be identified by the use of forward-looking language such as “will likely result,” “may,” “are expected to,” “is anticipated,” “estimate,” “forecast,” “projected,” “intends to,” or may include other similar words or phrases such as “believes,” “plans,” “trend,” “objective,” “continue,” “remain,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” or similar verbs. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including but not limited to the risk factors set forth in our most recent Annual Report on Form 10-K. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements we may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to us.

There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) general economic conditions and weakening in the economy, specifically the real estate market, either nationally or in the states in which Fifth Third, one or more acquired entities and/or the combined company do business, are less favorable than expected; (2) deteriorating credit quality; (3) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (4) changes in the interest rate environment reduce interest margins; (5) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; (6) Fifth Third’s ability to maintain required capital levels and adequate sources of funding and liquidity; (7) maintaining capital requirements and adequate sources of funding and liquidity may limit Fifth Third’s operations and potential growth; (8) changes and trends in capital markets; (9) problems encountered by larger or similar financial institutions may adversely affect the banking industry and/or Fifth Third; (10) competitive pressures among depository institutions increase significantly; (11) effects of critical accounting policies and judgments; (12) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (FASB) or other regulatory agencies; (13) legislative or regulatory changes or actions, or significant litigation, adversely affect Fifth Third, one or more acquired entities and/or the combined company or the businesses in which Fifth Third, one or more acquired entities and/or the combined company are engaged, including the Dodd-Frank Wall Street Reform and Consumer Protection Act; (14) ability to maintain favorable ratings from rating agencies; (15) fluctuation of Fifth Third’s stock price; (16) ability to attract and retain key personnel; (17) ability to receive dividends from its subsidiaries; (18) potentially dilutive effect of future acquisitions on current shareholders’ ownership of Fifth Third; (19) effects of accounting or financial results of one or more acquired entities; (20) difficulties from Fifth Third’s investment in, relationship with, and nature of the operations of Vantiv, LLC; (21) loss of income from any sale or potential sale of businesses that could have an adverse effect on Fifth Third’s earnings and future growth; (22) ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; and (23) the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity.

You should refer to our periodic and current reports filed with the Securities and Exchange Commission, or “SEC,” for further information on other factors, which could cause actual results to be significantly different from those expressed or implied by these forward-looking statements.

Contacts

Fifth Third Bancorp
Jim Eglseder (Investors), 513-534-8424
Laura Wehby (Investors), 513-534-7407
Larry Magnesen (Media), 513-534-8055

Contacts

Fifth Third Bancorp
Jim Eglseder (Investors), 513-534-8424
Laura Wehby (Investors), 513-534-7407
Larry Magnesen (Media), 513-534-8055