Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): July 21, 2015

 

 

 

LOGO

(Exact Name of Registrant as Specified in Its Charter)

 

 

OHIO

(State or Other Jurisdiction of Incorporation)

 

001-33653   31-0854434
(Commission File Number)   (IRS Employer Identification No.)

 

Fifth Third Center

38 Fountain Square Plaza, Cincinnati, Ohio

  45263
(Address of Principal Executive Offices)   (Zip Code)

(800) 972-3030

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

  ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

  ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

  ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

  ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 8.01 Other Events

On July 21, 2015, Fifth Third Bancorp reported second quarter 2015 net income of $315 million versus net income of $361 million in the first quarter of 2015 and $439 million in the second quarter of 2014. After preferred dividends, net income available to common shareholders was $292 million, or $0.36 per diluted share, in the second quarter of 2015, compared with $346 million, or $0.42 per diluted share, in the first quarter of 2015, and $416 million, or $0.49 per diluted share, in the second quarter of 2014.

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

First quarter 2015 included:

Income

 

    $70 million positive valuation adjustment on the Vantiv warrant

 

    $37 million gain on the sale of residential mortgage loans classified as troubled debt restructurings

 

    ($17 million) charge related to the valuation of the Visa total return swap

 

    ($30 million) impairment associated with aircraft leases

Second quarter 2014 included:

Income

 

    $125 million gain on the sale of Vantiv shares

 

    $63 million positive valuation adjustment on the Vantiv warrant

 

    ($17 million) negative valuation adjustments for branches and land

 

    ($16 million) charge related to the valuation of the Visa total return swap

 

    ($12 million) negative impact to the equity method income from the Bancorp’s interest in Vantiv related to certain charges recognized by Vantiv as a result of their acquisition of Mercury Payment Systems

Expenses

 

    ($61 million) in litigation reserve charges

 

2


Earnings Highlights

 

     For the Three Months Ended     % Change  
     June
2015
    March
2015
    December
2014
    September
2014
    June
2014
    Seq      Yr/Yr  

Earnings ($ in millions)

               

Net income attributable to Bancorp

   $ 315      $ 361      $ 385      $ 340      $ 439        (13 %)       (28 %) 

Net income available to common shareholders

   $ 292      $ 346      $ 362      $ 328      $ 416        (16 %)       (30 %) 

Common Share Data

               

Earnings per share, basic

     0.36       0.42       0.44       0.39       0.49       (14 %)       (27 %) 

Earnings per share, diluted

     0.36       0.42       0.43       0.39       0.49       (14 %)       (27 %) 

Cash dividends per common share

     0.13       0.13       0.13       0.13       0.13       —           —     

Financial Ratios

               

Return on average assets

     0.90      1.06      1.13      1.02      1.34      (15 %)       (33 %) 

Return on average common equity

     8.1       9.7       10.0       9.2       11.9       (16 %)       (32 %) 

Return on average tangible common equity(b)

     9.7       11.7       12.1       11.1       14.4       (17 %)       (33 %) 

CET1 capital(c)

     9.41       9.52       N/A        N/A        N/A        (1 %)       N/A   

Tier I risk-based capital(c)

     10.49        10.62       10.83       10.83       10.80       (1 %)       (3 %) 

Tier I common equity(b)

     N/A        N/A        9.65       9.64       9.61       N/A         N/A   

CET1 capital (fully-phased in)(b)(c)

     9.30       9.41       N/A        N/A        N/A        (1 %)       N/A   

Net interest margin(a)

     2.90       2.86       2.96       3.10       3.15       1      (8 %) 

Efficiency(a)

     65.4       62.3       59.6       62.1       58.2       5      12

Common shares outstanding (in thousands)

     810,054       815,190       824,047       834,262       844,489       (1 %)       (4 %) 

Average common shares outstanding (in thousands):

               

Basic

     803,965       810,210       819,057       829,392       838,492       (1 %)       (4 %) 

Diluted

     812,843       818,672       827,831       838,324       848,245       (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.

Income Statement Highlights

 

     For the Three Months Ended      % Change  
     June
2015
    March
2015
     December
2014
     September
2014
     June
2014
     Seq     Yr/Yr  

Condensed Statements of Income ($ in millions)

                  

Net interest income (taxable equivalent)

   $ 892      $ 852       $ 888       $ 908       $ 905         5     (1 %) 

Provision for loan and lease losses

     79       69        99        71        76        14     4

Total noninterest income

     556       630        653        520        736        (12 %)      (24 %) 

Total noninterest expense

     947       923        918        888        954        3     (1 %) 
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Income before income taxes (taxable equivalent)

  422     490     524     469     611     (14 %)    (31 %) 
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Taxable equivalent adjustment

  5     5     5     5     5     —        —     

Applicable income taxes

  108     124     134     124     167     (13 %)    (35 %) 
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net income

  309     361     385     340     439     (14 %)    (30 %) 

Less: Net income attributable to noncontrolling interests

  (6   —       —       —       —       (100 %)    (100 %) 
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net income attributable to Bancorp

  315     361     385     340     439     (13 %)    (28 %) 

Dividends on preferred stock

  23     15     23     12     23     53   —     
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net income available to common shareholders

  292     346     362     328     416     (16 %)    (30 %) 
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Earnings per share, diluted

$ 0.36   $ 0.42   $ 0.43   $ 0.39   $ 0.49     (14 %)    (27 %) 
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

3


Net Interest Income

 

     For the Three Months Ended     % Change  
     June
2015
    March
2015
    December
2014
    September
2014
    June
2014
    Seq     Yr/Yr  

Interest Income ($ in millions)

              

Total interest income (taxable equivalent)

   $ 1,008      $ 975      $ 1,016      $ 1,023      $ 1,013        3     —     

Total interest expense

     116       123       128       115       108       (6 %)      7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (taxable equivalent)

$ 892    $ 852    $ 888    $ 908    $ 905      5   (1 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average Yield

Yield on interest-earning assets (taxable equivalent)

  3.28   3.28   3.38   3.49   3.53   —        (7 %) 

Rate paid on interest-bearing liabilities

  0.56   0.60   0.61   0.56   0.54   (7 %)    4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest rate spread (taxable equivalent)

  2.72   2.68   2.77   2.93   2.99   1   (9 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest margin (taxable equivalent)

  2.90   2.86   2.96   3.10   3.15   1   (8 %) 

Average Balances ($ in millions)

Loans and leases, including held for sale

$ 92,739    $ 91,659    $ 91,581    $ 91,428    $ 91,241      1   2

Total securities and other short-term investments

  30,563     29,038     27,604     24,927     23,940     5   28

Total interest-earning assets

  123,302     120,697     119,185     116,355     115,181     2   7

Total interest-bearing liabilities

  83,512     83,339     82,544     81,157     80,770     —        3

Bancorp shareholders’ equity

  15,841     15,820     15,644     15,486     15,157     —        5

Net interest income of $892 million on a fully taxable equivalent basis increased $40 million from the first quarter, driven by earning asset growth and lower deposit costs. Additionally, net interest income was positively impacted by $7 million due to an extra day in the quarter. These benefits were partially offset by continued repricing in our loan portfolio and the effect of the TDR sale in the first quarter of 2015.

The net interest margin was 2.90 percent, an increase of 4 bps from the previous quarter primarily driven by a 6 basis point benefit due to deployment of cash balances into investment securities, 3 basis points due to better funding rates including the continued rationalization of deposit rates, partially offset by 4 basis points of loan yield compression and a 1 basis point decrease primarily due to day count.

Compared with the second quarter of 2014, net interest income decreased $13 million and the net interest margin decreased 25 bps. The decline in net interest income was driven by the impact of 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 the impact of the changes to the deposit advance product and loan repricing.

Securities

Average securities and other short-term investments were $30.6 billion in the second quarter of 2015 compared with $29.0 billion in the previous quarter and $23.9 billion in the second quarter of 2014. Other short-term investments average balances of $3.2 billion decreased $2.7 billion sequentially reflecting lower cash balances held at the Federal Reserve. On an end of period basis, securities balances of $28.5 billion increased $1.5 billion driven by purchases of securities that were funded with cash balances at the Federal Reserve held in other short-term investments.

 

4


Loans

 

     For the Three Months Ended      % Change  
     June
2015
     March
2015
     December
2014
     September
2014
     June
2014
     Seq     Yr/Yr  

Average Portfolio Loans and Leases ($ in millions)

                   

Commercial:

                   

Commercial and industrial loans

   $ 42,550       $ 41,426       $ 41,277       $ 41,477       $ 41,374         3     3

Commercial mortgage loans

     7,148        7,241        7,480        7,633        7,885        (1 %)      (9 %) 

Commercial construction loans

     2,549        2,197        1,909        1,563        1,362        16     87

Commercial leases

     3,776        3,715        3,600        3,571        3,555        2     6
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal—commercial loans and leases

  56,023     54,579     54,266     54,244     54,176     3   3
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Consumer:

Residential mortgage loans

  12,831     12,433     13,046     12,785     12,611     3   2

Home equity

  8,654     8,802     8,937     9,009     9,101     (2 %)    (5 %) 

Automobile loans

  11,902     11,933     12,073     12,105     12,070     —        (1 %) 

Credit card

  2,296     2,321     2,324     2,295     2,232     (1 %)    3

Other consumer loans and leases

  467     440     395     361     359     6   30
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal—consumer loans and leases

  36,150     35,929     36,775     36,555     36,373     1   (1 %) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total average loans and leases (excluding held for sale)

$ 92,173    $ 90,508    $ 91,041    $ 90,799    $ 90,549      2   2

Average loans held for sale

  566     1,151     540     629     692     (51 %)    (18 %) 

Average loan and lease balances (excluding loans held-for-sale) increased $1.7 billion, or 2 percent, sequentially and increased $1.6 billion, or 2 percent, from the second 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 balances. Period end loans and leases (excluding loans held-for-sale) of $92.7 billion increased $1.5 billion, or 2 percent, sequentially and increased $2.2 billion, or 2 percent, from a year ago.

Average commercial portfolio loan and lease balances increased $1.4 billion, or 3 percent, sequentially and increased $1.8 billion, or 3 percent, from the second quarter of 2014. Average C&I loans increased $1.1 billion from the prior quarter and increased $1.2 billion from the second quarter of 2014. Within commercial real estate, average commercial mortgage balances continued to decline and average commercial construction balances increased due to continued focus on that business. Commercial line usage, on an end of period basis, was 33 percent of committed lines in the second quarter of 2015 compared with 32 percent in the first quarter of 2015 and 32 percent in the second quarter of 2014.

Average consumer portfolio loan and lease balances increased $221 million, or 1 percent, sequentially and decreased $223 million, or 1 percent, year-over-year. Average residential mortgage loans increased 3 percent sequentially and 2 percent from a year ago. Average auto loans were flat sequentially and down 1 percent from the previous year. Average home equity loans declined 2 percent sequentially and 5 percent from the second quarter of 2014. Average credit card loans decreased 1 percent sequentially and increased 3 percent from the second quarter of 2014.

 

5


Average loans held-for-sale balances of $566 million decreased $585 million sequentially primarily due to the full quarter impact from the sale of certain residential mortgage loans classified as troubled debt restructurings sold in the first quarter and decreased $126 million compared with the second quarter of 2014. Period end loans held-for-sale of $995 million increased $271 million from the previous quarter and $313 million from the second quarter of 2014.

Deposits

 

     For the Three Months Ended      % Change  
     June
2015
     March
2015
     December
2014
     September
2014
     June
2014
     Seq     Yr/Yr  

Average Deposits ($ in millions)

  

             

Demand

   $ 35,384       $ 33,760       $ 33,301       $ 31,790       $ 31,275         5     13

Interest checking

     26,894        26,885        25,478        24,926        25,222        —          7

Savings

     15,156        15,174        15,173        15,759        16,509        —          (8 %) 

Money market

     18,071        17,492        17,023        15,222        13,942        3     30

Foreign office(a)

     955        861        1,439        1,663        2,200        11     (57 %) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal—Transaction deposits

  96,460     94,172     92,414     89,360     89,148     2   8

Other time

  4,074     4,022     3,936     3,800     3,693     1   10
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal—Core deposits

  100,534     98,194     96,350     93,160     92,841     2   8

Certificates—$100,000 and over

  2,558     2,683     2,998     3,339     3,840     (5 %)    (33 %) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total deposits

$ 103,092    $ 100,877    $ 99,348    $ 96,499    $ 96,681      2   7

 

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

Average core deposits increased $2.3 billion, or 2 percent, sequentially and increased $7.7 billion, or 8 percent, from the second quarter of 2014. Average transaction deposits increased $2.3 billion, or 2 percent, from the first quarter of 2015 primarily driven by higher demand deposit and money market account balances. Year-over-year transaction deposits increased $7.3 billion, or 8 percent, driven by higher money market account, demand deposit, and interest checking balances, partially offset by lower savings and foreign office balances. Other time deposits increased 1 percent sequentially and 10 percent compared with the second quarter of 2014.

Average commercial transaction deposits increased 4 percent sequentially and 12 percent from the previous year. Sequential performance was primarily driven by higher demand and money market account balances. Year-over-year growth reflected higher demand deposit, interest checking, and money market balances, partially offset by lower foreign office balances.

Average consumer transaction deposits increased 1 percent sequentially and increased 5 percent from the second quarter of 2014. The sequential performance reflected higher demand deposit balances. Year-over-year growth was driven by increased money market account balances, partially offset by lower savings balances.

 

6


Wholesale Funding

 

     For the Three Months Ended      % Change  
     June
2015
     March
2015
     December
2014
     September
2014
     June
2014
     Seq     Yr/Yr  

Average Wholesale Funding ($ in millions)

                   

Certificates—$100,000 and over

   $ 2,558       $ 2,683       $ 2,998       $ 3,339       $ 3,840         (5 %)      (33 %) 

Federal funds purchased

     326        172        161        520        606        90     (46 %) 

Other short-term borrowings

     1,705        1,602        1,481        1,973        2,234        6     (24 %) 

Long-term debt

     13,773        14,448        14,855        13,955        12,524        (5 %)      10
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total wholesale funding

$ 18,362    $ 18,905    $ 19,495    $ 19,787    $ 19,204      (3 %)    (4 %) 

Average wholesale funding of $18.4 billion decreased $543 million, or 3 percent, sequentially and decreased $842 million, or 4 percent, compared with the second quarter of 2014. The sequential decrease was driven by a decline in long-term debt due to pay-downs from securitizations and the maturation of $500 million of bank-level subordinated debt in the middle of the first quarter, as well as a decrease in certificates $100,000 and over, partially offset by an increase in short-term borrowings. The year-over-year decrease in average wholesale funding reflected an increase in long-term debt due to issuances during 2014, partially offset by a decrease in certificates $100,000 and over and short-term borrowings.

Noninterest Income

 

     For the Three Months Ended      % Change  
     June
2015
     March
2015
     December
2014
     September
2014
     June
2014
     Seq     Yr/Yr  

Noninterest Income ($ in millions)

                   

Service charges on deposits

   $ 139      $ 135      $ 142      $ 145      $ 139        3     —     

Corporate banking revenue

     113        63        120        100        107        79     6

Mortgage banking net revenue

     117        86        61        61        78        36     50

Investment advisory revenue

     105        108        100        103        102        (3 %)      3

Card and processing revenue

     77        71        76        75        76        8     1

Other noninterest income

     1        163        150        33        226        (99 %)      (100 %) 

Securities gains, net

     4        4        4        3        8        —          (50 %) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total noninterest income

$ 556   $ 630   $ 653   $ 520   $ 736     (12 %)    (24 %) 

Noninterest income of $556 million decreased $74 million sequentially and decreased $180 million compared with prior year results. The second quarter of 2015 included a $97 million non-cash impairment charge related to previously announced changes in the branch network, which was slightly higher than the original estimate due to the receipt of updated third party appraisals and the inclusion of five additional branches. These actions are expected to be complete by mid-2016, and the expected annualized reduction in operating expenses associated with these actions is now expected to be $65 million, higher by $5 million as a result of the additions. In addition to the impairment, the sequential and year-over-year comparisons also reflect the impacts described below.

 

7


Noninterest Income excluding certain items

 

     For the Three Months Ended     % Change  
     June
2015
    March
2015
    June
2014
    Seq     Yr/Yr  

Noninterest income (as reported)

   $ 556      $ 630      $ 736       

Vantiv warrant valuation

     (14     (70     (63    

Valuation of Visa total return swap

     2       17       16      

Branch / land valuation adjustments

     97       —         17      

Gain on sale of TDRs

     —         (37     —        

Impairment from aircraft leases

     —         30       —        

Gain on sale of Vantiv shares

     —         —         (125    

Other Vantiv-related items

     —         —         12      

Securities (gains) / losses

     (4     (4     (8    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest income excluding certain items

$ 637    $ 566    $ 585      13   9

Excluding the items in the table above, noninterest income of $637 million increased $71 million, or 13 percent, from the previous quarter and increased $52 million, or 9 percent, from the second quarter of 2014. The sequential increase was primarily due to increases in corporate banking revenue and mortgage banking net revenue. The year-over-year increase was primarily due to higher mortgage banking net revenue.

Service charges on deposits of $139 million increased 3 percent from the first quarter and were flat compared with the same quarter last year. The sequential increase was due to a 5 percent increase in retail service charges due to higher overdraft occurrences as well as a 1 percent increase in commercial service charges.

Corporate banking revenue of $113 million increased $50 million from the first quarter of 2015 and increased $6 million from the second quarter of 2014. First quarter of 2015 results included a $30 million impairment associated with aircraft leases and excluding this charge, the sequential increase was primarily due to improvement in institutional sales revenue and higher syndication fees. The year-over-year increase was driven by higher institutional sales revenue and business lending fees, partially offset by lower syndication fees.

Mortgage banking net revenue was $117 million in the second quarter of 2015, up 36 percent from the first quarter of 2015 and up 50 percent from the second quarter of 2014. Second quarter 2015 originations were seasonally strong at $2.5 billion, compared with $1.8 billion in the previous quarter and $2.0 billion in the second quarter of 2014. Second quarter 2015 originations resulted in gains of $43 million on mortgages sold, compared with gains of $44 million during the previous quarter and $42 million during the second quarter of 2014. Mortgage servicing fees were $56 million this quarter, $59 million in the first quarter of 2015, and $62 million in the second 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 positive $18 million in the second quarter of 2015 (reflecting MSR amortization of $39 million and MSR valuation adjustments of positive $57 million); negative $17 million in the first quarter of 2015 (MSR amortization of $34 million and MSR valuation adjustments of positive $17 million); and negative $26 million in the second quarter of 2014 (MSR amortization of $32 million and MSR valuation adjustments of positive $6 million). The mortgage servicing asset, net of the valuation reserve, was $854 million at quarter end on a servicing portfolio of $62 billion.

 

8


Investment advisory revenue of $105 million decreased 3 percent from the first quarter and increased 3 percent year-over-year. The sequential decrease was attributable to seasonally lower tax-related private client services revenue, partially offset by an increase in securities and brokerage fees due to a continued shift from transaction-based fees to recurring revenue streams. The year-over-year increase reflected an increase in securities and brokerage fees and an increase in personal asset management fees due to market-related growth.

Card and processing revenue of $77 million in the second quarter of 2015 increased 8 percent sequentially and increased 1 percent from the second quarter of 2014. The sequential increase reflected higher transaction volumes compared with seasonally weak first quarter volumes. The year-over-year increase reflects an increase in the number of actively used cards and an increase in customer spend volume.

Other noninterest income totaled $1 million in the second quarter of 2015, compared with $163 million in the previous quarter and $226 million in the second quarter of 2014. As previously described, the results included the adjustments in the table above with the exception of securities gains in all comparable periods and the impairment of aircraft leases in the first quarter of 2015, which is recorded in corporate banking revenue. Excluding these items, other noninterest income of $86 million increased approximately $13 million, or 18 percent, from the first quarter of 2015 and increased approximately $3 million, or 4 percent, from the second quarter of 2014.

Net gains on investment securities were $4 million in the second quarter of 2015, compared with $4 million in the previous quarter and $8 million in the second quarter of 2014.

Noninterest Expense

 

     For the Three Months Ended      % Change  
     June
2015
     March
2015
     December
2014
     September
2014
     June
2014
     Seq     Yr/Yr  

Noninterest Expense ($ in millions)

                   

Salaries, wages and incentives

   $ 383       $ 369       $ 366       $ 357       $ 368         4     4

Employee benefits

     78        99        79        75        79        (21 %)      (1 %) 

Net occupancy expense

     83        79        77        78        79        5     5

Technology and communications

     54        55        54        53        52        (2 %)      4

Equipment expense

     31        31        30        30        30        —          3

Card and processing expense

     38        36        36        37        37        6     3

Other noninterest expense

     280        254        276        258        309        10     (9 %) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total noninterest expense

$ 947    $ 923    $ 918    $ 888    $ 954      3   (1 %) 

Noninterest expense of $947 million increased 3 percent compared with the first quarter of 2015 and decreased 1 percent compared with the second quarter of 2014. The sequential increase was primarily due to higher incentive-based compensation expenses, partially offset by a decrease in FICA and unemployment tax expense recorded in employee benefits. Additionally, the sequential comparison reflected the first quarter benefit from a settlement of a tax liability related to prior years recorded in other noninterest expense. The year-over-year decrease reflected lower charges to litigation reserves, partially offset by higher compensation expense.

 

9


Credit Quality

 

     For the Three Months Ended  
     June
2015
    March
2015
    December
2014
    September
2014
    June
2014
 

Total net losses charged-off ($ in millions)

          

Commercial and industrial loans

   ($ 34   ($ 38   ($ 44   ($ 50   ($ 31

Commercial mortgage loans

     (11     (1     (10     (5     (9

Commercial construction loans

     —         —         —         —         (8

Commercial leases

     —         —         (1     —         —    

Residential mortgage loans

     (5     (6     (94     (9     (8

Home equity

     (9     (14     (11     (14     (18

Automobile loans

     (4     (8     (7     (7     (5

Credit card

     (21     (21     (20     (23     (21

Other consumer loans and leases

     (2     (3     (4     (7     (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net losses charged-off

  (86   (91   (191   (115   (101

Total losses

  (112   (115   (215   (146   (127

Total recoveries

  26     24     24     31     26  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net losses charged-off

($ 86 ($ 91 ($ 191 ($ 115 ($ 101

Ratios (annualized)

Net losses charged-off as a percent of average loans and leases (excluding held for sale)

  0.37   0.41   0.83   0.50   0.45

Commercial

  0.32   0.29   0.40   0.40   0.35

Consumer

  0.46   0.59   1.47   0.66   0.60

Net charge-offs were $86 million, or 37 bps of average loans on an annualized basis, in the second quarter of 2015 compared with net charge-offs of $91 million, or 41 bps, in the first quarter of 2015 and $101 million, or 45 bps, in the second quarter of 2014.

Commercial net charge-offs were $45 million, or 32 bps, and were up $6 million sequentially. C&I net charge-offs of $34 million decreased $4 million from the previous quarter and commercial real estate net charge-offs increased $10 million from the previous quarter.

Consumer net charge-offs were $41 million, or 46 bps, down $11 million sequentially. Net charge-offs on residential mortgage loans in the portfolio were $5 million, down $1 million from the previous quarter. Home equity net charge-offs were $9 million, down $5 million from the first quarter of 2015, and net charge-offs in the auto portfolio of $4 million were down $4 million compared with the prior quarter. Net charge-offs on consumer credit card loans were $21 million, flat from the first quarter. Net charge-offs on other consumer loans were $2 million, down $1 million compared with the previous quarter.

 

10


     For the Three Months Ended  
     June
2015
    March
2015
    December
2014
    September
2014
    June
2014
 

Allowance for Credit Losses ($ in millions)

          

Allowance for loan and lease losses, beginning

   $ 1,300      $ 1,322      $ 1,414      $ 1,458      $ 1,483   

Total net losses charged-off

     (86     (91     (191     (115     (101

Provision for loan and lease losses

     79       69       99       71       76  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan and lease losses, ending

  1,293     1,300     1,322     1,414     1,458  

Reserve for unfunded commitments, beginning

  130     135     134     142     153  

Provision (benefit) for unfunded commitments

  2     (4   1     (8   (11

Charge-offs

  —       (1   —       —       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded commitments, ending

  132     130     135     134     142  

Components of allowance for credit losses:

Allowance for loan and lease losses

  1,293     1,300     1,322     1,414     1,458  

Reserve for unfunded commitments

  132     130     135     134     142  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

$ 1,425    $ 1,430    $ 1,457    $ 1,548    $ 1,600   

Allowance for loan and lease losses ratio

As a percent of portfolio loans and leases

  1.39   1.42   1.47   1.56   1.61

As a percent of nonperforming loans and leases(a)

  272   247   228   228   228

As a percent of nonperforming assets(a)

  206   188   178   178   175

 

(a) Excludes nonaccrual loans and leases in loans held for sale.

Provision for loan and lease losses totaled $79 million in the second quarter of 2015 and increased $10 million from the first quarter of 2015 and increased $3 million from the second quarter of 2014. The allowance for loan and lease losses declined $7 million sequentially reflecting the portfolio’s overall risk profile and charges to the allowance. The allowance represented 1.39 percent of total portfolio loans and leases outstanding as of quarter end, compared with 1.42 percent last quarter, and represented 272 percent of nonperforming loans and leases, and 206 percent of nonperforming assets.

 

11


     As of  
     June
2015
    March
2015
    December
2014
    September
2014
    June
2014
 

Nonperforming Assets and Delinquent Loans ($ in millions)

          

Nonaccrual portfolio loans and leases:

          

Commercial and industrial loans

   $ 61     $ 61     $ 86      $ 102     $ 103   

Commercial mortgage loans

     49       57        64        77        86   

Commercial construction loans

     —         —          —          2        3   

Commercial leases

     2       2        3        3        2   

Residential mortgage loans

     35       40        44        52        56   

Home equity

     70       71        72        69        73   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonaccrual portfolio loans and leases (excludes restructured loans)

$ 217   $ 231   $ 269    $ 305   $ 323   

Restructured loans—commercial (nonaccrual)(c)

  175     205      214      201      202   

Restructured loans—consumer (nonaccrual)

  83     90      96      114      115   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonaccrual portfolio loans and leases

$ 475   $ 526   $ 579    $ 620   $ 640   

Repossessed personal property

  16     20      18      19      18   

OREO(a)

  135     145      147      157      174   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonperforming assets(b)

$ 626   $ 691   $ 744    $ 796   $ 832   

Nonaccrual loans held for sale

  1     2      24      4      5   

Restructured loans—(nonaccrual) held for sale

  —       —        15      3      —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonperforming assets including loans held for sale

$ 627   $ 693   $ 783    $ 803   $ 837   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Restructured Consumer loans and leases (accrual)

$ 970   $ 943   $ 905    $ 1,610   $ 1,623   

Restructured Commercial loans and leases (accrual)(c)

$ 769   $ 774    $ 844    $ 885   $ 914   

Total loans and leases 90 days past due

$ 70   $ 78   $ 87    $ 87   $ 94   

Nonperforming loans and leases as a percent of portfolio loans, leases and other assets, including OREO(b)

  0.51   0.57 %   0.64   0.68 %   0.70 % 

Nonperforming assets as a percent of portfolio loans, leases and other assets, including OREO(b)

  0.67   0.76 %   0.82   0.88 %   0.92 % 

 

(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 June 30, 2015, March 31, 2015, December 31, 2014, September 30, 2014 and June 30, 2014.

Total nonperforming assets, including loans held-for-sale, were $627 million, a decline of $66 million, or 10 percent, from the previous quarter. Nonperforming loans (NPLs) at quarter-end were $475 million or 0.51 percent of total loans, leases and OREO, and decreased $51 million, or 10 percent, from the previous quarter.

Commercial NPAs were $376 million, or 0.66 percent of commercial loans, leases and OREO, and decreased $45 million, or 11 percent, from the first quarter. Commercial NPLs were $287 million, or 0.51 percent of commercial loans and leases, and decreased $38 million from last quarter. C&I NPAs of $193 million decreased $23 million from the prior quarter. Commercial mortgage NPAs were $166 million, down $20 million from the previous quarter. Commercial construction NPAs were $14 million, down $2 million from the previous quarter. Commercial lease NPAs were $3 million, flat from the previous quarter. Commercial NPAs included $175 million of nonaccrual troubled debt restructurings (TDRs), compared with $205 million last quarter.

 

12


Consumer NPAs of $250 million, or 0.69 percent of consumer loans, leases and OREO, decreased $20 million from the first quarter. Consumer NPLs were $188 million, or 0.52 percent of consumer loans and leases and decreased $13 million from last quarter. Residential mortgage NPAs were $101 million, $12 million lower than last quarter. Home equity NPAs of $106 million decreased $5 million sequentially and credit card NPAs of $36 million were down $2 million compared with the previous quarter. Consumer nonaccrual TDRs were $83 million in the second quarter of 2015, compared with $90 million in the first quarter of 2015.

Second quarter OREO balances included in NPA balances were $135 million, down $10 million from the first quarter, and included $78 million in commercial OREO and $57 million in consumer OREO. Repossessed personal property of $16 million decreased $4 million from the prior quarter.

Loans over 90 days past due and still accruing were $70 million, down $8 million from the first quarter of 2015. Commercial balances over 90 days past due were $2 million compared with $3 million in the prior quarter, and consumer balances 90 days past due of $68 million were down $7 million from the previous quarter. Loans 30-89 days past due of $213 million were up $10 million from the previous quarter. Commercial balances 30-89 days past due of $24 million were down $1 million sequentially and consumer balances 30-89 days past due of $189 million increased $11 million from the first quarter. The above delinquencies figures exclude nonaccruals described previously.

 

13


Capital Position

 

     For the Three Months Ended  
     June
2015
    March
2015
    December
2014
    September
2014
    June
2014
 

Capital Position

          

Average shareholders’ equity to average assets

     11.32     11.49     11.54     11.71     11.57

Tangible equity(a)

     9.28     9.37     9.41     9.65     9.77

Tangible common equity (excluding unrealized gains/losses)(a)

     8.33     8.40     8.43     8.64     8.74

Tangible common equity (including unrealized gains/losses)(a)

     8.51     8.77     8.71     8.84     9.00

Tangible common equity as a percent of risk-weighted assets (excluding unrealized gains/losses)

     9.38 %(b)      9.49 %(b)      9.70 %(d)      9.70 %(d)      9.67 %(d) 
     Basel III
Transitional(c)
    Basel I(d)  

Regulatory capital ratios:

          

CET1 capital

     9.41 %(b)      9.52 %(b)      N/A        N/A        N/A   

Tier I risk-based capital

     10.49 %(b)      10.62 %(b)      10.83     10.83     10.80

Total risk-based capital

     13.67 %(b)      14.01 %(b)      14.33     14.34     14.30

Tier I leverage

     9.44     9.59     9.66     9.82     9.86

Tier I common equity

     N/A        N/A        9.65 %(a)      9.64 %(a)      9.61 %(a) 

CET1 capital (fully-phased in)

     9.30 (a)(b)     9.41 (a)(b)     N/A        N/A        N/A   

Book value per share

     17.62       17.83       17.35       16.87       16.74  

Tangible book value per share(a)

     14.62       14.85       14.40       13.95       13.86  

 

(a) These ratios have been included herein to facilitate a greater understanding of the Bancorp’s capital structure and financial condition. See the Regulation G Non-GAAP Reconciliation table for a reconciliation of these ratios to U.S. GAAP.
(b) Under the banking agencies Basel III Final Rule, assets and credit equivalent amounts of off-balance sheet exposures are calculated based upon the standardized approach for risk-weighted assets. The resulting values are added together resulting in the Bancorp’s total risk-weighted assets.
(c) Current period regulatory capital ratios are estimated.
(d) These capital ratios were calculated under the Supervisory Agencies general risk-based capital rules (Basel I) which was in effect prior to January 1, 2015.

Capital ratios remained strong during the quarter, reflecting growth in retained earnings, the payment of preferred dividends, and share repurchase activity. The common equity Tier 1 ratio was 9.41 percent, the tangible common equity to tangible assets ratio* was 8.33 percent (excluding unrealized gains/losses), and 8.51 percent (including unrealized gains/losses). The Tier 1 risk-based capital ratio was 10.49 percent, the total risk-based capital ratio was 13.67 percent, and the Leverage ratio was 9.44 percent.

 

* Non-GAAP measure; see Reg. G reconciliation.

 

14


Book value per share at June 30, 2015 was $17.62 and tangible book value per share* was $14.62, compared with the March 31, 2015 book value per share of $17.83 and tangible book value per share* of $14.85.

As previously announced, Fifth Third entered into a share repurchase agreement with a counterparty on April 27, 2015, whereby Fifth Third would purchase approximately $155 million of its outstanding common stock. This transaction reduced Fifth Third’s second quarter share count by 6.7 million shares on April 30, 2015. Settlement of the forward contract related to this agreement is expected to occur on or before July 28, 2015. In addition, the settlement of the forward contract related to the January 22, 2015 $180 million share repurchase agreement occurred on April 23, 2015. An additional 1.1 million shares were repurchased upon completion of the agreement. In total, the incremental impact to the average diluted share count in the second quarter of 2015 was approximately 7.96 million shares due to share repurchase transactions in the second quarter and first quarter of 2015.

Tax Rate

The effective tax rate was 26.1 percent this quarter compared with 25.6 percent in the first quarter of 2015 and 27.6 percent in the second 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 $38.19 on June 30, 2015, our interest in Vantiv was valued at approximately $1.6 billion. Next month in our 10-Q, we will update our disclosure of the carrying value of our interest in Vantiv stock, which was $402 million as of March 31, 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 $500 million as of June 30, 2015.

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of June 30, 2015, the Company had $142 billion in assets and operated 15 affiliates with 1,299 full-service Banking Centers, including 101 Bank Mart® locations, most open seven days a week, inside select grocery stores and 2,630 ATMs in Ohio, Kentucky, Indiana,

 

* Non-GAAP measure; see Reg. G reconciliation.

 

15


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 June 30, 2015, had $304 billion in assets under care, of which it managed $27 billion for individuals, corporations and not-for-profit organizations. Investor information and press releases can be viewed at www.53.com. Fifth Third’s common stock is traded on the NASDAQ® Global Select Market under the symbol “FITB.”

FORWARD-LOOKING STATEMENTS

This document 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.

# # #

 

16


Fifth Third Bancorp and Subsidiaries

Consolidated Statements of Income

$ in millions

(unaudited)

 

     For the Three Months Ended      % Change     Year to Date      % Change  
     June
2015
    March
2015
     June
2014
     Seq     Yr/Yr     June
2015
    June
2014
     Yr/Yr  

Interest Income

                   

Interest and fees on loans and leases

   $ 782     $ 778      $ 826        1     (5 %)    $ 1,560     $ 1,649        (5 %) 

Interest on securities

     219       188        181        16     21     407       349        17

Interest on other short-term investments

     2       4        1        (50 %)      100     6       3        100
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total interest income

  1,003     970     1,008     3   —        1,973     2,001     (1 %) 

Interest Expense

Interest on deposits

  46     50     49     (8 %)    (6 %)    96     96     —     

Interest on other short-term borrowings

  1     —       1     —        —        1     1     —     

Interest on long-term debt

  69     73     58     (5 %)    19   142     111     28
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total interest expense

  116     123     108     (6 %)    7   239     208     15
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net Interest Income

  887     847     900     5   (1 %)    1,734     1,793     (3 %) 

Provision for loan and lease losses

  79     69     76     14   4   148     146     1
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net interest income after provision for loan and lease losses

  808     778     824     4   (2 %)    1,586     1,647     (4 %) 

Noninterest Income

Service charges on deposits

  139     135     139     3   —        274     272     1

Corporate banking revenue

  113     63     107     79   6   176     211     (17 %) 

Mortgage banking net revenue

  117     86     78     36   50   203     187     9

Investment advisory revenue

  105     108     102     (3 %)    3   212     204     4

Card and processing revenue

  77     71     76     8   1   148     144     3

Other noninterest income

  1     163     226     (99 %)    (100 %)    165     268     (38 %) 

Securities gains, net

  4     4     8     —        (50 %)    9     14     (36 %) 
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total noninterest income

  556     630     736     (12 %)    (24 %)    1,187     1,300     (9 %) 

Noninterest Expense

Salaries, wages and incentives

  383     369     368     4   4   752     727     3

Employee benefits

  78     99     79     (21 %)    (1 %)    176     180     (2 %) 

Net occupancy expense

  83     79     79     5   5   162     158     3

Technology and communications

  54     55     52     (2 %)    4   109     105     4

Equipment expense

  31     31     30     —        3   61     60     2

Card and processing expense

  38     36     37     6   3   74     68     9

Other noninterest expense

  280     254     309     10   (9 %)    537     605     (11 %) 
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total noninterest expense

  947     923     954     3   (1 %)    1,871     1,903     (2 %) 

Income before income taxes

  417     485     606     (14 %)    (31 %)    902     1,044     (14 %) 

Applicable income tax expense

  108     124     167     (13 %)    (35 %)    232     287     (19 %) 
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income

  309     361     439     (14 %)    (30 %)    670     757     (11 %) 

Less: Net income attributable to noncontrolling interests

  (6   —       —       (100 %)    (100 %)    (6   1     NM   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income attributable to Bancorp

  315     361     439     (13 %)    (28 %)    676     756     (11 %) 

Dividends on preferred stock

  23     15     23     53   —        38     32     19
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income available to common shareholders

$ 292   $ 346   $ 416     (16 %)    (30 %)  $ 638   $ 724     (12 %) 
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

17


Fifth Third Bancorp and Subsidiaries

Consolidated Balance Sheets

$ in millions, except per share data

(unaudited)

 

     As of     % Change  
     June
2015
    March
2015
    June
2014
    Seq     Yr/Yr  

Assets

          

Cash and due from banks

   $ 2,785     $ 2,920     $ 3,312       (5 %)      (16 %) 

Available-for-sale and other securities(a)

     27,987       26,409       22,814       6     23

Held-to-maturity securities(b)

     157       177       194       (11 %)      (19 %) 

Trading securities

     370       392       361       (6 %)      2

Other short-term investments

     3,451       4,919       2,386       (30 %)      45

Loans held for sale

     995       724       682       37     46

Portfolio loans and leases:

          

Commercial and industrial loans

     42,800       42,052       41,299       2     4

Commercial mortgage loans

     7,150       7,209       7,805       (1 %)      (8 %) 

Commercial construction loans

     2,709       2,302       1,424       18     90

Commercial leases

     3,881       3,786       3,567       3     9

Residential mortgage loans

     12,933       12,569       12,652       3     2

Home equity

     8,547       8,714       9,056       (2 %)      (6 %) 

Automobile loans

     11,909       11,873       12,050       —          (1 %) 

Credit card

     2,278       2,291       2,261       (1 %)      1

Other consumer loans and leases

     496       448       370       11     34
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans and leases

  92,703     91,244     90,484     2   2

Allowance for loan and lease losses

  (1,293   (1,300   (1,458   (1 %)    (11 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans and leases, net

  91,410     89,944     89,026     2   3

Bank premises and equipment

  2,298     2,433     2,491     (6 %)    (8 %) 

Operating lease equipment

  670     695     667     (4 %)    —     

Goodwill

  2,416     2,416     2,416     —        —     

Intangible assets

  13     14     17     (7 %)    (24 %) 

Servicing rights

  854     789     931     8   (8 %) 

Other assets

  8,252     8,638     7,265     (4 %)    14
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

$ 141,658   $ 140,470   $ 132,562     1   7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

Deposits:

Demand

$ 35,449   $ 35,343   $ 32,140     —        10

Interest checking

  27,074     27,191     24,744     —        9

Savings

  14,976     15,355     16,087     (2 %)    (7 %) 

Money market

  17,900     18,105     14,216     (1 %)    26

Foreign office

  728     811     1,418     (10 %)    (49 %) 

Other time

  4,050     4,044     3,724     —        9

Certificates—$100,000 and over

  2,846     2,566     3,623     11   (21 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total deposits

  103,023     103,415     95,952     —        7

Federal funds purchased

  126     200     153     (37 %)    (18 %) 

Other short-term borrowings

  4,136     1,413     3,146     NM      31

Accrued taxes, interest and expenses

  1,858     1,979     1,824     (6 %)    2

Other liabilities

  3,356     3,504     2,018     (4 %)    66

Long-term debt

  13,521     14,055     13,961     (4 %)    (3 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

  126,020     124,566     117,054     1   8

Equity

Common stock(c)

  2,051     2,051     2,051     —        —     

Preferred stock

  1,331     1,331     1,331     —        —     

Capital surplus

  2,632     2,659     2,613     (1 %)    1

Retained earnings

  11,564     11,380     10,666     2   8

Accumulated other comprehensive income

  291     588     382     (51 %)    (24 %) 

Treasury stock

  (2,264   (2,145   (1,574   6   44
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Bancorp shareholders’ equity

  15,605     15,864     15,469     (2 %)    1

Noncontrolling interests

  33     40     39     (18 %)    (15 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

  15,638     15,904     15,508     (2 %)    1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

$ 141,658   $ 140,470   $ 132,562     1   7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(a) Amortized cost

$ 27,483   $ 25,475   $ 22,184     8   24

(b) Market values

  157     177     194     (11 %)    (19 %) 

(c) Common shares, stated value $2.22 per share (in thousands):

Authorized

  2,000,000     2,000,000     2,000,000     —        —     

Outstanding, excluding treasury

  810,054     815,190     844,489     (1 %)    (4 %) 

Treasury

  113,838     108,702     79,404     5   43

 

18


Fifth Third Bancorp and Subsidiaries

Consolidated Statements of Changes in Equity

$ in millions

(unaudited)

 

     For the Three Months Ended     Year to Date  
     June
2015
    June
2014
    June
2015
    June
2014
 

Total equity, beginning

   $ 15,904      $ 14,864      $ 15,665      $ 14,626   

Net income attributable to Bancorp

     315       439       676       756  

Other comprehensive income, net of tax:

        

Change in unrealized gains and (losses):

        

Available-for-sale securities

     (281     178       (148     288  

Qualifying cash flow hedges

     (18     7       6       10  

Change in accumulated other comprehensive income related to employee benefit plans

     2       1       4       2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  18     625     538     1,056  

Cash dividends declared:

Common stock

  (105   (110   (211   (211

Preferred stock

  (23   (23   (38   (32

Impact of stock transactions under stock compensation plans, net

  6     4     26     19  

Shares acquired for treasury

  (155   (150   (335   (249

Issuance of preferred stock

  —       297     —       297  

Noncontrolling interest

  (7   1     (6   1  

Other

  —        —       (1   1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total equity, ending

$ 15,638    $ 15,508    $ 15,638    $ 15,508   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

19


Fifth Third Bancorp and Subsidiaries

Regulatory Capital(a)

$ in millions

(unaudited)

 

     Basel III
Transitional
    Basel I(c)  
     As of  
     June
2015
    March
2015
    December
2014
    September
2014
    June
2014
 

Tier I capital:

          

Common stock and related surplus (net of treasury stock)

   $ 2,419      $ 2,565        N/A        N/A        N/A   

Retained earnings

     11,564       11,380       N/A        N/A        N/A   

Common equity tier I capital adjustments and deductions

     (2,401     (2,402     N/A        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CET1 capital

  11,582     11,543     N/A      N/A      N/A   

Additional tier I capital

  1,340     1,339     N/A      N/A      N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tier I capital

  12,922     12,882   $ 12,764    $ 12,661    $ 12,644   

Tier II capital

  3,909     4,112     4,131     4,103     4,101  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total risk-based capital

$ 16,831    $ 16,994    $ 16,895    $ 16,764    $ 16,745   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Risk-weighted assets

$ 123,134 (b)  $ 121,310 (b)  $ 117,878    $ 116,917    $ 117,117   

Ratios:

Average shareholders’ equity to average assets

  11.32   11.49   11.54   11.71   11.57

Regulatory capital:

     Basel III
Transitional
    Basel I(c)  

Fifth Third Bancorp

          

CET1 capital

     9.41 %(b)      9.52 %(b)      N/A        N/A        N/A   

Tier I risk-based capital

     10.49 %(b)      10.62 %(b)      10.83     10.83     10.80

Total risk-based capital

     13.67 %(b)      14.01 %(b)      14.33     14.34     14.30

Tier I leverage

     9.44     9.59     9.66     9.82     9.86

Tier I common equity

     N/A        N/A        9.65 %(d)      9.64 %(d)      9.61 %(d) 

CET1 capital (fully phased-in)

     9.30 %(b)(d)      9.41 %(b)(d)      N/A        N/A        N/A   

Fifth Third Bank

          

Tier I risk-based capital

     11.26 %(b)      11.36 %(b)      11.85     11.87     11.79

Total risk-based capital

     12.46 %(b)      12.58 %(b)      13.10     13.12     13.04

Tier I leverage

     10.15     10.30     10.58     10.77     10.77

 

(a) Current period regulatory capital data and ratios are estimated.
(b) 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 weighted values are added together resulting in the total risk-weighted assets.
(c) These capital amounts and ratios were calculated under the Supervisory Agencies general risk-based capital rules (Basel I) which were in effect prior to January 1, 2015.
(d) This ratio has been included herein to facilitate a greater understanding of the Bancorp’s capital structure and financial condition. Non-GAAP measure; see Reg. G reconciliation.

 

20


Fifth Third Bancorp and Subsidiaries

Regulation G Non-GAAP Reconciliation

$ and shares in millions

(unaudited)

 

     For the Three Months Ended  
     June
2015
    March
2015
    December
2014
    September
2014
    June
2014
 

Income before income taxes (U.S. GAAP)

   $ 417      $ 485      $ 519      $ 464      $ 606   

Add: Provision expense (U.S. GAAP)

     79       69       99       71       76  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-provision net revenue

  496       554       618     535     682  

Net income available to common shareholders (U.S. GAAP)

  292     346     362     328     416  

Add: Intangible amortization, net of tax

  —       —       1     1     1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tangible net income available to common shareholders

  292     346     363     329     417  

Tangible net income available to common shareholders (annualized) (a)

  1,171     1,403     1,440     1,305     1,673  

Average Bancorp shareholders’ equity (U.S. GAAP)

  15,841     15,820     15,644     15,486     15,157  

Less: Average preferred stock

  (1,331   (1,331   (1,331   (1,331   (1,119

Average goodwill

  (2,416   (2,416   (2,416   (2,416   (2,416

Average intangible assets and other servicing rights

  (15   (15   (17   (16   (17
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average tangible common equity (b)

  12,079     12,058     11,880     11,723     11,605  

Total Bancorp shareholders’ equity (U.S. GAAP)

  15,605     15,864     15,626     15,404     15,469  

Less: Preferred stock

  (1,331   (1,331   (1,331   (1,331   (1,331

Goodwill

  (2,416   (2,416   (2,416   (2,416   (2,416

Intangible assets and other servicing rights

  (14   (15   (16   (16   (17
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tangible common equity, including unrealized gains / losses (c)

  11,844     12,102     11,863     11,641     11,705  

Less: Accumulated other comprehensive income

  (291   (588   (429   (301   (382
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tangible common equity, excluding unrealized gains / losses (d)

  11,553     11,514     11,434     11,340     11,323  

Add: Preferred stock

  1,331     1,331     1,331     1,331     1,331  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tangible equity (e)

  12,884     12,845     12,765     12,671     12,654  

Total assets (U.S. GAAP)

  141,658     140,470     138,706     134,188     132,562  

Less: Goodwill

  (2,416   (2,416   (2,416   (2,416   (2,416

Intangible assets and other servicing rights

  (14   (15   (16   (16   (17
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tangible assets, including unrealized gains / losses (f)

  139,228     138,039     136,274     131,756     130,129  

Less: Accumulated other comprehensive income / loss, before tax

  (448   (905   (660   (463   (588
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tangible assets, excluding unrealized gains / losses (g)

$ 138,780    $ 137,134      135,614     131,293     129,541  

Total Bancorp shareholders’ equity (U.S. GAAP)

  N/A      N/A      15,626     15,404     15,469  

Less: Goodwill and certain other intangibles

  N/A      N/A      (2,476   (2,484   (2,484

Unrealized gains

  N/A      N/A      (429   (301   (382

Qualifying trust preferred securities

  N/A      N/A      60     60     60  

Other

  N/A      N/A      (17   (18   (19
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tier I capital

  N/A      N/A      12,764     12,661     12,644  

Less: Preferred stock

  N/A      N/A      (1,331   (1,331   (1,331

Qualifying trust preferred securities

  N/A      N/A      (60   (60   (60

Qualifying noncontrolling interests in consolidated subsidiaries

  N/A      N/A      (1   (1   (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tier I common equity (h)

  N/A (2)    N/A (2)  $ 11,372    $ 11,269    $ 11,252   

Common shares outstanding (i)

  810     815     824     834     844  
     Basel III
Transitional
    Basel I  

Risk-weighted assets (actual) (j) (1)

     123,134         121,310         117,878       116,917       117,117  

Ratios:

          

Return on average tangible common equity (a) / (b)

     9.7     11.7     12.1     11.1     14.4

Tangible equity (e) / (g)

     9.28     9.37     9.41     9.65     9.77

Tangible common equity (excluding unrealized gains/losses) (d) / (g)

     8.33     8.40     8.43     8.64     8.74

Tangible common equity (including unrealized gains/losses) (c) / (f)

     8.51     8.77     8.71     8.84     9.00

Tangible common equity as a percent of risk-weighted assets

          

(excluding unrealized gains/losses) (d) / (j)

     9.38     9.49     9.70     9.70     9.67

Tangible book value per share (c) / (i)

   $ 14.62     $ 14.85     $ 14.40     $ 13.95     $ 13.86  

Tier I common equity (h) / (j)

     N/A (2)      N/A (2)      9.65     9.64     9.61

Basel III Final Rule—Transition to fully phased-in

          
     June
2015
    March
2015
    December
2014
    September
2014
    June
2014
 

CET1 capital (transitional)

   $ 11,582      $ 11,543        N/A        N/A        N/A   

Less: Adjustments to CET1 capital from transitional to fully phased-in (3)

     (12     (13     N/A        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CET1 capital (fully phased-in) (k)

  11,570     11,530     N/A      N/A      N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Risk-weighted assets (transitional)

  123,134     121,310     N/A      N/A      N/A   

Add: Adjustments to risk-weighted assets from transitional to fully phased-in (4)

  1,280     1,182     N/A      N/A      N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Risk-weighted assets (fully phased-in) (l)

$ 124,414    $ 122,492      N/A      N/A      N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Estimated CET1 capital ratio under Basel III Final Rule (fully phased-in) (k)/(l)

  9.30   9.41   N/A      N/A      N/A   

 

(1) Under the banking agencies’ risk-based capital guidelines, assets and credit equivalent amounts of derivatives and off-balance sheet exposures are assigned to broad risk categories. The aggregate dollar amount in each risk category is multiplied by the associated risk-weight of the category. The resulting weighted values are added together, along with the measure for market risk, resulting in the Bancorp’s total risk-weighted assets.
(2) The Bancorp became subject to the Basel III Final Rule on January 1, 2015. This codified in the federal banking regulations the risk-based capital ratios the Bancorp is now subject to, as such these ratios are no longer considered Non-GAAP measures.
(3) Primarily relates to disallowed intangible assets (other than goodwill and MSRs, net of associated deferred tax liabilities).
(4) Primarily relates to higher risk-weighting for MSRs.

 

21


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

FIFTH THIRD BANCORP
(Registrant)
July 22, 2015 /s/ Tayfun Tuzun
Tayfun Tuzun
Executive Vice President and Chief Financial Officer

 

22