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

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

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

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

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

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

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

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

Securities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tax Rate

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

Other

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

Fifth Third Bank owns approximately 15 million units representing an 8.6 percent interest in Vantiv Holding, LLC, convertible into shares of Vantiv, Inc., a publicly traded firm. Based upon Vantiv’s closing price of $70.47 on September 30, 2017, our interest in Vantiv was valued at approximately $1.1 billion. The difference between the market value and the book value of Fifth Third’s interest in Vantiv’s shares is not recognized in Fifth Third’s equity or capital.

Conference Call

Fifth Third will host a conference call to discuss these financial results at 9:00 a.m. (Eastern Time) today. This conference call will be webcast live and may be accessed through the Fifth Third Investor Relations website at www.53.com (click on “About Us” then “Investor Relations”).

Those unable to listen to the live webcast may access a webcast replay through the Fifth Third Investor Relations website at the same web address. Additionally, a telephone replay of the conference call will be available after the conference call until approximately November 7, 2017 by dialing 800-585-8367 for domestic access or 404-537-3406 for international access (passcode 44813627#).

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of September 30, 2017, the Company had $142 billion in assets and operates 1,155 full-service Banking Centers, and 2,465 Fifth Third branded ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia and North Carolina. In total, Fifth Third provides its customers with access to more than 45,000 fee-free ATMs across the United States. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Wealth & Asset Management. Fifth Third also has an 8.6% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest and, as of September 30, 2017, had $348 billion in assets under care, of which it managed $36 billion for individuals, corporations and not-for-profit organizations through its Trust and Registered Investment Advisory businesses. Investor information and press releases can be viewed at www.53.com. Fifth Third’s common stock is traded on the NASDAQ® Global Select Market under the symbol “FITB.”

Earnings Release End Notes

FORWARD-LOOKING STATEMENTS

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

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

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

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