Fifth Third Bancorp (Nasdaq: FITB) today reported first quarter 2017 net income of $305 million versus net income of $395 million in the fourth quarter of 2016 and $326 million in the first quarter of 2016. After preferred dividends, net income available to common shareholders was $290 million, or $0.38 per diluted share, in the first quarter of 2017, compared with $372 million, or $0.49 per diluted share, in the fourth quarter of 2016, and $311 million, or $0.40 per diluted share, in the first quarter of 2016.
First quarter 2017 included:
Income
- $12 million benefit related to the revision to the 4Q16 estimated charge to net interest income for refunds to certain bankcard customers
- ($13 million) charge related to the valuation of the Visa total return swap
Fourth quarter 2016 included:
Income
- $9 million gain on the Vantiv warrant net exercise and share sale
- $6 million benefit related to the valuation of the Visa total return swap
- ($16 million) reduction to net interest income for estimated refunds to be offered to certain bankcard customers
Expenses
- ($5 million) contribution to Fifth Third Foundation
Results also included a $6 million tax benefit from the early adoption of an accounting standard, and a $33 million annual payment recognized from Vantiv pursuant to the tax receivable agreement, which was recorded in other noninterest income.
First quarter 2016 included:
Income
- $47 million positive valuation adjustment on the remaining Vantiv warrant
- $8 million gain on sale of certain St. Louis branches as part of the previously announced branch consolidation and sales plan
- $1 million benefit related to the valuation of the Visa total return swap
Expenses
- ($15 million) in severance expense, primarily consisting of $14 million related to the voluntary early retirement program
| Earnings Highlights | |||||||||||||||||||
| For the Three Months Ended | % Change | ||||||||||||||||||
| March | December | September | June | March | |||||||||||||||
| 2017 | 2016 | 2016(d) | 2016(d) | 2016(d) | Seq | Yr/Yr | |||||||||||||
| Earnings ($ in millions) | |||||||||||||||||||
| Net income attributable to Bancorp | $305 | $395 | $516 | $328 | $326 | (23%) | (6%) | ||||||||||||
| Net income available to common shareholders | $290 | $372 | $501 | $305 | $311 | (22%) | (7%) | ||||||||||||
| Common Share Data | |||||||||||||||||||
| Earnings per share, basic | $0.38 | $0.49 | $0.66 | $0.40 | $0.40 | (22%) | (5%) | ||||||||||||
| Earnings per share, diluted | 0.38 | 0.49 | 0.65 | 0.39 | 0.40 | (22%) | (5%) | ||||||||||||
| Cash dividends per common share | 0.14 | 0.14 | 0.13 | 0.13 | 0.13 | - | 8% | ||||||||||||
| Common shares outstanding (in thousands) | 750,145 | 750,479 | 755,582 | 766,346 | 770,471 | - | (3%) | ||||||||||||
| Average common shares outstanding | |||||||||||||||||||
| (in thousands): | |||||||||||||||||||
| Basic | 747,668 | 746,367 | 750,886 | 759,105 | 773,564 | - | (3%) | ||||||||||||
| Diluted | 760,809 | 757,704 | 757,856 | 764,811 | 777,758 | - | (2%) | ||||||||||||
| Financial Ratios | bps Change | ||||||||||||||||||
| Return on average assets | 0.88 | % | 1.11 | % | 1.44 | % | 0.92 | % | 0.93 | % | (23) | (5) | |||||||
| Return on average common equity | 7.8 | 9.7 | 12.8 | 8.0 | 8.3 | (190) | (50) | ||||||||||||
| Return on average tangible common equity(b) | 9.3 | 11.6 | 15.2 | 9.6 | 9.9 | (230) | (60) | ||||||||||||
| CET1 capital(c) | 10.76 | 10.39 | 10.17 | 9.94 | 9.81 | 37 | 95 | ||||||||||||
| Tier I risk-based capital(c) | 11.90 | 11.50 | 11.27 | 11.03 | 10.91 | 40 | 99 | ||||||||||||
| CET1 capital (fully-phased in)(b)(c) | 10.66 | 10.29 | 10.09 | 9.86 | 9.72 | 37 | 94 | ||||||||||||
| Net interest margin (taxable equivalent)(b) | 3.02 | 2.86 | 2.88 | 2.88 | 2.91 | 16 | 11 | ||||||||||||
| Efficiency (taxable equivalent)(b) | 67.4 | 62.8 | 55.5 | 65.3 | 63.8 | 460 | 360 | ||||||||||||
“During the first quarter we continued to make progress towards our long term performance goals under North Star,” said Greg D. Carmichael, President and CEO of Fifth Third Bancorp.
“Our net interest margin continued to improve as our balance sheet positioning allowed us to benefit from increased short term market rates. The growth in our net interest income and our focus on expense management are indicative of our ability to achieve positive operating leverage. Credit quality metrics also continue to support a benign credit outlook for the foreseeable future.”
| Income Statement Highlights | |||||||||||||||||||
| ($ in millions, except per-share data) | For the Three Months Ended | % Change | |||||||||||||||||
| March | December | September | June | March | |||||||||||||||
| 2017 | 2016 | 2016(d) | 2016(d) | 2016(d) | Seq | Yr/Yr | |||||||||||||
| Condensed Statements of Income | |||||||||||||||||||
| Net interest income (taxable equivalent)(b) | $939 | $909 | $913 | $908 | $909 | 3% | 3% | ||||||||||||
| Provision for loan and lease losses | 74 | 54 | 80 | 91 | 119 | 37% | (38%) | ||||||||||||
| Total noninterest income | 523 | 620 | 840 | 599 | 637 | (16%) | (18%) | ||||||||||||
| Total noninterest expense | 986 | 960 | 973 | 983 | 986 | 3% | - | ||||||||||||
| Income before income taxes (taxable equivalent)(b) | $402 | $515 | $700 | $433 | $441 | (22%) | (9%) | ||||||||||||
| Taxable equivalent adjustment | 6 | 6 | 6 | 6 | 6 | - | - | ||||||||||||
| Applicable income tax expense | 91 | 114 | 178 | 103 | 109 | (20%) | (17%) | ||||||||||||
| Net income | $305 | $395 | $516 | $324 | $326 | (23%) | (6%) | ||||||||||||
| Less: Net income attributable to noncontrolling interests | - | - | - | (4) | - | - | - | ||||||||||||
| Net income attributable to Bancorp | $305 | $395 | $516 | $328 | $326 | (23%) | (6%) | ||||||||||||
| Dividends on preferred stock | 15 | 23 | 15 | 23 | 15 | (35%) | - | ||||||||||||
| Net income available to common shareholders | $290 | $372 | $501 | $305 | $311 | (22%) | (7%) | ||||||||||||
| Earnings per share, diluted | $0.38 | $0.49 | $0.65 | $0.39 | $0.40 | (22%) | (5%) | ||||||||||||
| Net Interest Income | |||||||||||||||||||
| (Taxable equivalent basis; $ in millions)(b) | For the Three Months Ended | % Change | |||||||||||||||||
| March | December | September | June | March | |||||||||||||||
| 2017 | 2016 | 2016 | 2016 | 2016 | Seq | Yr/Yr | |||||||||||||
| Interest Income | |||||||||||||||||||
| Total interest income | $1,092 | $1,058 | $1,063 | $1,052 | $1,044 | 3% | 5% | ||||||||||||
| Total interest expense | 153 | 149 | 150 | 144 | 135 | 3% | 13% | ||||||||||||
| Net interest income | $939 | $909 | $913 | $908 | $909 | 3% | 3% | ||||||||||||
| Average Yield | bps Change | ||||||||||||||||||
| Yield on interest-earning assets | 3.51% | 3.33% | 3.36% | 3.34% | 3.34% | 18 | 17 | ||||||||||||
| Rate paid on interest-bearing liabilities | 0.73% | 0.70% | 0.70% | 0.67% | 0.64% | 3 | 9 | ||||||||||||
| Net interest rate spread | 2.78% | 2.63% | 2.66% | 2.67% | 2.70% | 15 | 8 | ||||||||||||
| Net interest margin | 3.02% | 2.86% | 2.88% | 2.88% | 2.91% | 16 | 11 | ||||||||||||
| Average Balances | % Change | ||||||||||||||||||
| Loans and leases, including held for sale | $92,791 | $93,981 | $94,417 | $94,807 | $94,078 | (1%) | (1%) | ||||||||||||
| Total securities and other short-term investments | 33,177 | 32,567 | 31,675 | 32,040 | 31,573 | 2% | 5% | ||||||||||||
| Total interest-earning assets | 125,968 | 126,548 | 126,092 | 126,847 | 125,651 | - | - | ||||||||||||
| Total interest-bearing liabilities | 84,890 | 84,552 | 85,193 | 86,145 | 85,450 | - | (1%) | ||||||||||||
| Bancorp shareholders' equity(d) | 16,429 | 16,545 | 16,883 | 16,584 | 16,376 | (1%) | - | ||||||||||||
Net interest income for the fourth quarter of 2016 included a $16 million estimated charge for refunds to certain bankcard customers. In the first quarter of 2017 with the completion of the analysis, this charge was revised and resulted in a $12 million reversal of the prior charge. Excluding the impact of these items, net interest income was up $2 million from the fourth quarter of 2016, reflecting higher short-term market rates and lower wholesale funding balances, partially offset by declining loan balances and a lower day count. The adjusted net interest margin was 2.98 percent, up 7 bps from the prior quarter’s adjusted net interest margin, primarily driven by higher short-term market rates and a lower day count, partially offset by lower investment yields resulting from lower net discount accretion.
Compared to the first quarter of 2016, adjusted taxable equivalent net interest income was up 2 percent, primarily driven by higher short-term market rates. The adjusted net interest margin was up 7 bps from the first quarter of 2016, driven primarily by higher short-term market rates.
Securities
Average securities and other short-term investments were $33.2 billion in the first quarter of 2017 compared to $32.6 billion in the previous quarter and $31.6 billion in the first quarter of 2016. Average balances of other short-term investments decreased by $502 million sequentially to $1.3 billion.
| Loans | |||||||||||||||||||
| ($ in millions) | For the Three Months Ended | % Change | |||||||||||||||||
| March | December | September | June | March | |||||||||||||||
| 2017 | 2016 | 2016 | 2016 | 2016 | Seq | Yr/Yr | |||||||||||||
| Average Portfolio Loans and Leases | |||||||||||||||||||
| Commercial: | |||||||||||||||||||
| Commercial and industrial loans | $41,854 | $42,548 | $43,116 | $43,876 | $43,089 | (2%) | (3%) | ||||||||||||
| Commercial mortgage loans | 6,941 | 6,957 | 6,888 | 6,831 | 6,886 | - | 1% | ||||||||||||
| Commercial construction loans | 3,987 | 3,890 | 3,848 | 3,551 | 3,297 | 2% | 21% | ||||||||||||
| Commercial leases | 3,901 | 3,921 | 3,962 | 3,898 | 3,874 | (1%) | 1% | ||||||||||||
| Total commercial loans and leases | $56,683 | $57,316 | $57,814 | $58,156 | $57,146 | (1%) | (1%) | ||||||||||||
| Consumer: | |||||||||||||||||||
| Residential mortgage loans | $15,200 | $14,854 | $14,455 | $14,046 | $13,788 | 2% | 10% | ||||||||||||
| Home equity | 7,581 | 7,779 | 7,918 | 8,054 | 8,217 | (3%) | (8%) | ||||||||||||
| Automobile loans | 9,786 | 10,162 | 10,508 | 10,887 | 11,283 | (4%) | (13%) | ||||||||||||
| Credit card | 2,141 | 2,180 | 2,165 | 2,134 | 2,179 | (2%) | (2%) | ||||||||||||
| Other consumer loans and leases | 755 | 673 | 651 | 654 | 662 | 12% | 14% | ||||||||||||
| Total consumer loans and leases | $35,463 | $35,648 | $35,697 | $35,775 | $36,129 | (1%) | (2%) | ||||||||||||
| Total average portfolio loans and leases | $92,146 | $92,964 | $93,511 | $93,931 | $93,275 | (1%) | (1%) | ||||||||||||
| Average loans held for sale | $645 | $1,017 | $906 | $876 | $803 | (37%) | (20%) | ||||||||||||
Average portfolio loan and lease balances decreased $818 million, or 1 percent, sequentially and decreased $1.1 billion, or 1 percent, from the first quarter of 2016. The sequential and year-over-year decrease was primarily driven by declines in automobile and commercial and industrial (C&I) loans. The decline in auto loans continues to reflect our 2016 decision to reduce lower-return auto loan originations to improve returns on shareholders’ equity. The decline in C&I loans was partially due to deliberate exits from certain C&I loans that did not meet risk-adjusted profitability targets, as well as softer loan demand. Period end portfolio loans and leases of $91.6 billion decreased $470 million, or 1 percent, sequentially and $2.0 billion, or 2 percent, from a year ago. On both a sequential and year-over-year basis, the average and period end loan decrease 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 decreased $633 million, or 1 percent, sequentially, and were down $463 million, or 1 percent, from the first quarter of 2016. Average C&I loans decreased $694 million, or 2 percent, from the prior quarter and decreased $1.2 billion, or 3 percent, from the first quarter of 2016. Average commercial real estate loans increased $81 million, or 1 percent, from the prior quarter and increased $745 million, or 7 percent, from the first quarter of 2016. Within commercial real estate, average commercial mortgage balances decreased $16 million and average commercial construction balances increased $97 million sequentially. Period end commercial line utilization of 34% was flat from the fourth quarter of 2016 and decreased 1 percent from the first quarter of 2016.
Average consumer portfolio loan and lease balances were down $185 million, or 1 percent, sequentially and decreased $666 million, or 2 percent, from the first quarter of 2016. This was primarily driven by average automobile loans which decreased 4 percent sequentially and 13 percent from a year ago. Average residential mortgage loans increased 2 percent sequentially and 10 percent from the previous year. Average home equity loans decreased 3 percent sequentially and 8 percent from the first quarter of 2016. Average credit card loans decreased 2 percent sequentially and decreased 2 percent from the first quarter of 2016.
| Deposits | ||||||||||||||||||||
| ($ in millions) | For the Three Months Ended | % Change | ||||||||||||||||||
| March | December | September | June | March | ||||||||||||||||
| 2017 | 2016 | 2016 | 2016 | 2016 | Seq | Yr/Yr | ||||||||||||||
| Average Deposits | ||||||||||||||||||||
| Demand | $35,084 | $36,412 | $35,918 | $35,912 | $35,201 | (4%) | - | |||||||||||||
| Interest checking | 26,760 | 25,644 | 24,475 | 24,714 | 25,740 | 4% | 4% | |||||||||||||
| Savings | 14,117 | 13,979 | 14,232 | 14,576 | 14,601 | 1% | (3%) | |||||||||||||
| Money market | 20,603 | 20,476 | 19,706 | 19,243 | 18,655 | 1% | 10% | |||||||||||||
| Foreign office(e) | 454 | 497 | 524 | 484 | 483 | (9%) | (6%) | |||||||||||||
| Total transaction deposits | $97,018 | $97,008 | $94,855 | $94,929 | $94,680 | - | 2% | |||||||||||||
| Other time | 3,827 | 3,941 | 4,020 | 4,044 | 4,035 | (3%) | (5%) | |||||||||||||
| Total core deposits | $100,845 | $100,949 | $98,875 | $98,973 | $98,715 | - | 2% | |||||||||||||
| Certificates - $100,000 and over | 2,579 | 2,539 | 2,768 | 2,819 | 2,815 | 2% | (8%) | |||||||||||||
| Other | 162 | 115 | 749 | 467 | - | 41% | NM | |||||||||||||
| Total average deposits | $103,586 | $103,603 | $102,392 | $102,259 | $101,530 | - | 2% | |||||||||||||
Average core deposits were flat sequentially and increased $2.1 billion, or 2 percent, from the first quarter of 2016. Average transaction deposits were also flat sequentially and increased $2.3 billion, or 2 percent, from the first quarter of 2016. Sequential performance was primarily driven by increases in commercial and consumer interest checking account balances, offset by lower commercial demand deposit account balances. The year-over-year increase was primarily driven by higher consumer money market and interest checking account balances, partially offset by lower savings account balances. Other time deposits decreased by 3 percent sequentially and 5 percent year-over-year.
Average total commercial transaction deposits of $44 billion decreased 3 percent sequentially and decreased 1 percent from the first quarter of 2016. Average total consumer transaction deposits of $53 billion increased 2 percent sequentially and increased 5 percent from the first quarter of 2016.
| Wholesale Funding | ||||||||||||||||||||
| ($ in millions) | For the Three Months Ended | % Change | ||||||||||||||||||
| March | December | September | June | March | ||||||||||||||||
| 2017 | 2016 | 2016 | 2016 | 2016 | Seq | Yr/Yr | ||||||||||||||
| Average Wholesale Funding | ||||||||||||||||||||
| Certificates - $100,000 and over | $2,579 | $2,539 | $2,768 | $2,819 | $2,815 | 2% | (8%) | |||||||||||||
| Other deposits | 162 | 115 | 749 | 467 | - | 41% | NM | |||||||||||||
| Federal funds purchased | 639 | 280 | 446 | 693 | 608 | NM | 5% | |||||||||||||
| Other short-term borrowings | 1,893 | 1,908 | 2,171 | 3,754 | 3,564 | (1%) | (47%) | |||||||||||||
| Long-term debt | 13,856 | 15,173 | 16,102 | 15,351 | 14,949 | (9%) | (7%) | |||||||||||||
| Total average wholesale funding | $19,129 | $20,015 | $22,236 | $23,084 | $21,936 | (4%) | (13%) | |||||||||||||
Average wholesale funding of $19.1 billion decreased $886 million, or 4 percent, sequentially and decreased $2.8 billion, or 13 percent, compared with the first quarter of 2016. The sequential decrease in average wholesale funding was primarily driven by a decline in long-term debt reflecting the full quarter impact of debt maturing in the previous quarter as well as debt maturing at the beginning of the current quarter. The year-over-year decline in wholesale funding was primarily driven by lower short-term borrowings and debt maturities in response to declining asset balances.
| Noninterest Income | ||||||||||||||
| ($ in millions) | For the Three Months Ended | % Change | ||||||||||||
| March | December | September | June | March | ||||||||||
| 2017 | 2016 | 2016 | 2016 | 2016 | Seq | Yr/Yr | ||||||||
| Noninterest Income | ||||||||||||||
| Service charges on deposits | $138 | $141 | $143 | $138 | $137 | (2%) | 1% | |||||||
| Corporate banking revenue | 74 | 101 | 111 | 117 | 102 | (27%) | (27%) | |||||||
| Mortgage banking net revenue | 52 | 65 | 66 | 75 | 78 | (20%) | (33%) | |||||||
| Wealth and asset management revenue | 108 | 100 | 101 | 101 | 102 | 8% | 6% | |||||||
| Card and processing revenue | 74 | 79 | 79 | 82 | 79 | (6%) | (6%) | |||||||
| Other noninterest income | 77 | 137 | 336 | 80 | 136 | (44%) | (43%) | |||||||
| Securities gains (losses), net | - | (3) | 4 | 6 | 3 | NM | NM | |||||||
| Total noninterest income | $523 | $620 | $840 | $599 | $637 | (16%) | (18%) | |||||||
Noninterest income of $523 million decreased $97 million sequentially and decreased $114 million compared with prior year results. The sequential and year-over-year comparisons reflect the impacts described below.
| Noninterest Income excluding certain items | ||||||||||
| ($ in millions) | For the Three Months Ended | % Change | ||||||||
| March | December | March | ||||||||
| 2017 | 2016 | 2016 | Seq | Yr/Yr | ||||||
| Noninterest Income excluding certain items | ||||||||||
| Noninterest income (U.S. GAAP) | $523 | $620 | $637 | |||||||
| Valuation of Visa total return swap | 13 | (6) | (1) | |||||||
| Gain on Vantiv warrant actions | - | (9) | - | |||||||
| Gain on sale of certain branches | - | - | (8) | |||||||
| Vantiv warrant valuation | - | - | (47) | |||||||
| Securities (gains) / losses | - | 3 | (3) | |||||||
| Noninterest income excluding certain items(b) | $536 | $608 | $578 | (12%) | (7%) | |||||
Excluding the items in the table above, noninterest income of $536 million decreased $72 million, or 12 percent, from the previous quarter and decreased $42 million, or 7 percent, from the first quarter of 2016. The sequential decrease was primarily due to the $33 million annual payment recognized from Vantiv pursuant to the tax receivable agreement in the fourth quarter of 2016, and decreases in corporate banking revenue and mortgage banking net revenue, partially offset by an increase in wealth and asset management revenue. The year-over-year decrease was driven by declines in corporate banking revenue and mortgage banking net revenue.
Service charges on deposits of $138 million decreased 2 percent from the fourth quarter of 2016, and increased 1 percent compared with the first quarter of 2016. The sequential decrease was primarily driven by a seasonal decrease in retail service charges. The increase from the first quarter of 2016 was primarily due to both increases in commercial and retail service charges.
Corporate banking revenue of $74 million decreased 27 percent both sequentially and from the first quarter of 2016. The sequential and year-over-year decreases were primarily driven by a $31 million lease remarketing impairment related to an oilfield services exposure. Excluding the impact of the lease impairment, corporate banking revenue increased 4 percent compared to the fourth quarter of 2016 and increased 3 percent from the first quarter of 2016. The sequential and year-over-year performance was driven by increases in institutional sales and syndication fees, partially offset by a decrease in foreign exchange fees.
Mortgage banking net revenue was $52 million in the first quarter of 2017, down $13 million from the fourth quarter of 2016 and down $26 million from the first quarter of 2016. Originations of $1.9 billion in the current quarter decreased 29 percent sequentially and increased 10 percent from the first quarter of 2016. First quarter 2017 originations resulted in $29 million of origination fees and gains on loan sales, compared with $30 million during the previous quarter and $42 million during the first quarter of 2016. Effective January 1, 2017, the Bancorp elected to measure its MSR portfolio at fair value rather than at amortized cost. Net mortgage servicing revenue (which consists of gross mortgage servicing fees, MSR decay/amortization, net valuation adjustments on MSRs and mark-to-market adjustments on free-standing derivatives used to economically hedge the MSR portfolio) was $23 million this quarter, $35 million in the fourth quarter of 2016, and $36 million in the first quarter of 2016. Gross mortgage servicing fees were $47 million this quarter, $48 million in the fourth quarter of 2016, and $52 million in the first quarter of 2016. MSR decay/amortization was $27 million this quarter, $35 million in the fourth quarter of 2016, and $27 million in the first quarter of 2016. Net servicing asset valuation adjustments resulted in a positive $3 million impact in the first quarter of 2017, positive $23 million in the fourth quarter of 2016, and positive $11 million in the first quarter of 2016.
Wealth and asset management revenue of $108 million increased 8 percent from the fourth quarter of 2016 and increased 6 percent from the first quarter of 2016. The sequential increase was primarily driven by strong brokerage revenue and seasonally strong tax-related private client service revenue. The year-over-year increase was primarily driven by higher personal asset management and brokerage revenue.
Card and processing revenue of $74 million in the first quarter of 2017 decreased 6 percent both sequentially and from the first quarter of 2016. The sequential decrease reflected lower transaction volumes compared with seasonally strong fourth quarter volumes, while the year-over-year decrease was impacted by higher reward expense and the sale of the agent bankcard portfolio in the second quarter of last year.
Other noninterest income totaled $77 million in the first quarter of 2017, compared with $137 million in the previous quarter and $136 million in the first quarter of 2016. The reported results included the valuation of the Visa total return swap, the gain on sale of certain branches and Vantiv-related adjustments shown in the table on page 9. For the first quarter of 2017, excluding these items, other noninterest income of $90 million decreased approximately $32 million, or 26 percent, from the fourth quarter of 2016 and was up 13 percent from the first quarter of 2016. The sequential decrease was primarily due to the $33 million annual payment recognized from Vantiv pursuant to the tax receivable agreement in the fourth quarter of 2016.
Net gains on investment securities were immaterial in the first quarter of 2017, compared with a $3 million net loss in the previous quarter and a $3 million net gain in the first quarter of 2016.
| Noninterest Expense | |||||||||||||||||||
| ($ in millions) | For the Three Months Ended | % Change | |||||||||||||||||
| March | December | September | June | March | |||||||||||||||
| 2017 | 2016 | 2016 | 2016 | 2016 | Seq | Yr/Yr | |||||||||||||
| Noninterest Expense | |||||||||||||||||||
| Salaries, wages and incentives | $411 | $403 | $400 | $407 | $403 | 2% | 2% | ||||||||||||
| Employee benefits | 111 | 76 | 78 | 85 | 100 | 46% | 11% | ||||||||||||
| Net occupancy expense | 78 | 73 | 73 | 75 | 77 | 7% | 1% | ||||||||||||
| Technology and communications | 58 | 56 | 62 | 60 | 56 | 4% | 4% | ||||||||||||
| Equipment expense | 28 | 29 | 29 | 30 | 30 | (3%) | (7%) | ||||||||||||
| Card and processing expense | 30 | 31 | 30 | 37 | 35 | (3%) | (14%) | ||||||||||||
| Other noninterest expense | 270 | 292 | 301 | 289 | 285 | (8%) | (5%) | ||||||||||||
| Total noninterest expense | $986 | $960 | $973 | $983 | $986 | 3% | - | ||||||||||||
Noninterest expense of $986 million increased $26 million, or 3 percent, compared with the fourth quarter of 2016 and was flat compared with the first quarter of 2016. The sequential increase primarily reflected seasonally higher compensation-related expenses driven by FICA and other employee benefits expense as well as long-term incentive expense, partially offset by declines in loan and lease expense, losses and adjustments, and other noninterest expense. The year-over-year performance was impacted by lower losses and adjustments, other noninterest expense, and lower card and processing expense, predominantly due to contract renegotiations, partially offset by the impact of $18 million in long-term incentive expense that would have otherwise been recognized in the second quarter without a change in the grant date.
| Credit Quality | |||||||||||||||
| ($ in millions) | For the Three Months Ended | ||||||||||||||
| March | December | September | June | March | |||||||||||
| 2017 | 2016 | 2016 | 2016 | 2016 | |||||||||||
| Total net losses charged-off | |||||||||||||||
| Commercial and industrial loans | ($36) | ($25) | ($61) | ($39) | ($46) | ||||||||||
| Commercial mortgage loans | (5) | (2) | (2) | (6) | (6) | ||||||||||
| Commercial construction loans | - | - | - | - | - | ||||||||||
| Commercial leases | (1) | (1) | - | (1) | (2) | ||||||||||
| Residential mortgage loans | (5) | (2) | (2) | (2) | (2) | ||||||||||
| Home equity | (6) | (6) | (7) | (6) | (8) | ||||||||||
| Automobile loans | (11) | (11) | (9) | (8) | (9) | ||||||||||
| Credit card | (22) | (19) | (20) | (21) | (20) | ||||||||||
| Other consumer loans and leases | (3) | (7) | (6) | (4) | (3) | ||||||||||
| Total net losses charged-off | ($89) | ($73) | ($107) | ($87) | ($96) | ||||||||||
| Total losses charged-off | ($107) | ($97) | ($137) | ($105) | ($116) | ||||||||||
| Total recoveries of losses previously charged-off | 18 | 24 | 30 | 18 | 20 | ||||||||||
| Total net losses charged-off | ($89) | ($73) | ($107) | ($87) | ($96) | ||||||||||
| Ratios (annualized) | |||||||||||||||
Net losses charged-off as a percent of average portfolio loans and leases (excluding held for sale) | 0.40% | 0.31% | 0.45% | 0.37% | 0.42% | ||||||||||
| Commercial | 0.29% | 0.20% | 0.43% | 0.32% | 0.38% | ||||||||||
| Consumer | 0.56% | 0.49% | 0.49% | 0.45% | 0.48% | ||||||||||
Net charge-offs were $89 million, or 40 bps of average portfolio loans and leases on an annualized basis, in the first quarter of 2017 compared with net charge-offs of $73 million, or 31 bps, in the fourth quarter of 2016 and $96 million, or 42 bps, in the first quarter of 2016.
Commercial net charge-offs of $42 million, or 29 bps, were up $14 million sequentially. The increase was primarily due to higher charge-offs of C&I loans, which increased by $11 million from the fourth quarter of 2016. Commercial real estate net charge-offs were up $3 million from the previous quarter.
Consumer net charge-offs of $47 million, or 56 bps, were up $2 million sequentially. Compared with the previous quarter, net charge-offs on residential mortgage loans were up $3 million. Net charge-offs on the home equity and auto portfolios were flat from the previous quarter. Net charge-offs on credit card loans were up $3 million from the fourth quarter of 2016. Net charge-offs on other consumer loans of $3 million were down $4 million sequentially.
| ($ in millions) | For the Three Months Ended | |||||||||||||
| March | December | September | June | March | ||||||||||
| 2017 | 2016 | 2016 | 2016 | 2016 | ||||||||||
| Allowance for Credit Losses | ||||||||||||||
| Allowance for loan and lease losses, beginning | $1,253 | $1,272 | $1,299 | $1,295 | $1,272 | |||||||||
| Total net losses charged-off | (89) | (73) | (107) | (87) | (96) | |||||||||
| Provision for loan and lease losses | 74 | 54 | 80 | 91 | 119 | |||||||||
| Allowance for loan and lease losses, ending | $1,238 | $1,253 | $1,272 | $1,299 | $1,295 | |||||||||
| Reserve for unfunded commitments, beginning | $161 | $162 | $151 | $144 | $138 | |||||||||
| Provision for unfunded commitments | (2) | (1) | 11 | 7 | 6 | |||||||||
| Reserve for unfunded commitments, ending | $159 | $161 | $162 | $151 | $144 | |||||||||
| Components of allowance for credit losses: | ||||||||||||||
| Allowance for loan and lease losses | $1,238 | $1,253 | $1,272 | $1,299 | $1,295 | |||||||||
| Reserve for unfunded commitments | 159 | 161 | 162 | 151 | 144 | |||||||||
| Total allowance for credit losses | $1,397 | $1,414 | $1,434 | $1,450 | $1,439 | |||||||||
| Allowance for loan and lease losses ratio | ||||||||||||||
| As a percent of portfolio loans and leases | 1.35% | 1.36% | 1.37% | 1.38% | 1.38% | |||||||||
| As a percent of nonperforming loans and leases(f) | 188% | 190% | 212% | 188% | 185% | |||||||||
| As a percent of nonperforming assets(f) | 172% | 170% | 182% | 161% | 157% | |||||||||
Provision for loan and lease losses totaled $74 million in the first quarter of 2017. The allowance represented 1.35 percent of total portfolio loans and leases outstanding as of quarter end, compared with 1.36 percent last quarter, and represented 188 percent of nonperforming loans and leases, and 172 percent of nonperforming assets.
Provision for loan and lease losses increased $20 million from the fourth quarter of 2016, primarily driven by an increase in net charge-offs, and decreased $45 million from the first quarter of 2016, impacted by improving criticized assets and nonperforming loans. The allowance for loan and lease losses decreased $15 million sequentially. As of March 31, the reserve allocated to the energy portfolio was approximately 4.20%, up from approximately 4.04% last quarter.
| ($ in millions) | As of | |||||||||||
| March | December | September | June | March | ||||||||
| Nonperforming Assets and Delinquent Loans | 2017 | 2016 | 2016 | 2016 | 2016 | |||||||
| Nonaccrual portfolio loans and leases: | ||||||||||||
| Commercial and industrial loans | $251 | $302 | $235 | $254 | $278 | |||||||
| Commercial mortgage loans | 21 | 27 | 31 | 39 | 51 | |||||||
| Commercial construction loans | - | - | - | - | - | |||||||
| Commercial leases | - | 2 | - | 4 | 4 | |||||||
| Residential mortgage loans | 21 | 17 | 19 | 27 | 25 | |||||||
| Home equity | 53 | 55 | 59 | 61 | 61 | |||||||
| Total nonaccrual portfolio loans and leases (excludes restructured loans) | $346 | $403 | $344 | $385 | $419 | |||||||
| Nonaccrual restructured portfolio commercial loans and leases(g) | 251 | 192 | 194 | 242 | 210 | |||||||
| Nonaccrual restructured portfolio consumer loans and leases | 60 | 65 | 63 | 66 | 72 | |||||||
| Total nonaccrual portfolio loans and leases | $657 | $660 | $601 | $693 | $701 | |||||||
| Repossessed property | 14 | 15 | 13 | 15 | 17 | |||||||
| OREO | 50 | 63 | 84 | 97 | 107 | |||||||
| Total nonperforming portfolio assets(f) | $721 | $738 | $698 | $805 | $825 | |||||||
| Nonaccrual loans held for sale | 7 | 4 | 91 | 20 | 3 | |||||||
| Nonaccrual restructured loans held for sale | 2 | 9 | 9 | - | 2 | |||||||
| Total nonperforming assets | $730 | $751 | $798 | $825 | $830 | |||||||
| Restructured Portfolio consumer loans and leases (accrual) | $950 | $959 | $972 | $982 | $998 | |||||||
| Restructured Portfolio commercial loans and leases (accrual)(g) | $277 | $321 | $408 | $431 | $461 | |||||||
| Total loans and leases 30-89 days past due (accrual) | $180 | $231 | $205 | $196 | $208 | |||||||
| Total loans and leases 90 days past due (accrual) | $75 | $84 | $76 | $65 | $73 | |||||||
Nonperforming portfolio loans and leases as a percent of portfolio loans, leases and other assets, including OREO(f) | 0.72% | 0.72% | 0.64% | 0.74% | 0.75% | |||||||
Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO(f) | 0.79% | 0.80% | 0.75% | 0.86% | 0.88% | |||||||
Total nonperforming portfolio assets decreased $17 million, or 2 percent, from the previous quarter to $721 million. Portfolio nonperforming loans (NPLs) at quarter-end decreased $3 million from the previous quarter to $657 million, or 0.72 percent of total portfolio loans, leases and OREO.
Commercial portfolio NPLs were flat from last quarter at $523 million, or 0.93 percent of commercial portfolio loans, leases and OREO. Consumer portfolio NPLs decreased $3 million from last quarter to $134 million, or 0.38 percent of consumer portfolio loans, leases and OREO.
OREO balances were down $13 million from the prior quarter to $50 million, and included $29 million in commercial OREO and $21 million in consumer OREO. Repossessed personal property decreased $1 million from the prior quarter to $14 million.
Loans over 90 days past due and still accruing decreased $9 million from the fourth quarter of 2016 to $75 million. Loans 30-89 days past due of $180 million were down $51 million from the previous quarter.
| Capital and Liquidity Position | |||||||||||
| For the Three Months Ended | |||||||||||
| March | December | September | June | March | |||||||
| 2017 | 2016 | 2016 | 2016 | 2016 | |||||||
| Capital Position | |||||||||||
| Average total Bancorp shareholders' equity to average assets | 11.72% | 11.66% | 11.83% | 11.60% | 11.57% | ||||||
| Tangible equity(b) | 10.12% | 9.82% | 9.73% | 9.59% | 9.51% | ||||||
| Tangible common equity (excluding unrealized gains/losses)(b) | 9.15% | 8.87% | 8.78% | 8.64% | 8.55% | ||||||
| Tangible common equity (including unrealized gains/losses)(b) | 9.20% | 8.91% | 9.24% | 9.18% | 8.97% | ||||||
Regulatory capital ratios: | |||||||||||
| CET1 capital(c) | 10.76% | 10.39% | 10.17% | 9.94% | 9.81% | ||||||
| Tier I risk-based capital(c) | 11.90% | 11.50% | 11.27% | 11.03% | 10.91% | ||||||
| Total risk-based capital(c) | 15.45% | 15.02% | 14.88% | 14.66% | 14.66% | ||||||
| Tier I leverage | 10.15% | 9.90% | 9.80% | 9.64% | 9.57% | ||||||
| CET1 capital (fully phased-in)(b)(c) | 10.66% | 10.29% | 10.09% | 9.86% | 9.72% | ||||||
| Book value per share | $20.13 | $19.82 | $20.44 | $20.09 | $19.46 | ||||||
| Tangible book value per share(b) | $16.89 | $16.60 | $17.22 | $16.93 | $16.32 | ||||||
| Modified liquidity coverage ratio (LCR)(h) | 119% | 128% | 115% | 110% | 118% | ||||||
Capital ratios remained strong and grew during the quarter. The CET1 ratio was 10.76 percent, the tangible common equity to tangible assets ratio(b) was 9.15 percent (excluding unrealized gains/losses), and 9.20 percent (including unrealized gains/losses). The Tier I risk-based capital ratio was 11.90 percent, the Total risk-based capital ratio was 15.45 percent, and the Tier I leverage ratio was 10.15 percent.
Book value per share at March 31, 2017 was $20.13 and tangible book value per share(b) was $16.89, compared with the December 31, 2016 book value per share of $19.82 and tangible book value per share(b) of $16.60.
On February 6, 2017, Fifth Third settled the forward contract related to the $155 million share repurchase agreement initially settled on December 20, 2016. An additional 1.1 million shares were repurchased in connection with the completion of this agreement.
Tax Rate
The effective tax rate was 22.9 percent in the first quarter of 2017 compared with 22.6 percent in the fourth quarter of 2016 and 25.1 percent in the first quarter of 2016. The tax rate in the first quarter of 2017 was impacted by an $8 million tax benefit associated with the exercise and vesting of employee equity awards. The tax rate in the fourth quarter of 2016 was impacted by a $6 million tax benefit associated with the early adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”, using the modified retrospective transition method.
Other
Fifth Third Bank owns approximately 35 million units representing a 17.8 percent interest in Vantiv Holding, LLC, convertible into shares of Vantiv, Inc., a publicly traded firm. Based upon Vantiv’s closing price of $64.12 on March 31, 2017, our interest in Vantiv was valued at approximately $2.2 billion. Next month in our 10-Q, we will update our disclosure of the carrying value of our interest in Vantiv stock, which was $414 million as of December 31, 2016. 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 May 9, 2017 by dialing 800-585-8367 for domestic access or 404-537-3406 for international access (passcode 44811759#).
Corporate Profile
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of March 31, 2017, the Company had $140 billion in assets and operates 1,155 full-service Banking Centers, and 2,471 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia and North Carolina. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Wealth & Asset Management. Fifth Third also has a 17.8% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest and, as of March 31, 2017, had $323 billion in assets under care, of which it managed $33 billion for individuals, corporations and not-for-profit organizations through its Trust, Brokerage and Insurance 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 04/25/17. | |
(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) | Net tax deficiencies of $1 million, $5 million and $0 were reclassified from capital surplus to applicable income tax expense at March 31, 2016, June 30, 2016 and September 30, 2016, respectively, 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 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, June 30, 2016 and March 31, 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 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 GAAP reconciliations for non-GAAP measures in a later slide in this presentation as well as in our earnings release, both of which are available in the investor relations section of our website, www.53.com.
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