Fifth Third Announces Third Quarter 2017 Net Income to Common Shareholders of $999 Million, or $1.35 Per Diluted Share

  • 3Q17 net income available to common shareholders of $999 million, or $1.35 per diluted common share
  • Results included a positive $0.87 impact on reported 3Q17 earnings per share:
    • $1.037 billion pre-tax ($679 million after-tax) gain on the sale of Vantiv shares
    • $47 million pre-tax (~$31 million after-tax)(a) charge related to the valuation of the Visa total return swap
    • $0.02 negative EPS impact reflecting a specific Vantiv-related tax item and lower equity method income from the reduced interest in Vantiv
  • Reported net interest income of $970 million; taxable equivalent net interest income of $977 million(b), up 3% from 2Q17 and up 7% from 3Q16
  • Taxable equivalent net interest margin of 3.07%(b), up 6 bps from 2Q17 and up 19 bps from 3Q16
  • Average portfolio loans and leases of $91.9 billion, flat from 2Q17 and down 2% from 3Q16
  • Noninterest income of $1.6 billion, compared with $564 million in 2Q17 and $840 million in 3Q16; performance primarily driven by the Vantiv-related item above
  • Noninterest expense of $975 million, up 2% from 2Q17 and flat from 3Q16
  • Net charge-offs (NCOs) of $68 million, up $4 million from 2Q17 and down $39 million from 3Q16; NCO ratio of 0.29% compared to 0.28% in 2Q17 and 0.45% in 3Q16
  • Portfolio nonperforming asset (NPA) ratio of 0.60%, down 12 bps from 2Q17 and down 15 bps from 3Q16
  • 3Q17 provision expense of $67 million compared to $52 million in 2Q17 and $80 million in 3Q16
  • Common equity Tier 1 (CET1)(c) ratio of 10.59%; fully phased-in CET1 ratio(b)(c) of 10.47%
  • Tangible common equity ratio of 9.00%(b); 8.89% excluding unrealized gains/losses(b)
  • Book value per share of $21.30, up 4% from both 2Q17 and 3Q16; tangible book value per share(b) of $17.86 up 4% from both 2Q17 and 3Q16

CINCINNATI--()--Fifth Third Bancorp (Nasdaq: FITB) today reported third quarter 2017 net income of $1.0 billion versus net income of $367 million in the second quarter of 2017 and $516 million in the third quarter of 2016. After preferred dividends, net income available to common shareholders was $999 million, or $1.35 per diluted share, in the third quarter of 2017, compared with $344 million, or $0.45 per diluted share, in the second quarter of 2017, and $501 million, or $0.65 per diluted share, in the third quarter of 2016.

Earnings Highlights
                                       
  For the Three Months Ended     % Change
September   June   March   December   September    
2017   2017   2017   2016   2016(d)   Seq   Yr/Yr
Earnings ($ in millions)
Net income attributable to Bancorp $1,014 $367 $305 $395 $516 NM 97%
Net income available to common shareholders $999 $344 $290 $372 $501 NM 99%
 
Common Share Data
Earnings per share, basic $1.37 $0.46 $0.38 $0.49 $0.66 NM NM
Earnings per share, diluted 1.35 0.45 0.38 0.49 0.65 NM NM
Cash dividends per common share 0.16 0.14 0.14 0.14 0.13 14% 23%
 
Common shares outstanding (in thousands) 705,474 738,873 750,145 750,479 755,582 (5%) (7%)
Average common shares outstanding
(in thousands):
Basic 721,280 741,401 747,668 746,367 750,886 (3%) (4%)
Diluted 733,285 752,328 760,809 757,704 757,856 (3%) (3%)
 
Financial Ratios bps Change
Return on average assets 2.85 % 1.05 % 0.88 % 1.11 % 1.44 % 180 141
Return on average common equity 25.6 9.0 7.8 9.7 12.8 1660 1280
Return on average tangible common equity(b) 30.4 10.7 9.3 11.6 15.2 1970 1520
CET1 capital(c) 10.59 10.63 10.76 10.39 10.17 (4) 42
Tier I risk-based capital(c) 11.72 11.76 11.90 11.50 11.27 (4) 45
CET1 capital (fully-phased in)(b)(c) 10.47 10.52 10.66 10.29 10.09 (5) 38
Net interest margin (taxable equivalent)(b) 3.07 3.01 3.02 2.86 2.88 6 19
Efficiency (taxable equivalent)(b)   38.4     63.4     67.4     62.8     55.5     (2500)   (1710)

“Our third quarter 2017 performance reflected continued progress toward achieving our long-term financial targets. Higher revenues, disciplined expense management, and solid credit results helped us deliver strong results for our shareholders,” said Greg D. Carmichael, President and CEO of Fifth Third Bancorp.

“Reported results included a substantial gain from the sale of a portion of our ownership stake in Vantiv. The sale also generated an additional stream of future cash flows related to our tax receivable agreement which Fifth Third will potentially receive over many years. This transaction is consistent with our long standing strategy of thoughtfully reducing our ownership stake in Vantiv over time.

“During the quarter, we also announced multiple strategic relationships, acquisitions, and equity investments which will enhance our insurance, HR consulting, and payment solutions revenue. These announcements follow several other agreements we entered into earlier this year to drive higher fee based revenue while better serving the needs of our customers.

“Our strong capital position has allowed us to both increase our dividend by 14 percent and repurchase nearly $1 billion of shares during the quarter. We remain focused on managing for long-term outperformance by strengthening our balance sheet, building profitable relationships while maintaining our disciplined underwriting standards, and returning excess capital to shareholders.”

Income Statement Highlights
                                       
($ in millions, except per-share data)   For the Three Months Ended     % Change
September   June   March   December   September    
2017   2017   2017   2016   2016(d)   Seq   Yr/Yr
Condensed Statements of Income        
Net interest income (taxable equivalent)(b) $977 $945 $939 $909 $913 3% 7%
Provision for loan and lease losses 67 52 74 54 80 29% (16%)
Total noninterest income 1,561 564 523 620 840 NM 86%
Total noninterest expense   975   957   986   960   973   2%   -
Income before income taxes (taxable equivalent)(b)   $1,496   $500   $402   $515   $700   NM   NM
 
Taxable equivalent adjustment 7 6 6 6 6 17% 17%
Applicable income tax expense   475   127   91   114   178   NM   NM
Net income $1,014 $367 $305 $395 $516 NM 97%
Less: Net income attributable to noncontrolling interests   -   -   -   -   -   NM   NM
Net income attributable to Bancorp $1,014 $367 $305 $395 $516 NM 97%
Dividends on preferred stock   15   23   15   23   15   (35%)   -
Net income available to common shareholders   $999   $344   $290   $372   $501   NM   99%
Earnings per share, diluted   $1.35   $0.45   $0.38   $0.49   $0.65   NM   NM
 
Net Interest Income
                                       
(Taxable equivalent basis; $ in millions)(b)   For the Three Months Ended     % Change
September   June   March   December   September    
2017   2017   2017   2016   2016   Seq   Yr/Yr
Interest Income
Total interest income $1,159 $1,112 $1,092 $1,058 $1,063 4% 9%
Total interest expense   182     167     153     149     150     9%   21%
Net interest income   $977     $945     $939     $909     $913     3%   7%
 
Average Yield bps Change
Yield on interest-earning assets 3.64% 3.54% 3.51% 3.33% 3.36% 10 28
Rate paid on interest-bearing liabilities   0.85%     0.79%     0.73%     0.70%     0.70%     6   15
Net interest rate spread   2.79%     2.75%     2.78%     2.63%     2.66%     4   13
Net interest margin 3.07% 3.01% 3.02% 2.86% 2.88% 6 19
 
Average Balances % Change
Loans and leases, including held for sale $92,617 $92,653 $92,791 $93,981 $94,417 - (2%)
Total securities and other short-term investments 33,826 33,481 33,177 32,567 31,675 1% 7%
Total interest-earning assets 126,443 126,134 125,968 126,548 126,092 - -
Total interest-bearing liabilities 85,328 85,320 84,890 84,552 85,193 - -
Bancorp shareholders' equity(d)   16,820     16,615     16,429     16,545     16,883     1%   -

Taxable equivalent net interest income of $977 million in the third quarter of 2017 was up $32 million, or 3 percent from the prior quarter, reflecting the impact of higher short-term market rates during the quarter, the continued shift into higher yielding consumer loans, and a higher day count. The taxable equivalent net interest margin was 3.07 percent, up 6 bps sequentially, primarily driven by higher short-term market rates and improving consumer and commercial portfolio yields, partially offset by a higher day count and a decrease in core deposits.

Compared to the third quarter of 2016, taxable equivalent net interest income was up $64 million, or 7 percent, primarily driven by higher short-term market rates. The net interest margin was up 19 bps from the third quarter of 2016, also primarily driven by higher short-term market rates.

Securities

Average securities and other short-term investments were $33.8 billion in the third quarter of 2017 compared to $33.5 billion in the previous quarter and $31.7 billion in the third quarter of 2016. Available-for-sale securities were $31.5 billion in the third quarter of 2017 down $343 million, or 1 percent, sequentially and up $791 million, or 3 percent, from the third quarter of 2016.

Loans
                                       
($ in millions)   For the Three Months Ended     % Change
September   June   March   December   September    
2017   2017   2017   2016   2016   Seq   Yr/Yr
Average Portfolio Loans and Leases
Commercial:
Commercial and industrial loans $41,302 $41,601 $41,854 $42,548 $43,116 (1%) (4%)
Commercial mortgage loans 6,807 6,845 6,941 6,957 6,888 (1%) (1%)
Commercial construction loans 4,533 4,306 3,987 3,890 3,848 5% 18%
Commercial leases   4,072     4,036     3,901     3,921     3,962     1%   3%
Total commercial loans and leases   $56,714     $56,788     $56,683     $57,316     $57,814     -   (2%)
Consumer:
Residential mortgage loans $15,523 $15,417 $15,200 $14,854 $14,455 1% 7%
Home equity 7,207 7,385 7,581 7,779 7,918 (2%) (9%)
Automobile loans 9,267 9,410 9,786 10,162 10,508 (2%) (12%)
Credit card 2,140 2,080 2,141 2,180 2,165 3% (1%)
Other consumer loans and leases   1,055     892     755     673     651     18%   62%
Total consumer loans and leases   $35,192     $35,184     $35,463     $35,648     $35,697     -   (1%)
Total average portfolio loans and leases $91,906 $91,972 $92,146 $92,964 $93,511 - (2%)
 
Average loans held for sale   $711     $681     $645     $1,017     $906     4%   (22%)

Average portfolio loan and lease balances were flat sequentially and decreased $1.6 billion, or 2 percent, from the third quarter of 2016. The year-over-year decrease was primarily driven by declines in commercial and industrial (C&I) and automobile loans. The year-over-year decline in C&I loans was primarily due to deliberate exits from certain C&I loans that did not meet risk-adjusted profitability targets. The year-over-year decline in automobile loans continues to reflect the decision to reduce lower-return originations to improve returns on capital. Period end portfolio loans and leases of $91.9 billion were also flat sequentially, and decreased $1.3 billion, or 1 percent, from a year ago. On a year-over-year basis, the decrease in period end loan balances was primarily due to declines in C&I and automobile loans, partially offset by increases in residential mortgage and commercial construction loans.

Average commercial portfolio loan and lease balances were flat sequentially, and decreased $1.1 billion, or 2 percent, from the third quarter of 2016. Average C&I loans decreased $299 million, or 1 percent, from the prior quarter and decreased $1.8 billion, or 4 percent, from the third quarter of 2016. The decline in C&I loans was primarily due to the aforementioned deliberate exits. Average commercial real estate loans increased $189 million, or 2 percent, from the prior quarter and increased $604 million, or 6 percent, from the third quarter of 2016. Within commercial real estate, average commercial mortgage balances decreased $38 million and average commercial construction balances increased $227 million sequentially. Period end commercial line utilization of 34 percent compared to 34 percent in the second quarter of 2017 and 35 percent in the third quarter of 2016.

Average consumer portfolio loan and lease balances were flat sequentially and decreased $505 million, or 1 percent, from the third quarter of 2016. The year-over-year decrease was primarily driven by the decline in average automobile loans. Average automobile loans decreased 2 percent sequentially and 12 percent from a year ago. Average residential mortgage loans increased 1 percent sequentially and 7 percent from the previous year. Average home equity loans decreased 2 percent sequentially and 9 percent from the third quarter of 2016. Average credit card loans increased 3 percent sequentially and decreased 1 percent from the third quarter of 2016.

Deposits
                                         
($ in millions)   For the Three Months Ended     % Change
  September   June   March   December   September    
2017   2017   2017   2016   2016   Seq   Yr/Yr
Average Deposits
Demand $34,850 $34,915 $35,084 $36,412 $35,918 - (3%)
Interest checking 25,765 26,014 26,760 25,644 24,475 (1%) 5%
Savings 13,889 14,238 14,117 13,979 14,232 (2%) (2%)
Money market 20,028 20,278 20,603 20,476 19,706 (1%) 2%
Foreign office(e)   395     380     454     497     524     4%   (25%)
Total transaction deposits $94,927 $95,825 $97,018 $97,008 $94,855 (1%) -
Other time   3,722     3,745     3,827     3,941     4,020     (1%)   (7%)
Total core deposits $98,649 $99,570 $100,845 $100,949 $98,875 (1%) -
Certificates - $100,000 and over 2,625 2,623 2,579 2,539 2,768 - (5%)
Other   560     264     162     115     749     NM   (25%)
Total average deposits   $101,834     $102,457     $103,586     $103,603     $102,392     (1%)   (1%)

Average core deposits decreased 1 percent sequentially and were flat from the third quarter of 2016. Average transaction deposits decreased $898 million, or 1 percent, sequentially and were flat from the third quarter of 2016. The sequential decline was primarily driven by decreases in commercial money market account balances as well as consumer savings and demand deposit account balances, partially offset by higher commercial demand deposit account balances and consumer money market account balances. Year-over-year performance was primarily driven by lower commercial demand deposit and money market account balances, largely offset by higher commercial interest checking deposit and consumer money market account balances. Other time deposits decreased by 1 percent sequentially and 7 percent year-over-year.

Average total commercial transaction deposits of $42 billion decreased 1 percent sequentially and 5 percent from the third quarter of 2016. Average total consumer transaction deposits of $53 billion decreased 1 percent sequentially and increased 4 percent from the third quarter of 2016.

Wholesale Funding
                                         
($ in millions)   For the Three Months Ended     % Change
  September   June   March   December   September    
2017   2017   2017   2016   2016   Seq   Yr/Yr
Average Wholesale Funding
Certificates - $100,000 and over $2,625 $2,623 $2,579 $2,539 $2,768 - (5%)
Other deposits 560 264 162 115 749 NM (25%)
Federal funds purchased 675 311 639 280 446 NM 51%
Other short-term borrowings 4,212 4,194 1,893 1,908 2,171 - 94%
Long-term debt   13,457     13,273     13,856     15,173     16,102     1%   (16%)
Total average wholesale funding   $21,529     $20,665     $19,129     $20,015     $22,236     4%   (3%)

Average wholesale funding of $21.5 billion increased $864 million, or 4 percent, sequentially and decreased $707 million, or 3 percent, compared with the third quarter of 2016. The sequential increase in average wholesale funding was primarily driven by an increase in federal funds purchased and other borrowings to offset a decline in core deposits, as well as the full quarter’s impact of $700 million of 5-year holding company debt issued in June of 2017. The year-over-year decrease in wholesale funding was primarily driven by lower long-term debt balances concurrent with declining asset balances.

Noninterest Income
                             
($ in millions)   For the Three Months Ended   % Change
September   June   March   December   September    
2017   2017   2017   2016   2016   Seq   Yr/Yr
Noninterest Income
Service charges on deposits $138 $139 $138 $141 $143 (1%) (3%)
Corporate banking revenue 101 101 74 101 111 - (9%)
Mortgage banking net revenue 63 55 52 65 66 15% (5%)
Wealth and asset management revenue 102 103 108 100 101 (1%) 1%
Card and processing revenue 79 79 74 79 79 - -
Other noninterest income 1,076 85 77 137 336 NM NM
Securities gains (losses), net - - - (3) 4 NM (100%)
Securities gains, net - non-qualifying
hedges on mortgage servicing rights   2   2   -   -   -   -   NM
Total noninterest income   $1,561   $564   $523   $620   $840   NM   86%

Noninterest income of $1.6 billion increased $997 million sequentially and increased $721 million compared with prior year results. The sequential and year-over-year comparisons reflect the impacts described below.

Noninterest Income excluding certain items
                           
($ in millions)   For the Three Months Ended     % Change
September   June     September      
2017   2017     2016     Seq   Yr/Yr
Noninterest Income excluding certain items
Noninterest income (U.S. GAAP) $1,561 $564 $840
Valuation of Visa total return swap 47 9 12
Gain on sale of Vantiv shares (1,037) - -
Branch / land impairment charge - - 28
Transfer of certain nonconforming investments under Volcker to HFS - - 9
Vantiv warrant valuation - - 2
Gain on sale of a non-branch facility - - (11)

Gain from termination and settlement of Vantiv TRA and the expected obligation to terminate and settle the remaining TRA cash flows upon exercise of put or call options

- - (280)
Securities (gains) / losses   -     -     (4)          
Noninterest income excluding certain items(b)   $571     $573     $596     -   (4%)

Excluding the items in the table above, noninterest income of $571 million was flat from the previous quarter and decreased 4 percent, from the third quarter of 2016. The sequential performance was primarily driven by decreases in service charges on deposits, wealth and asset management revenue, and other noninterest income, offset by an increase in mortgage banking net revenue. The year-over-year decrease was driven by declines in corporate banking revenue and service charges on deposits.

Corporate banking revenue of $101 million was flat sequentially and decreased 9 percent from the third quarter of 2016. The sequential performance was primarily driven by increases in institutional sales revenue and foreign exchange revenue, partially offset by decreases in lease syndication and remarketing fees. The year-over-year decrease was primarily driven by a decline in lease remarketing fees.

Mortgage Banking Net Revenue
                             
($ in millions)   For the Three Months Ended   % Change
September   June   March   December   September    
2017   2017   2017   2016   2016   Seq   Yr/Yr
Mortgage Banking Net Revenue
Origination fees and gains on loan sales $40 $37 $29 $30 $61 8% (34%)
Net mortgage servicing revenue:
Gross mortgage servicing fees 56 49 47 48 49 14% 14%
MSR amortization - - - (35) (35) NM NM
Net valuation adjustments on MSRs and (33) (31) (24) 22 (9) 6% NM
free-standing derivatives purchased to
economically hedge MSRs                            
Net mortgage servicing revenue   23   18   23   35   5   28%   NM
Total mortgage banking net revenue   $63   $55   $52   $65   $66   15%   (5%)

Mortgage banking net revenue was $63 million in the third quarter of 2017, up $8 million from the second quarter of 2017 and down $3 million from the third quarter of 2016. The sequential increase was driven by higher gross mortgage servicing fees. The year-over-year decrease was driven by lower origination fees and gains on loans, partially offset by higher gross mortgage servicing fees. Originations of $2.1 billion in the current quarter decreased 6 percent sequentially and decreased 26 percent from the third quarter of 2016.

Wealth and asset management revenue of $102 million decreased 1 percent from the second quarter of 2017 and increased 1 percent from the third quarter of 2016. The sequential decrease was primarily driven by lower brokerage revenue, partially offset by higher personal asset management revenue. The year-over-year increase was primarily driven by higher personal asset management revenue.

Card and processing revenue of $79 million in the third quarter of 2017 was flat both sequentially and from the third quarter of 2016. The sequential and year-over-year performance reflected increased credit card spend volume, offset by higher rewards.

Other noninterest income totaled $1.1 billion in the third quarter of 2017, compared with $85 million in the previous quarter and $336 million in the third quarter of 2016. The reported results included Vantiv-related transactions and adjustments, the valuation of the Visa total return swap, and other items as shown in the table on page 8. For the third quarter of 2017, excluding these items, other noninterest income of $86 million decreased approximately $8 million, or 9 percent, from the second quarter of 2017 and decreased $10 million, or 10 percent, from the third quarter of 2016.

Net gains/losses on investment securities were immaterial in the third quarter of 2017 and second quarter of 2017, compared with a $4 million net gain in the third quarter of 2016. Net gains on securities held as non-qualifying hedges for the MSR portfolio were $2 million in the third quarter of 2017 and second quarter of 2017.

Noninterest Expense                      
                                       
($ in millions) For the Three Months Ended     % Change
September June March December September
2017   2017     2017     2016     2016     Seq   Yr/Yr
Noninterest Expense
Salaries, wages and incentives $407 $397 $411 $403 $400 3% 2%
Employee benefits 77 86 111 76 78 (10%) (1%)
Net occupancy expense 74 70 78 73 73 6% 1%
Technology and communications 62 57 58 56 62 9% -
Equipment expense 30 29 28 29 29 3% 3%
Card and processing expense 32 33 30 31 30 (3%) 7%
Other noninterest expense   293     285     270     292     301     3%   (3%)
Total noninterest expense   $975     $957     $986     $960     $973     2%   -

Noninterest expense of $975 million increased $18 million, or 2 percent, compared with the second quarter of 2017, and was flat compared with the third quarter of 2016. The sequential increase was driven by higher salaries, wages and incentives, technology and communications expense, and additional marketing expense included in other noninterest expense, partially offset by lower employee benefits expense. The year-over-year performance was impacted by higher salaries, wages and incentives, offset by lower other noninterest expense.

Credit Quality
                               
($ in millions)   For the Three Months Ended
  September   June   March   December   September
2017   2017   2017   2016   2016
Total net losses charged-off
Commercial and industrial loans ($27) ($18) ($36) ($25) ($61)
Commercial mortgage loans (3) (5) (5) (2) (2)
Commercial construction loans - - - - -
Commercial leases - (1) (1) (1) -
Residential mortgage loans 1 (2) (5) (2) (2)
Home equity (3) (5) (6) (6) (7)
Automobile loans (8) (6) (11) (11) (9)
Credit card (20) (22) (22) (19) (20)
  Other consumer loans and leases   (8)     (5)     (3)     (7)     (6)
Total net losses charged-off ($68) ($64) ($89) ($73) ($107)
 
Total losses charged-off ($85) ($95) ($107) ($97) ($137)
Total recoveries of losses previously charged-off   17     31     18     24     30
Total net losses charged-off ($68) ($64) ($89) ($73) ($107)
Ratios (annualized)
Net losses charged-off as a percent of average portfolio loans and
leases (excluding held for sale) 0.29% 0.28% 0.40% 0.31% 0.45%
Commercial 0.21% 0.17% 0.29% 0.20% 0.43%
  Consumer   0.43%     0.46%     0.56%     0.49%     0.49%

Net charge-offs were $68 million, or 29 bps of average portfolio loans and leases on an annualized basis, in the third quarter of 2017 compared with net charge-offs of $64 million, or 28 bps, in the second quarter of 2017 and $107 million, or 45 bps, in the third quarter of 2016.

Commercial net charge-offs of $30 million, or 21 bps, increased $6 million sequentially. This primarily reflected a $9 million increase in net charge-offs of C&I loans, partially offset by a $2 million decrease in net charge-offs of commercial mortgage loans.

Consumer net charge-offs of $38 million, or 43 bps, decreased $2 million sequentially. Compared with the previous quarter, net charge-offs on residential mortgage loans decreased $3 million. Net charge-offs on the home equity portfolio decreased $2 million from the previous quarter. Net charge-offs on the auto portfolio increased $2 million from the previous quarter. Net charge-offs on credit card loans decreased $2 million from the previous quarter. Net charge-offs on other consumer loans increased $3 million sequentially.

($ in millions)   For the Three Months Ended
September   June   March   December   September
2017   2017   2017   2016   2016
Allowance for Credit Losses
Allowance for loan and lease losses, beginning $1,226 $1,238 $1,253 $1,272 $1,299
Total net losses charged-off (68) (64) (89) (73) (107)
Provision for loan and lease losses 67 52 74 54 80
Deconsolidation of a variable interest entity   (20)     -     -     -     -
Allowance for loan and lease losses, ending $1,205 $1,226 $1,238 $1,253 $1,272
 
Reserve for unfunded commitments, beginning $162 $159 $161 $162 $151
Provision for unfunded commitments   (5)     3     (2)     (1)     11
Reserve for unfunded commitments, ending $157 $162 $159 $161 $162
 
Components of allowance for credit losses:
Allowance for loan and lease losses $1,205 $1,226 $1,238 $1,253 $1,272
Reserve for unfunded commitments   157     162     159     161     162
Total allowance for credit losses $1,362 $1,388 $1,397 $1,414 $1,434
Allowance for loan and lease losses ratio
As a percent of portfolio loans and leases 1.31% 1.34% 1.35% 1.36% 1.37%
As a percent of nonperforming loans and leases(f) 238% 200% 188% 190% 212%
As a percent of nonperforming assets(f)   217%     185%     172%     170%     182%

As of quarter end, the allowance for loan and lease loss ratio represented 1.31 percent of total portfolio loans and leases outstanding, compared with 1.34 percent last quarter, and represented 238 percent of nonperforming loans and leases, and 217 percent of nonperforming assets.

The provision for loan and lease losses totaled $67 million in the third quarter of 2017, up $15 million sequentially. An increase in period end loan balances contributed to the increase in provision. Provision expense decreased $13 million from the third quarter of 2016.

($ in millions)   As of
    September   June   March   December   September
Nonperforming Assets and Delinquent Loans 2017   2017   2017   2016   2016
Nonaccrual portfolio loans and leases:
Commercial and industrial loans $144 $225 $251 $302 $235
Commercial mortgage loans 14 15 21 27 31
Commercial construction loans - - - - -
Commercial leases 1 1 - 2 -
Residential mortgage loans 19 19 21 17 19
  Home equity   56     52     53     55     59  
Total nonaccrual portfolio loans and leases (excludes restructured loans) $234 $312 $346 $403 $344
Nonaccrual restructured portfolio commercial loans and leases(g) 214 244 251 192 194
  Nonaccrual restructured portfolio consumer loans and leases   58     58     60     65     63  
Total nonaccrual portfolio loans and leases $506 $614 $657 $660 $601
Repossessed property 10 11 14 15 13
OREO   39     37

 

  50

 

  63

 

  84

 

Total nonperforming portfolio assets(f) $555 $662 $721 $738 $698
Nonaccrual loans held for sale 18 7 7 4 91
Nonaccrual restructured loans held for sale   2     1     2     9     9  
Total nonperforming assets   $575     $670     $730     $751     $798  
 
Restructured Portfolio consumer loans and leases (accrual) $929 $933 $950 $959 $972
Restructured Portfolio commercial loans and leases (accrual)(g) $232 $224 $277 $321 $408
 
Total loans and leases 30-89 days past due (accrual) $252 $190 $180 $231 $205
Total loans and leases 90 days past due (accrual) $77 $75 $75 $84 $76
 
Nonperforming portfolio loans and leases as a percent of portfolio
loans, leases and other assets, including OREO(f) 0.55% 0.67% 0.72% 0.72% 0.64%
Nonperforming portfolio assets as a percent of portfolio loans and
  leases and OREO(f)   0.60%     0.72%     0.79%     0.80%     0.75%  

Total nonperforming portfolio assets decreased $107 million, or 16 percent, from the previous quarter to $555 million. Portfolio nonperforming loans and leases (NPLs) at quarter-end decreased $108 million from the previous quarter to $506 million. NPLs as a percent of total loans, leases and OREO at quarter end decreased 12 bps from the previous quarter to 0.55 percent.

Commercial portfolio NPLs decreased $112 million from last quarter to $373 million, or 0.66 percent of commercial portfolio loans, leases and OREO. Consumer portfolio NPLs increased $4 million from last quarter to $133 million, or 0.37 percent of consumer portfolio loans, leases and OREO.

OREO balances increased $2 million from the prior quarter to $39 million, and included $18 million in commercial OREO and $21 million in consumer OREO. Repossessed personal property decreased $1 million from the prior quarter to $10 million.

Loans over 90 days past due and still accruing increased $2 million from the second quarter of 2017 at $77 million. Loans 30-89 days past due of $252 million increased $62 million from the previous quarter.

Capital and Liquidity Position
                             
    For the Three Months Ended
September   June   March   December   September
2017   2017   2017   2016   2016
Capital Position
Average total Bancorp shareholders' equity to average assets 11.93% 11.84% 11.72% 11.66% 11.83%
Tangible equity(b) 9.84% 9.98% 10.12% 9.82% 9.73%
Tangible common equity (excluding unrealized gains/losses)(b) 8.89% 9.02% 9.15% 8.87% 8.78%
Tangible common equity (including unrealized gains/losses)(b) 9.00% 9.12% 9.20% 8.91% 9.24%
 

Regulatory capital ratios:

 
CET1 capital(c) 10.59% 10.63% 10.76% 10.39% 10.17%
Tier I risk-based capital(c) 11.72% 11.76% 11.90% 11.50% 11.27%
Total risk-based capital(c) 15.16% 15.22% 15.45% 15.02% 14.88%
Tier I leverage 9.97% 10.07% 10.15% 9.90% 9.80%
 
CET1 capital (fully phased-in)(b)(c) 10.47% 10.52% 10.66% 10.29% 10.09%
 
Book value per share $21.30 $20.42 $20.13 $19.82 $20.44
Tangible book value per share(b) $17.86 $17.11 $16.89 $16.60 $17.22
 
Modified liquidity coverage ratio (LCR)(h)   124%     115%     119%   128%     115%

Capital ratios remained strong during the quarter. The CET1 ratio was 10.59 percent, the tangible common equity to tangible assets ratio(b) was 8.89 percent (excluding unrealized gains/losses), and 9.00 percent (including unrealized gains/losses). The Tier I risk-based capital ratio was 11.72 percent, the Total risk-based capital ratio was 15.16 percent, and the Tier I leverage ratio was 9.97 percent.

Book value per share at September 30, 2017 was $21.30 and tangible book value per share(b) was $17.86, compared with the June 30, 2017 book value per share of $20.42 and tangible book value per share(b) of $17.11.

Fifth Third entered into or completed multiple share repurchases during the quarter. Below is a summary of those share repurchases.

  • On July 31, 2017, Fifth Third settled the forward contract related to the April 26, 2017 $342 million share repurchase agreement. An additional 2.2 million shares were repurchased in connection with the completion of this agreement.
  • On August 17, 2017, Fifth Third initially settled a share repurchase agreement whereby Fifth Third would purchase $990 million of its outstanding stock. This reduced third quarter common shares outstanding by 31.5 million shares. Settlement of the forward contract related to this agreement is expected to occur on or before December 18, 2017.

In total, common shares outstanding decreased by approximately 33.4 million shares in the third quarter of 2017 from the second quarter of 2017.

Tax Rate

The effective tax rate was 31.9 percent in the third quarter of 2017 compared with 25.9 percent in the second quarter of 2017 and 25.6 percent in the third quarter of 2016. The sequential and year-over-year increase was primarily driven by the impact of the Vantiv sale during the quarter.

Other

On August 9, 2017, Fifth Third Bank exchanged 19.79 million of its Class B Units in Vantiv Holding, LLC for 19.79 million shares of Vantiv, Inc.’s Class A common stock, and Vantiv, Inc. repurchased such newly issued shares of Class A common stock from Fifth Third Bank. During the third quarter, Fifth Third recognized a pre-tax gain of $1.037 billion related to the sale. For more detail on the transaction see the Form 8-K dated August 8, 2017.

Fifth Third Bank owns approximately 15 million units representing an 8.6 percent interest in Vantiv Holding, LLC, convertible into shares of Vantiv, Inc., a publicly traded firm. Based upon Vantiv’s closing price of $70.47 on September 30, 2017, our interest in Vantiv was valued at approximately $1.1 billion. 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.

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 and may be accessed through the Fifth Third Investor Relations website at www.53.com (click on “About Us” then “Investor Relations”).

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 after the conference call until approximately November 7, 2017 by dialing 800-585-8367 for domestic access or 404-537-3406 for international access (passcode 44813627#).

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of September 30, 2017, the Company had $142 billion in assets and operates 1,155 full-service Banking Centers, and 2,465 Fifth Third branded ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia and North Carolina. In total, Fifth Third provides its customers with access to more than 45,000 fee-free ATMs across the United States. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Wealth & Asset Management. Fifth Third also has an 8.6% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest and, as of September 30, 2017, had $348 billion in assets under care, of which it managed $36 billion for individuals, corporations and not-for-profit organizations through its Trust and Registered Investment Advisory businesses. 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.”

Earnings Release End Notes

(a)   Assumes a 35% tax rate.
 
(b) Non-GAAP measure; see discussion of non-GAAP and Reg. G reconciliation beginning on page 31 in Exhibit 99.1 of 8-K filing dated 10/24/17.
 
(c) Under the banking agencies' Basel III Final Rule, assets and credit equivalent amounts of off-balance sheet exposures are calculated according to the standardized approach for risk-weighted assets. The resulting values are added together resulting in the Bancorp's total risk-weighted assets used in the calculation of the tier I risk-based capital and common equity tier 1 ratios. Current period regulatory capital ratios are estimated.
 
(d) Average common shares outstanding – diluted were adjusted for the three months ended September 30,2016 related to the early adoption of ASU 2016-09 during the fourth quarter of 2016, with an effective date of January 1, 2016.
 
(e) Includes commercial customer Eurodollar sweep balances for which the Bancorp pays rates comparable to other commercial deposit accounts.
 
(f) Excludes nonaccrual loans in loans held for sale.
 
(g) As of June 30, 2017, March 31, 2017 and December 31, 2016, excludes $7 million of restructured accruing loans and $19 million of restructured nonaccrual loans associated with a consolidated VIE in which the Bancorp has no continuing credit risk due to the risk being assumed by a third party. As of September 30, 2016, excludes $7 million of restructured accruing loans and $20 million of restructured nonaccrual loans associated with a consolidated VIE in which the Bancorp has no continuing credit risk due to the risk being assumed by a third party.
 
(h) The Bancorp became subject to the Modified LCR regulations effective January 1, 2016. Current period LCR is estimated.

FORWARD-LOOKING STATEMENTS

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

There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) general economic or real estate market conditions, either nationally or in the states in which Fifth Third, one or more acquired entities and/or the combined company do business, weaken or are less favorable than expected; (2) deteriorating credit quality; (3) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (4) changes in the interest rate environment reduce interest margins; (5) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; (6) Fifth Third’s ability to maintain required capital levels and adequate sources of funding and liquidity; (7) maintaining capital requirements and adequate sources of funding and liquidity may limit Fifth Third’s operations and potential growth; (8) changes and trends in capital markets; (9) problems encountered by larger or similar financial institutions may adversely affect the banking industry and/or Fifth Third; (10) competitive pressures among depository institutions increase significantly; (11) changes in customer preferences or information technology systems; (12) effects of critical accounting policies and judgments; (13) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (FASB) or other regulatory agencies; (14) 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; (15) ability to maintain favorable ratings from rating agencies; (16) failure of models or risk management systems or controls; (17) fluctuation of Fifth Third’s stock price; (18) ability to attract and retain key personnel; (19) ability to receive dividends from its subsidiaries; (20) potentially dilutive effect of future acquisitions on current shareholders’ ownership of Fifth Third; (21) declines in the value of Fifth Third’s goodwill or other intangible assets; (22) effects of accounting or financial results of one or more acquired entities; (23) difficulties from Fifth Third’s investment in, relationship with, and nature of the operations of Vantiv Holding, LLC; (24) loss of income from any sale or potential sale of businesses (25) difficulties in separating the operations of any branches or other assets divested; (26) losses or adverse impacts on the carrying values of branches and long-lived assets in connection with their sales or anticipated sales; (27) inability to achieve expected benefits from branch consolidations and planned sales within desired timeframes, if at all; (28) ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; and (29) the negotiation and (if any) implementation by Vantiv, Inc. and/or Worldpay Group plc of the potential acquisition of Worldpay Group plc by Vantiv, Inc. and such other actions as Vantiv, Inc. and Worldpay Group plc may take in furtherance thereof; and (30) the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity. You should refer to our periodic and current reports filed with the Securities and Exchange Commission, or “SEC,” for further information on other factors, which could cause actual results to be significantly different from those expressed or implied by these forward-looking statements.

In this release, we may sometimes provide non-GAAP financial information. Please note that although non-GAAP financial measures provide useful insight to analysts, investors and regulators, they should not be considered in isolation or relied upon as a substitute for analysis using GAAP measures. We provide a discussion of these non-GAAP measures and reconciliation to the most directly comparable GAAP measures beginning on page 31 in Exhibit 99.1 of 8-K filing dated 10/24/17.

Contacts

Fifth Third Bancorp
Sameer Gokhale (Investors), 513-534-2219
Katrina Booker (Media), 513-534-6858

Contacts

Fifth Third Bancorp
Sameer Gokhale (Investors), 513-534-2219
Katrina Booker (Media), 513-534-6858