- 3Q15 net income available to common
shareholders of $366 million, or $0.45 per diluted common share
- Includes a $130 million pre-tax (~$84
million after tax) positive valuation adjustment on the warrant
Fifth Third holds in Vantiv, $35 million pre-tax (~$23 million
after tax) of provision expense related to the restructuring of a
student loan backed commercial credit originally extended in 2007,
a $9 million pre-tax (~$6 million after tax) charge associated with
executive retirement and severance costs, and an $8 million pre-tax
(~$5 million after tax) charge related to the valuation of the Visa
total return swap, resulting in a net $0.06 impact on earnings per
share
- 3Q15 return on average assets (ROA) of
1.07%; return on average common equity of 10.0%; return on average
tangible common equity** of 12.0%
- Pre-provision net revenue (PPNR)** of
$671 million in 3Q15
- Net interest income (FTE) of $906
million, up 2 percent sequentially and flat from 3Q14; net interest
margin of 2.89%, down 1 bp sequentially
- Average portfolio loans of $93.4
billion, up $1.2 billion sequentially and up $2.6 billion from
3Q14; both increases primarily driven by increases in C&I
loans
- Noninterest income of $713 million
compared with $556 million in the prior quarter; impacted by
valuations on the Vantiv warrant in both quarters, lower mortgage
banking net revenue, and the impairment charge related to announced
changes in the branch network in the prior quarter
- Noninterest expense of $943 million,
flat from prior quarter
- Credit trends
- 3Q15 net charge-offs of $188 million
(0.80% of loans and leases) increased from 2Q15 NCOs of $86 million
(0.37% of loans and leases) due to the $102 million impact from the
restructuring of a student loan backed commercial credit originally
extended in 2007
- Portfolio NPA ratio of 0.65% down 2 bps
from 2Q15, NPL ratio of 0.49% down 2 bps from 2Q15; total
nonperforming assets (NPAs) of $608 million, including loans
held-for-sale (HFS), declined $19 million sequentially
- 3Q15 provision expense of $156 million;
$79 million in 2Q15 and $71 million in 3Q14; increases driven by a
$35 million expense related to the restructuring of a student loan
backed commercial credit originally extended in 2007 in 3Q15 and
broadening global economic slowdown and associated
implications
- Strong capital ratios*
- Common equity Tier 1 (CET1) ratio
9.40%; fully phased-in CET1 ratio of 9.30%
- Tier 1 risk-based capital ratio 10.49%,
Total risk-based capital ratio 13.68%, Leverage ratio 9.38%
- Tangible common equity ratio** of
8.65%; 8.32% excluding securities portfolio unrealized
gains/losses
- 15 million reduction in common shares
outstanding during the quarter
- Book value per share of $18.22 up 3
percent from 2Q15 and up 8 percent from 3Q14; tangible book value
per share** of $15.18
* Capital ratios estimated; presented under current U.S. capital
regulations.** Non-GAAP measure; see Reg. G reconciliation on page
33 in Exhibit 99.1 of 8-k filing dated 10/20/15.
Fifth Third Bancorp (Nasdaq: FITB) today reported third quarter
2015 net income of $381 million versus net income of $315 million
in the second quarter of 2015 and $340 million in the third quarter
of 2014. After preferred dividends, net income available to common
shareholders was $366 million, or $0.45 per diluted share, in the
third quarter of 2015, compared with $292 million, or $0.36 per
diluted share, in the second quarter of 2015, and $328 million, or
$0.39 per diluted share, in the third quarter of 2014.
Third quarter 2015 included:
Income
- $130 million positive valuation
adjustment on the Vantiv warrant
- ($8 million) charge related to the
valuation of the Visa total return swap
Expense
- ($9 million) charge associated with
executive retirement and severance costs
Results also included $35 million of provision expense related
to the restructuring of a student loan backed commercial credit
originally extended in 2007.
Second quarter 2015 included:
Income
- $14 million positive valuation
adjustment on the Vantiv warrant
- ($2 million) charge related to the
valuation of the Visa total return swap
- ($97 million) non-cash impairment
charge related to previously announced changes in the branch
network
Third quarter 2014 included:
Income
- ($53 million) negative valuation
adjustment on the Vantiv warrant
- ($3 million) charge related to the
valuation of the Visa total return swap
Earnings Highlights
For the Three
Months Ended % Change September June March
December September 2015 2015
2015 2014 2014 Seq Yr/Yr
Earnings ($ in millions) Net income attributable to Bancorp
$381 $315 $361 $385 $340 21% 12% Net income available to common
shareholders $366 $292 $346 $362 $328 25% 12%
Common
Share Data Earnings per share, basic 0.46 0.36 0.42 0.44 0.39
28% 18% Earnings per share, diluted 0.45 0.36 0.42 0.43 0.39 25%
15% Cash dividends per common share 0.13 0.13 0.13 0.13 0.13 - -
Financial Ratios Return on average assets 1.07 % 0.90
% 1.06 % 1.13 % 1.02 % 19% 5% Return on average common equity 10.0
8.1 9.7 10.0 9.2 23% 9% Return on average tangible common equity(b)
12.0 9.7 11.7 12.1 11.1 25% 9% CET1 capital(c) 9.40 9.42 9.52 N/A
N/A - N/A Tier I risk-based capital(c) 10.49 10.51 10.62 10.83
10.83 - N/A Tier I common equity(b) N/A N/A N/A 9.65 9.64 N/A N/A
CET1 capital (fully-phased in)(b)(c) 9.30 9.31 9.41 N/A N/A - N/A
Net interest margin(a) 2.89 2.90 2.86 2.96 3.10 - (7%)
Efficiency(a) 58.2 65.4 62.3 59.6 62.1 (11%) (6%) Common
shares outstanding (in thousands) 795,439 810,054 815,190 824,047
834,262 (2%) (5%) Average common shares outstanding (in thousands):
Basic 795,793 803,965 810,210 819,057 829,392 (1%) (4%) Diluted
805,023 812,843 818,672 827,831 838,324 (1%) (4%)
(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.
NA: Not applicable.
“We had a very active quarter as we made progress in our
strategic business executions to improve the future performance of
our company,” said Greg D. Carmichael, President and CEO-elect of
Fifth Third Bancorp. “During the quarter we executed the sale of 29
retail locations in Pittsburgh and St. Louis which are expected to
close early next year, while the remaining branch consolidations
continue on the planned track for completion by the middle of 2016.
In the past few weeks, we also resolved three significant,
long-standing matters with government agencies, as previously
disclosed. In addition, during the quarter we added three seasoned,
key executives to the executive team. I am confident that we have
the experience and talent to achieve our goal to be the top
performing bank across the full business cycle. Our focus is on
building long-term value for our shareholders by growing profitable
relationships with our retail and commercial clients as a trusted
partner.
“Our core businesses continue to produce solid results despite
the uncertainties surrounding the domestic and global economic
environment,” said Carmichael. “Current strategies reflect our
focus on loan growth and revenue generation with an emphasis on
maintaining a strong balance sheet that will perform well in a
variety of economic environments. The business decisions and risk
management actions this quarter and going forward will continue to
reflect our fundamental goal to produce consistent, long-term
outperformance in our sector. Our management team will maintain
that discipline in all of our businesses.
“Net interest income was up 2 percent sequentially and flat from
a year ago, supported by growth in our commercial business,
particularly in C&I lending, which was up 1 percent
sequentially and 4 percent from a year ago. Corporate banking
revenues grew 4 percent from a year ago, driven by capital markets
fee growth of 17%. Our balance sheet remains well-positioned with
appropriate interest rate and liquidity risk positions for the
current rate environment.
“As I begin my tenure as CEO, our 18,000-plus team members are
focused on maintaining the historical core performance of the
company and creating and sustaining the operational excellence
necessary to perform well through the economic cycles.”
Income Statement Highlights
For the
Three Months Ended % Change September June
March December September 2015
2015 2015 2014 2014 Seq Yr/Yr
Condensed Statements of Income ($ in millions)
Net interest income (taxable equivalent) $906
$892 $852 $888 $908 2% - Provision for loan and lease losses 156 79
69 99 71 97% NM Total noninterest income 713 556 630 653 520 28%
37% Total noninterest expense 943 947 923
918 888 - 6% Income before income taxes
(taxable equivalent) 520 422 490 524
469 23% 11% Taxable equivalent
adjustment 5 5 5 5 5 - - Applicable income taxes 134
108 124 134 124 24% 8% Net
income 381 309 361 385 340 23% 12% Less: Net income attributable to
noncontrolling interests - (6) - -
- (100%) - Net income attributable to Bancorp
381 315 361 385 340 21% 12% Dividends on preferred stock 15
23 15 23 12 (35%) 25% Net
income available to common shareholders 366 292
346 362 328 25% 12% Earnings per
share, diluted $0.45 $0.36 $0.42 $0.43
$0.39 25% 15%
Net Interest
Income
For the Three Months Ended %
Change September June March December
September 2015 2015 2015 2014
2014 Seq Yr/Yr
Interest Income ($ in
millions) Total interest income (taxable equivalent) $1,031
$1,008 $975 $1,016 $1,023 2% 1% Total interest expense 125
116 123 128
115 8% 9% Net interest income (taxable
equivalent) $906 $892 $852
$888 $908 2% -
Average Yield Yield on interest-earning assets
(taxable equivalent) 3.29% 3.28% 3.28% 3.38% 3.49% - (6%) Rate paid
on interest-bearing liabilities 0.58% 0.56%
0.60% 0.61% 0.56%
4% 4% Net interest rate spread (taxable equivalent)
2.71% 2.72% 2.68%
2.77% 2.93% - (8%) Net interest
margin (taxable equivalent) 2.89% 2.90% 2.86% 2.96% 3.10% - (7%)
Average Balances ($ in millions) Loans and leases,
including held for sale $94,329 $92,739 $91,659 $91,581 $91,428 2%
3% Total securities and other short-term investments 30,102 30,563
29,038 27,604 24,927 (2%) 21% Total interest-earning assets 124,431
123,302 120,697 119,185 116,355 1% 7% Total interest-bearing
liabilities 85,204 83,512 83,339 82,544 81,157 2% 5% Bancorp
shareholders' equity 15,815 15,841
15,820 15,644 15,486
- 2%
Net interest income increased $14 million to $906 million on a
fully taxable equivalent basis from the second quarter, primarily
driven by loan growth, partially offset by interest expense
associated with the $1.1 billion of holding company debt and $1.3
billion of bank-level debt issued in the third quarter of 2015.
The net interest margin was 2.89 percent, a decrease of 1 bp
from the previous quarter, primarily driven by the impact of debt
issuances discussed above, day count, and loan yield compression,
partially offset by the benefit of the slightly lower short-term
cash position during the quarter.
Compared with the third quarter of 2014, net interest income
decreased $2 million and the net interest margin decreased 21 bps.
The decrease in net interest income was driven by a $24 million
decline due to the changes to the Bancorp’s deposit advance product
that were effective January 1, 2015, higher interest expense due to
increased long-term debt balances, as well as continued loan
repricing, partially offset by the impact of higher investment
securities balances. The decline in the net interest margin from
the prior year was primarily driven by an 8 basis point impact due
to the changes to the deposit advance product and loan
repricing.
Securities
Average securities and other short-term investments were $30.1
billion in the third quarter of 2015 compared with $30.6 billion in
the previous quarter and $24.9 billion in the third quarter of
2014. Other short-term investments average balances of $1.8 billion
decreased $1.4 billion sequentially reflecting lower cash balances
held at the Federal Reserve. On an end of period basis, securities
balances of $29.3 billion increased $816 million driven by
purchases funded with cash balances at the Federal Reserve held in
other short-term investments and the increase in the unrealized
gain in the available-for-sale portfolio of $309 million.
Loans
For the Three Months Ended
% Change September June March December
September 2015 2015 2015
2014 2014 Seq Yr/Yr
Average Portfolio Loans
and Leases ($ in millions) Commercial: Commercial and
industrial loans $43,149 $42,550 $41,426 $41,277 $41,477 1% 4%
Commercial mortgage loans 7,023 7,148 7,241 7,480 7,633 (2%) (8%)
Commercial construction loans 2,965 2,549 2,197 1,909 1,563 16% 90%
Commercial leases 3,846 3,776
3,715 3,600 3,571 2%
8% Subtotal - commercial loans and leases 56,983
56,023 54,579 54,266
54,244 2% 5% Consumer:
Residential mortgage loans 13,144 12,831 12,433 13,046 12,785 2% 3%
Home equity 8,479 8,654 8,802 8,937 9,009 (2%) (6%) Automobile
loans 11,877 11,902 11,933 12,073 12,105 - (2%) Credit card 2,277
2,296 2,321 2,324 2,295 (1%) (1%) Other consumer loans and leases
613 467 440 395
361 31% 70% Subtotal - consumer
loans and leases 36,390 36,150
35,929 36,775 36,555 1%
- Total average loans and leases (excluding held for sale)
$93,373 $92,173 $90,508 $91,041 $90,799 1% 3% Average loans
held for sale 956 566 1,151
540 629 69% 52%
Average loan and lease balances (excluding loans held-for-sale)
increased $1.2 billion, or 1 percent, sequentially and increased
$2.6 billion, or 3 percent, from the third quarter of 2014. The
sequential and prior year increases in average loans and leases
were driven by increased commercial and industrial (C&I),
commercial construction, and residential mortgage balances,
partially offset by decreased home equity and commercial mortgage
balances. Period end loans and leases (excluding loans
held-for-sale) of $93.6 billion increased $871 million, or 1
percent, sequentially and increased $3.0 billion, or 3 percent,
from a year ago.
Average commercial portfolio loan and lease balances increased
$960 million, or 2 percent, sequentially and increased $2.7
billion, or 5 percent, from the third quarter of 2014. Average
C&I loans increased $599 million, or 1 percent, from the prior
quarter and increased $1.7 billion, or 4 percent, from the third
quarter of 2014. Within commercial real estate, average commercial
mortgage balances continued to decline and average commercial
construction balances increased due to better customer activity and
the continued focus on that business. Commercial line usage, on an
end of period basis, was 32 percent of committed lines in the third
quarter of 2015 compared with 33 percent in the second quarter of
2015 and 32 percent in the third quarter of 2014.
Average consumer portfolio loan and lease balances increased
$240 million, or 1 percent, sequentially and were flat
year-over-year. Average residential mortgage loans increased 2
percent sequentially and 3 percent from a year ago. Average auto
loans were flat sequentially and down 2 percent from the previous
year. Average home equity loans declined 2 percent sequentially and
6 percent from the third quarter of 2014. Average credit card loans
decreased 1 percent sequentially and from the third quarter of
2014.
Average loans held-for-sale balances of $956 million increased
$390 million sequentially primarily due to loans associated with
the announced sale of certain branches during the quarter, and
increased $327 million compared with the third quarter of 2014.
Deposits
For the Three
Months Ended % Change September June March
December September 2015 2015
2015 2014 2014 Seq Yr/Yr
Average Deposits ($ in millions) Demand $35,231 $35,384
$33,760 $33,301 $31,790 - 11% Interest checking 25,590 26,894
26,885 25,478 24,926 (5%) 3% Savings 14,868 15,156 15,174 15,173
15,759 (2%) (6%) Money market 18,253 18,071 17,492 17,023 15,222 1%
20% Foreign office(a) 718 955
861 1,439 1,663 (25%)
(57%) Subtotal - Transaction deposits 94,660 96,460 94,172
92,414 89,360 (2%) 6% Other time 4,057 4,074
4,022 3,936 3,800
- 7% Subtotal - Core deposits 98,717 100,534 98,194
96,350 93,160 (2%) 6% Certificates - $100,000 and over 2,924 2,558
2,683 2,998 3,339 14% (12%) Other 222 -
- - - 100%
100% Total average deposits $101,863 $103,092
$100,877 $99,348 $96,499
(1%) 6%
(a) Includes commercial customer
Eurodollar sweep balances for which the Bancorp pays rates
comparable to other commercial deposit accounts.
Average core deposits decreased $1.8 billion, or 2 percent,
sequentially and increased $5.6 billion, or 6 percent, from the
third quarter of 2014. Average transaction deposits decreased $1.8
billion, or 2 percent, from the second quarter of 2015 primarily
driven by lower interest checking and savings account balances,
partially offset by higher money market account balances. The lower
interest checking balances were largely due to targeted pricing
changes in certain accounts. Year-over-year transaction deposits
increased $5.3 billion, or 6 percent, driven by higher demand
deposit, money market account, and interest checking account
balances, partially offset by lower foreign office and savings
account balances. Other time deposits were flat sequentially and
increased 7 percent compared with the third quarter of 2014.
Average commercial transaction deposits decreased 2 percent
sequentially and increased 9 percent from the previous year.
Sequential performance was primarily driven by declines in interest
checking account balances due to targeted pricing changes in LCR
punitive accounts, partially offset by higher money market account
and demand deposit account balances. Year-over-year growth
reflected higher demand deposit, money market account, and interest
checking account balances, partially offset by lower foreign office
balances.
Average consumer transaction deposits decreased 2 percent
sequentially and increased 4 percent from the third quarter of
2014. The sequential performance reflected lower demand deposit,
savings, and interest checking account balances as a result of
targeted repricing of certain deposit accounts. Year-over-year
growth was driven by increased money market account, demand
deposit, and interest checking account balances, partially offset
by lower savings account balances.
Wholesale Funding
For the
Three Months Ended % Change September June
March December September 2015
2015 2015 2014 2014 Seq Yr/Yr
Average Wholesale Funding ($ in millions) Certificates -
$100,000 and over $2,924 $2,558 $2,683 $2,998 $3,339 14% (12%)
Other deposits 222 - - - - 100% 100% Federal funds purchased 1,978
326 172 161 520 NM NM Other short-term borrowings 1,897 1,705 1,602
1,481 1,973 11% (4%) Long-term debt 14,697
13,773 14,448 14,855
13,955 7% 5% Total average wholesale funding
$21,718 $18,362 $18,905
$19,495 $19,787 18% 10%
Average wholesale funding of $21.7 billion increased $3.4
billion, or 18 percent, sequentially, and increased $1.9 billion,
or 10 percent, compared with the third quarter of 2014. The
sequential increase was primarily driven by an increase in federal
funds purchased, and the issuance of $1.1 billion of 5-year holding
company debt and $1.3 billion of 3-year bank-level debt. Total
wholesale funding was $23.5 billion on an end of period basis due
to increased short-term borrowings in response to deposit runoff
from targeted pricing changes in LCR punitive accounts and meeting
quarter end cash targets. The year-over-year increase in average
wholesale funding reflected an increase in long-term debt due to
issuances during 2014 and 2015 and an increase in federal funds
purchased, partially offset by decreases in certificates $100,000
and over and other short-term borrowings.
Noninterest Income
For the Three Months Ended % Change September
June March December September
2015 2015 2015 2014 2014 Seq
Yr/Yr
Noninterest Income ($ in millions) Service
charges on deposits $145 $139 $135 $142 $145 4% - Corporate banking
revenue 104 113 63 120 100 (8%) 4% Mortgage banking net revenue 71
117 86 61 61 (39%) 16% Investment advisory revenue 103 105 108 100
103 (2%) - Card and processing revenue 77 77 71 76 75 - 3% Other
noninterest income 213 1 163 150 33 NM NM Securities gains, net
- 4 4 4 3 (100%)
(100%) Total noninterest income $713 $556 $630
$653 $520 28% 37%
Noninterest income of $713 million increased $157 million
sequentially and increased $193 million compared with prior year
results. The sequential and year-over-year comparisons reflect the
impacts described below.
Noninterest Income excluding certain items
For
the Three Months Ended % Change September June
September 2015 2015 2014 Seq
Yr/Yr
Noninterest Income excluding certain items ($ in
millions) Noninterest income (U.S. GAAP) $713 $556 $520 Vantiv
warrant valuation (130 ) (14 ) 53 Valuation of Visa total return
swap 8 2 3 Branch / land valuation adjustments - 97 - Securities
(gains) / losses - (4 ) (3 )
Noninterest income excluding certain items
$591 $637 $573 (7
%) 3 %
Excluding the items in the table above, noninterest income of
$591 million decreased $46 million, or 7 percent, from the previous
quarter and increased $18 million, or 3 percent, from the third
quarter of 2014. The sequential decline was primarily due to
decreases in mortgage banking net revenue and corporate banking
revenue. The year-over-year increase was primarily due to higher
mortgage banking net revenue.
Service charges on deposits of $145 million increased 4 percent
from the second quarter and were flat compared with the same
quarter last year. The sequential increase was due to a 6 percent
increase in retail service charges due to seasonally higher
overdraft occurrences as well as a 4 percent increase in commercial
service charges.
Corporate banking revenue of $104 million decreased $9 million
from the second quarter of 2015 and increased $4 million from the
third quarter of 2014. The sequential decrease was primarily due to
seasonally lower institutional sales revenue, business lending
fees, and foreign exchange fees, partially offset by higher
interest rate derivative fees and syndications revenue. The
year-over-year increase was driven by higher institutional sales
revenue and loan syndications revenue, partially offset by lower
foreign exchange fees.
Mortgage banking net revenue was $71 million in the third
quarter of 2015, down $46 million from the second quarter of 2015
and up $10 million from the third quarter of 2014. Third quarter
2015 originations were $2.3 billion, compared with $2.5 billion in
the previous quarter and $2.1 billion in the third quarter of 2014.
Third quarter 2015 originations resulted in gains of $46 million on
mortgages sold, compared with gains of $43 million during the
previous quarter and $34 million during the third quarter of 2014.
Mortgage servicing fees were $54 million this quarter, $56 million
in the second quarter of 2015, and $61 million in the third 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 $29 million in the third
quarter of 2015 (reflecting MSR amortization of $37 million and MSR
valuation adjustments of positive $8 million); positive $18 million
in the second quarter of 2015 (MSR amortization of $39 million and
MSR valuation adjustments of positive $57 million); and negative
$34 million in the third quarter of 2014 (MSR amortization of $33
million and MSR valuation adjustments of negative $1 million). The
mortgage servicing asset, net of the valuation reserve, was $757
million at quarter end on a servicing portfolio of $60 billion.
Investment advisory revenue of $103 million decreased 2 percent
from the second quarter and was flat year-over-year. The sequential
decrease was due to lower securities and brokerage fees and
personal asset management fees due to the market decline during the
quarter.
Card and processing revenue of $77 million in the third quarter
of 2015 was flat sequentially and increased 3 percent from the
third quarter of 2014. 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 $213 million in the third
quarter of 2015, compared with $1 million in the previous quarter
and $33 million in the third quarter of 2014. As previously
described, the results included the adjustments in the prior table
with the exception of securities gains in all comparable periods.
Excluding these items, other noninterest income of $91 million
increased approximately $5 million, or 6 percent, from the second
quarter of 2015 and increased approximately $2 million, or 2
percent, from the third quarter of 2014.
Net gains on investment securities were immaterial in the third
quarter of 2015, compared with $4 million in the previous quarter
and $3 million in the third quarter of 2014.
Noninterest Expense
For the Three
Months Ended % Change September June
March December September
2015 2015 2015
2014 2014 Seq Yr/Yr
Noninterest Expense ($ in millions) Salaries, wages and
incentives $387 $383 $369 $366 $357 1% 8% Employee benefits 72 78
99 79 75 (8%) (4%) Net occupancy expense 77 83 79 77 78 (7%) (1%)
Technology and communications 56 54 55 54 53 4% 6% Equipment
expense 31 31 31 30 30 - 3% Card and processing expense 40 38 36 36
37 5% 8% Other noninterest expense 280 280
254 276 258
- 9% Total noninterest expense $943
$947 $923 $918 $888
- 6%
Noninterest expense of $943 million was flat compared with the
second quarter of 2015 and increased 6 percent compared with the
third quarter of 2014. The sequential comparison reflected lower
benefits and occupancy expense, partially offset by higher
compensation primarily associated with executive retirement and
severance costs. The year-over-year increase reflected higher
compensation expense, the change in provision for unfunded
commitments and marketing expense.
Credit Quality
For the
Three Months Ended September June March
December September 2015 2015 2015 2014
2014
Total net losses charged-off ($ in millions)
Commercial and industrial loans ($128 ) ($34 ) ($38 ) ($44 ) ($50 )
Commercial mortgage loans (11 ) (11 ) (1 ) (10 ) (5 ) Commercial
construction loans (3 ) - - - - Commercial leases - - - (1 ) -
Residential mortgage loans (3 ) (5 ) (6 ) (94 ) (9 ) Home equity (9
) (9 ) (14 ) (11 ) (14 ) Automobile loans (7 ) (4 ) (8 ) (7 ) (7 )
Credit card (21 ) (21 ) (21 ) (20 ) (23 ) Other consumer
loans and leases (6 ) (2 ) (3 ) (4 )
(7 ) Total net losses charged-off (188 ) (86 ) (91 ) (191 )
(115 ) Total losses charged-off (209 ) (112 ) (115 ) (215 )
(146 ) Total recoveries of losses previously charged-off 21
26 24 24 31
Total net losses charged-off ($188 ) ($86 ) ($91 ) ($191 )
($115 )
Ratios (annualized)
Net losses charged-off as a percent of
average portfolio loans and leases (excluding held for sale)
0.80 % 0.37 % 0.41 % 0.83 % 0.50 % Commercial 0.99 % 0.32 % 0.29 %
0.40 % 0.40 % Consumer 0.51 % 0.46 %
0.59 % 1.47 % 0.66 %
Net charge-offs were $188 million, or 80 bps of average loans
and leases on an annualized basis, in the third quarter of 2015
compared with net charge-offs of $86 million, or 37 bps, in the
second quarter of 2015 and $115 million, or 50 bps, in the third
quarter of 2014. The third quarter of 2015 net charge-offs included
$102 million related to the restructuring of a student loan backed
commercial credit originally extended in 2007, $80 million of which
had been reserved for in prior quarters as the loan is collateral
dependent with the related allowance for loan loss being measured
based on the fair value of the underlying collateral. During the
quarter, changing collateral performance characteristics and lower
valuations for student loan portfolios resulted in the need to
restructure the terms of the commercial loan. The resulting decline
in the market values led to the actions taken as the reserves on
this collateral-dependent loan are measured based on the fair value
of the underlying student loan portfolio. Excluding this credit,
net charge-offs were $86 million, or 37 bps, in the third quarter
of 2015, flat with net charge-offs in the prior quarter.
Commercial net charge-offs were $142 million, or 99 bps, and
were up $97 million sequentially. C&I net charge-offs of $128
million increased $94 million from the previous quarter primarily
due to the student loan backed credit mentioned above, and
commercial real estate net charge-offs increased $3 million from
the previous quarter.
Consumer net charge-offs were $46 million, or 51 bps, up $5
million sequentially. Net charge-offs on residential mortgage loans
in the portfolio were $3 million, down $2 million from the previous
quarter. Home equity net charge-offs were $9 million, in line with
the second quarter of 2015, and net charge-offs in the auto
portfolio of $7 million were up $3 million compared with the prior
quarter due to seasonality. Net charge-offs on consumer credit card
loans were $21 million, in line with the second quarter. Net
charge-offs on other consumer loans were $6 million, up $4 million
compared with the previous quarter primarily due to
seasonality.
For the Three Months Ended September June
March December September 2015 2015 2015
2014 2014
Allowance for Credit Losses ($ in
millions) Allowance for loan and lease losses, beginning $1,293
$1,300 $1,322 $1,414 $1,458 Total net losses charged-off (188 ) (86
) (91 ) (191 ) (115 ) Provision for loan and lease losses
156 79 69 99
71 Allowance for loan and lease losses, ending 1,261
1,293 1,300 1,322 1,414 Reserve for unfunded commitments,
beginning 132 130 135 134 142 Provision (benefit) for unfunded
commitments 2 2 (4 ) 1 (8 ) Charge-offs - -
(1 ) - - Reserve for
unfunded commitments, ending 134 132 130 135 134 Components
of allowance for credit losses: Allowance for loan and lease losses
1,261 1,293 1,300 1,322 1,414 Reserve for unfunded commitments
134 132 130 135
134 Total allowance for credit losses $1,395
$1,425 $1,430 $1,457 $1,548
Allowance for loan and lease losses
ratio As a percent of portfolio loans and leases 1.35 % 1.39 %
1.42 % 1.47 % 1.56 % As a percent of nonperforming loans and
leases(a) 275 % 272 % 247 % 228 % 228 % As a percent of
nonperforming assets(a) 208 % 206 % 188 % 178 % 178 % (a)
Excludes nonaccrual loans and leases in loans held for sale.
Provision for loan and lease losses totaled $156 million in the
third quarter of 2015. The allowance represented 1.35 percent of
total portfolio loans and leases outstanding as of quarter end,
compared with 1.39 percent last quarter, and represented 275
percent of nonperforming loans and leases, and 208 percent of
nonperforming assets.
The provision increased $77 million from the second quarter of
2015 and increased $85 million from the third quarter of 2014. This
quarter’s provision included a $35 million impact related to the
aforementioned student loan backed commercial credit, and the
remainder of the increase was primarily due to the broadening
global economic slowdown, stress on capital markets, and the
prolonged softness in commodity prices. The allowance for loan and
lease losses decreased $32 million sequentially, including a $67
million reduction related to the aforementioned student loan backed
credit.
As of
Nonperforming Assets and Delinquent Loans ($ in millions)
September2015
June2015
March2015
December2014
September2014
Nonaccrual portfolio loans and leases: Commercial and industrial
loans $47 $61 $61 $86 $102 Commercial mortgage loans 60 49 57 64 77
Commercial construction loans - - - - 2 Commercial leases 2 2 2 3 3
Residential mortgage loans 31 35 40 44 52 Home equity
65 70 71 72 69 Total nonaccrual
portfolio loans and leases (excludes restructured loans) $205 $217
$231 $269 $305 Restructured loans - commercial (nonaccrual)(c) 177
175 205 214 201 Restructured loans - consumer (nonaccrual)
76 83 90 96 114 Total nonaccrual
portfolio loans and leases $458 $475 $526 $579 $620 Repossessed
personal property 17 16 20 18 19 OREO(a) 131 135
145
147
157
Total nonperforming assets(b) $606 $626 $691 $744 $796 Nonaccrual
loans held for sale 1 1 2 24 4 Restructured loans - (nonaccrual)
held for sale 1 - - 15 3 Total
nonperforming assets including loans held for sale $608
$627 $693 $783 $803 Restructured
Consumer loans and leases (accrual) $973 $970 $943 $905 $1,610
Restructured Commercial loans and leases (accrual)(c) $571 $769
$774 $844 $885 Total loans and leases 90 days past due $70
$70 $78 $87 $87
Nonperforming loans and leases as a
percent of portfolio loans, leases and other assets, including
OREO(b)
0.49% 0.51% 0.57% 0.64% 0.68%
Nonperforming assets as a percent of
portfolio loans, leases and other assets, including OREO(b)
0.65% 0.67% 0.76% 0.82% 0.88%
(a) Excludes OREO related to government
insured loans. The Bancorp has historically excluded government
guaranteed loans classified in OREO from its nonperforming asset
disclosures. Upon the prospective adoption on January 1, 2015 of
ASU 2014-14 “Classification of Certain Government-Guaranteed
Mortgage Loans Upon Foreclosure,” government guaranteed loans
meeting certain criteria will be reclassified to other receivables
rather than OREO upon foreclosure.
(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 September 30, 2015, June 30, 2015, March 31, 2015, December 31,
2014 and September 30, 2014.
Total nonperforming assets, including loans held-for-sale,
declined $19 million, or 3 percent, from the previous quarter to
$608 million. Nonperforming loans (NPLs) at quarter-end decreased
$17 million, or 4 percent, from the previous quarter to $458
million or 0.49 percent of total loans, leases and OREO.
Commercial NPAs decreased $6 million, or 2 percent, from the
second quarter to $370 million, or 0.65 percent of commercial
loans, leases and OREO. Commercial NPLs decreased $1 million from
last quarter to $286 million, or 0.50 percent of commercial loans
and leases. C&I NPAs decreased $10 million from the prior
quarter to $183 million. Commercial mortgage NPAs decreased $1
million from the previous quarter to $165 million. Commercial
construction NPAs increased $5 million from the previous quarter to
$19 million. Commercial lease NPAs were $3 million, flat from the
previous quarter. Commercial NPAs included $177 million of
nonaccrual troubled debt restructurings (TDRs), compared with $175
million last quarter.
Consumer NPAs decreased $14 million from the second quarter to
$236 million, or 0.64 percent of consumer loans, leases and OREO.
Consumer NPLs decreased $16 million from last quarter to $172
million, or 0.47 percent of consumer loans and leases. Residential
mortgage NPAs decreased $10 million from the second quarter to $91
million. Home equity NPAs decreased $3 million, sequentially, to
$103 million and credit card NPAs were down $3 million compared
with the previous quarter to $33 million. Consumer nonaccrual TDRs
were $76 million in the third quarter of 2015, compared with $83
million in the second quarter of 2015.
Third quarter OREO balances included in NPA balances were down
$4 million from the second quarter to $131 million, and included
$74 million in commercial OREO and $57 million in consumer OREO.
Repossessed personal property increased $1 million from the prior
quarter to $17 million.
Loans over 90 days past due and still accruing were flat from
the second quarter of 2015 to $70 million. Commercial balances over
90 days past due were $5 million compared with $2 million in the
prior quarter, and consumer balances 90 days past due decreased $3
million from the previous quarter to $65 million. Loans 30-89 days
past due of $214 million were up $1 million from the previous
quarter. Commercial balances 30-89 days past due increased $1
million sequentially to $25 million and consumer balances 30-89
days past due were flat from the second quarter at $189 million.
The above delinquencies figures exclude nonaccruals described
previously.
Capital Position
For the Three
Months Ended September June
March December
September 2015 2015 2015
2014 2014
Capital
Position Average total Bancorp shareholders' equity to average
assets
11.24%
11.32% 11.49% 11.54% 11.71% Tangible equity(a) 9.28% 9.28% 9.37%
9.41% 9.65% Tangible common equity (excluding unrealized
gains/losses)(a) 8.32% 8.33% 8.40% 8.43% 8.64% Tangible common
equity (including unrealized gains/losses)(a) 8.65% 8.51% 8.77%
8.71% 8.84% Tangible common equity as a percent of risk-weighted
assets (excluding unrealized gains/losses) 9.38%(b) 9.39%(b)
9.49%(d) 9.70%(d) 9.70%(d)
Regulatory capital
ratios:
Basel III Transitional(c) Basel I(d) CET1 capital 9.40%(b)
9.42%(b) 9.52%(b) N/A N/A Tier I risk-based capital 10.49%(b)
10.51%(b) 10.62%(b) 10.83% 10.83% Total risk-based capital
13.68%(b) 13.69%(b) 14.01%(b) 14.33% 14.34% Tier I leverage 9.38%
9.44% 9.59% 9.66% 9.82% Tier I common equity N/A N/A N/A
9.65%(a) 9.64%(a) CET1 capital (fully phased-in) 9.30(a)(b)
9.31(a)(b) 9.41(a)(b) N/A N/A Book value per share 18.22
17.62 17.83 17.35 16.87 Tangible book value per share(a) 15.18
14.62 14.85 14.40 13.95
(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. The common
equity Tier 1 ratio was 9.40 percent, the tangible common equity to
tangible assets ratio* was 8.32 percent (excluding unrealized
gains/losses), and 8.65 percent (including unrealized
gains/losses). The Tier 1 risk-based capital ratio was 10.49
percent, the total risk-based capital ratio was 13.68 percent, and
the Leverage ratio was 9.38 percent.
Book value per share at September 30, 2015 was $18.22 and
tangible book value per share* was $15.18, compared with the June
30, 2015 book value per share of $17.62 and tangible book value per
share* of $14.62.
Fifth Third entered into and completed multiple share
repurchases during the quarter. Below is a summary of those share
repurchases.
- On July 31, 2015, Fifth Third settled
the forward contracted related to the April 27, 2015 $155 million
share repurchase agreement. An additional 0.84 million shares were
repurchased upon completion of the agreement.
- On July 29, 2015, Fifth Third entered
into a share repurchase agreement whereby Fifth Third would
purchase approximately $150 million of its outstanding stock. This
reduced the third quarter share count by 6.0 million shares.
- On August 31, 2015, Fifth Third settled
the forward contracted related to the July 29, 2015 $150 million
share repurchase agreement. An additional 1.35 million shares were
repurchased upon completion of the agreement.
- On September 3, 2015, Fifth Third
entered into a share repurchase agreement whereby Fifth Third would
purchase approximately $150 million of its outstanding stock. This
reduced the third quarter share count by 6.54 million shares.
Settlement of the forward contract related to this agreement is
expected to occur on or before December 4, 2015.
In total, common shares outstanding decreased by approximately
15 million shares in the third quarter of 2015 from the second
quarter of 2015.
* Non-GAAP measure; see Reg. G reconciliation on page 33 in
Exhibit 99.1 of 8-k filing dated 10/20/15.
Tax Rate
The effective tax rate was 26.0 percent this quarter compared
with 26.1 percent in the second quarter of 2015 and 26.7 percent in
the third 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 $44.92 on September 30, 2015, our
interest in Vantiv was valued at approximately $1.9 billion. Next
month in our 10-Q, we will update our disclosure of the carrying
value of our interest in Vantiv stock, which was $415 million as of
June 30, 2015. 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 $630 million as
of September 30, 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, November 3, 2015 by
dialing 800-585-8367 for domestic access or 404-537-3406 for
international access (passcode 44604046#).
Corporate Profile
Fifth Third Bancorp is a diversified financial services company
headquartered in Cincinnati, Ohio. As of September 30, 2015, the
Company had $142 billion in assets and operates 1,295 full-service
Banking Centers, including 99 Bank Mart® locations, most open seven
days a week, inside select grocery stores and 2,650 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
September 30, 2015, had $297 billion in assets under care, of which
it managed $25 billion for individuals, corporations and
not-for-profit organizations. Investor information and press
releases can be viewed at www.53.com. Fifth Third’s common stock is
traded on the NASDAQ® Global Select Market under the symbol
“FITB.”
FORWARD-LOOKING STATEMENTS
This release contains statements that we believe are
“forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Rule 175 promulgated
thereunder, and Section 21E of the Securities Exchange Act of 1934,
as amended, and Rule 3b-6 promulgated thereunder. These statements
relate to our financial condition, results of operations, plans,
objectives, future performance or business. They usually can be
identified by the use of forward-looking language such as “will
likely result,” “may,” “are expected to,” “anticipates,”
“potential,” “estimate,” “forecast,” “projected,” “intends to,” or
may include other similar words or phrases such as “believes,”
“plans,” “trend,” “objective,” “continue,” “remain,” or similar
expressions, or future or conditional verbs such as “will,”
“would,” “should,” “could,” “might,” “can,” or similar verbs. You
should not place undue reliance on these statements, as they are
subject to risks and uncertainties, including but not limited to
the risk factors set forth in our most recent Annual Report on Form
10-K as updated from time to time by our Quarterly Reports on Form
10-Q. When considering these forward-looking statements, you should
keep in mind these risks and uncertainties, as well as any
cautionary statements we may make. Moreover, you should treat these
statements as speaking only as of the date they are made and based
only on information then actually known to us. There is a risk that
additional information may arise during the company’s close process
or as a result of subsequent events that would require the company
to make adjustments to the financial information contained
herein.
There are a number of important factors that could cause future
results to differ materially from historical performance and these
forward-looking statements. Factors that might cause such a
difference include, but are not limited to: (1) general economic
conditions 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) difficulties in separating the operations of
any branches or other assets divested; (23) inability to achieve
expected benefits from branch consolidations and planned sales
within desired timeframes, if at all; (24) ability to secure
confidential information and deliver products and services through
the use of computer systems and telecommunications networks; and
(25) 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151020005386/en/
Fifth Third BancorpJim Eglseder (Investors), 513-534-8424orLarry
Magnesen (Media), 513-534-8055
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