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Fifth Third Announces Fourth Quarter 2017 Net Income to Common Shareholders of $486 Million, or $0.67 Per Diluted Share

CINCINNATI--(BUSINESS WIRE)--

Fifth Third Bancorp (FITB) today reported full year 2017 net income of $2.2 billion, up 41 percent from net income of $1.6 billion in 2016. After preferred dividends, 2017 net income available to common shareholders was $2.1 billion, or $2.83 per diluted share, compared with 2016 net income available to common shareholders of $1.5 billion, or $1.93 per diluted share. Results were significantly impacted by Vantiv-related transactions throughout 2016 and 2017 and items resulting from the Tax Cuts and Jobs Act in 2017.

Fourth quarter 2017 net income was $509 million, a decrease of 50 percent from net income of $1.014 billion in the third quarter of 2017 and an increase of 29 percent from net income of $395 million in the fourth quarter of 2016. After preferred dividends, net income available to common shareholders was $486 million, or $0.67 per diluted share, in the fourth quarter 2017, compared with $999 million, or $1.35 per diluted share, in the third quarter of 2017, and $372 million, or $0.49 per diluted share, in the fourth quarter of 2016. Results were significantly impacted by a Vantiv-related transaction in the third quarter of 2017 and items resulting from the Tax Cuts and Jobs Act in the fourth quarter of 2017.

“Our strong fourth quarter and full year 2017 results reflect continued progress toward achieving our long term financial goals. Our business strategies are well aligned with the interests of our shareholders, our customers, our employees, and the communities we serve. Our balance sheet remains strong and positions us well for growth in 2018,” said Greg D. Carmichael, President and CEO of Fifth Third Bancorp.

“The investments that we have made following the passage of the new tax law demonstrate our commitment to improving the lives of our employees and our communities. In addition to the immediate positive impact of lower corporate taxes on our company’s results, we are optimistic that the new tax law will help to reinvigorate the economy and support further growth in our businesses.”

“Underlying quarterly performance showed continued NIM expansion, disciplined expense management, and another quarter of strong credit metrics. As we discussed at our recent Investor Day, we have continued to generate positive momentum over the past year. We remain focused on driving improved shareholder returns in 2018 and beyond as we execute on our strategic initiatives under Project North Star.”

               
Earnings Highlights
                                         
For the Three Months Ended     % Change
December September June March December
2017     2017     2017     2017     2016     Seq   Yr/Yr
Income Statement Data ($ in millions)
Net income attributable to Bancorp $509 $1,014 $367 $305 $395 (50%) 29%
Net income available to common shareholders $486 $999 $344 $290 $372 (51%) 31%
 
Earnings Per Share Data
Average common shares outstanding
(in thousands):
Basic 703,372 721,280 741,401 747,668 746,367 (2%) (6%)
Diluted 716,908 733,285 752,328 760,809 757,704 (2%) (5%)
Earnings per share, basic $0.68 $1.37 $0.46 $0.38 $0.49 (50%) 39%
Earnings per share, diluted 0.67 1.35 0.45 0.38 0.49 (50%) 37%
 
Common Share Data
Cash dividends per common share $0.16 $0.16 $0.14 $0.14 $0.14 - 14%
Book value per share 21.67 21.30 20.42 20.13 19.82 2% 9%
Tangible book value per share(d) 18.10 17.86 17.11 16.89 16.60 1% 9%
Common shares outstanding (in thousands) 693,805 705,474 738,873 750,145 750,479 (2%) (8%)
 
Financial Ratios bps Change
Return on average assets 1.43 % 2.85 % 1.05 % 0.88 % 1.11 % (142) 32
Return on average common equity 12.7 25.6 9.0 7.8 9.7 (1290) 300
Return on average tangible common equity(d) 15.2 30.4 10.7 9.3 11.6 (1520) 360
CET1 capital(e) 10.61 10.59 10.63 10.76 10.39 2 22
Tier I risk-based capital(e) 11.74 11.72 11.76 11.90 11.50 2 24
Net interest margin (taxable equivalent)(d) 3.02 3.07 3.01 3.02 2.86 (5) 16
Efficiency (taxable equivalent)(d)     69.7     38.4     63.4     67.4     62.8     3130   690
 
                               
Net Interest Income
                                               
(Taxable equivalent basis; $ in millions)(d) For the Three Months Ended   % Change
December September June March December
2017   2017   2017   2017   2016   Seq   Yr/Yr
Interest Income
Total interest income $1,151 $1,159 $1,112 $1,092 $1,058 (1%) 9%
Total interest expense                     188   182   167   153   149   3%   26%
Net interest income                     $963   $977   $945   $939   $909   (1%)   6%
 
Average Yield bps Change
Yield on interest-earning assets 3.61% 3.64% 3.54% 3.51% 3.33% (3)   28
Adjusted yield on interest-earning assets 3.69% 3.64% 3.54% 3.51% 3.33% 5 36
Rate paid on interest-bearing liabilities 0.88% 0.85% 0.79% 0.73% 0.70% 3 18
 
Ratios
Net interest rate spread 2.73% 2.79% 2.75% 2.78% 2.63% (6) 10
Net interest margin 3.02% 3.07% 3.01% 3.02% 2.86% (5) 16
Adjusted net interest margin 3.10% 3.07% 3.01% 2.98% 2.91% 3 19
 
Average Balances % Change
Loans and leases, including held for sale $92,865 $92,617 $92,653 $92,791 $93,981 - (1%)
Total securities and other short-term investments 33,756 33,826 33,481 33,177 32,567 - 4%
Total interest-earning assets 126,621 126,443 126,134 125,968 126,548 - -
Total interest-bearing liabilities 84,820 85,328 85,320 84,890 84,552 (1%) -
Bancorp shareholders' equity                     16,493   16,820   16,615   16,429   16,545   (2%)   -
 
                               
Income Statement Highlights
                                                 
($ in millions, except per-share data) For the Three Months Ended     % Change
December September June March December
2017   2017   2017   2017   2016   Seq   Yr/Yr
Condensed Statements of Income
Net interest income (taxable equivalent)(d) $963 $977 $945 $939 $909 (1%) 6%
Provision for loan and lease losses 67 67 52 74 54 - 24%
Total noninterest income 577 1,561 564 523 620 (63%) (7%)
Total noninterest expense             1,073   975   957   986   960   10%   12%
Income before income taxes (taxable equivalent)(d)             $400   $1,496   $500   $402   $515   (73%)   (22%)
 
Taxable equivalent adjustment 7 7 6 6 6 - 17%
Applicable income tax (benefit) expense             (116)   475   127   91   114   NM   NM
Net income $509 $1,014 $367 $305 $395 (50%) 29%
Less: Net income attributable to noncontrolling interests             -   -   -   -   -   NM   NM
Net income attributable to Bancorp $509 $1,014 $367 $305 $395 (50%) 29%
Dividends on preferred stock             23   15   23   15   23   53%   -
Net income available to common shareholders             $486   $999   $344   $290   $372   (51%)   31%
Earnings per share, diluted             $0.67   $1.35   $0.45   $0.38   $0.49   (50%)   37%
 

Taxable equivalent net interest income of $963 million in the fourth quarter of 2017 was down $14 million, or 1 percent from the prior quarter, primarily due to the $27 million impact from the leveraged lease remeasurement described on page 1. Excluding the remeasurement, taxable equivalent net interest income of $990 million in the fourth quarter of 2017 was up $13 million, or 1 percent from the prior quarter, reflecting higher interest earning asset yields as well as the continued shift into higher yielding consumer loans. The taxable equivalent net interest margin of 3.02 percent was negatively impacted 8 bps from the aforementioned remeasurement. The adjusted taxable equivalent net interest margin was 3.10 percent, up 3 bps sequentially, primarily driven by higher securities portfolio and consumer loan yields, partially offset by an increase in funding costs associated with deposit rate changes and the full quarter impact of an auto securitization executed in third quarter of 2017.

Compared to the fourth quarter of 2016, taxable equivalent net interest income was up $54 million, or 6 percent, primarily driven by higher short-term market rates and the $16 million estimated card refund charge during the fourth quarter of 2016, partially offset by the aforementioned leveraged lease remeasurement. Excluding the leveraged lease remeasurement and the estimated card refund charge, adjusted taxable equivalent net interest income was up 7 percent. The year-over-year increase was primarily driven by higher short-term market rates. The taxable equivalent net interest margin increased 16 bps from the fourth quarter of 2016, primarily driven by higher short-term market rates and a 5 bps positive impact from the estimated card refund charge, partially offset by a negative 8 bps impact from the leveraged lease remeasurement. Excluding the remeasurement and card refunds impact, adjusted taxable equivalent net interest margin was up 19 bps from the fourth quarter of 2016. The year-over-year increase was primarily driven by higher-short-term market rates.

Securities

Average securities and other short-term investments were $33.8 billion in the fourth quarter of 2017 compared to $33.8 billion in the previous quarter and $32.6 billion in the fourth quarter of 2016. Available-for-sale securities were $31.8 billion in the fourth quarter of 2017 up $340 million, or 1 percent, sequentially and up $637 million, or 2 percent, from the fourth quarter of 2016.

                 
Loans
                                         
($ in millions) For the Three Months Ended     % Change
December September June March December
2017   2017   2017   2017   2016     Seq   Yr/Yr
Average Portfolio Loans and Leases
Commercial loans and leases:
Commercial and industrial loans $41,438 $41,302 $41,601 $41,854 $42,548 - (3%)
Commercial mortgage loans 6,751 6,807 6,845 6,941 6,957 (1%) (3%)
Commercial construction loans 4,660 4,533 4,306 3,987 3,890 3% 20%
Commercial leases     4,016     4,072     4,036     3,901     3,921     (1%)   2%
Total commercial loans and leases     $56,865     $56,714     $56,788     $56,683     $57,316     -   (1%)
Consumer loans and leases:
Residential mortgage loans $15,590 $15,523 $15,417 $15,200 $14,854 - 5%
Home equity 7,066 7,207 7,385 7,581 7,779 (2%) (9%)
Automobile loans 9,175 9,267 9,410 9,786 10,162 (1%) (10%)
Credit card 2,202 2,140 2,080 2,141 2,180 3% 1%
Other consumer loans and leases     1,352     1,055     892     755     673     28%   NM
Total consumer loans and leases     $35,385     $35,192     $35,184     $35,463     $35,648     1%   (1%)
Total average portfolio loans and leases $92,250 $91,906 $91,972 $92,146 $92,964 - (1%)
 
Average loans held for sale     $615     $711     $681     $645     $1,017     (14%)   (40%)
 

Average portfolio loan and lease balances were flat sequentially and decreased 1 percent from the fourth quarter of 2016. Sequential performance was primarily driven by increases in commercial real estate and other consumer loans and leases, offset by decreases in home equity and automobile loans. The year-over-year decrease was primarily driven by declines in commercial and industrial (C&I) and automobile loans, partially offset by increases in commercial real estate and other consumer loans and leases. Period end portfolio loans and leases of $92.0 billion were flat sequentially and year-over-year.

Average commercial portfolio loan and lease balances were flat sequentially, and decreased 1 percent from the fourth quarter of 2016. Sequential performance was primarily driven by an increase in commercial real estate loans, offset by a decrease in commercial leases. Average C&I loans were flat sequentially and decreased 3 percent from the fourth quarter of 2016. The year-over-year decline in C&I loans was primarily due to deliberate exits from certain C&I loans that did not meet our targeted risk or return profile. Average commercial real estate loans increased $71 million, or 1 percent, from the prior quarter and increased $564 million, or 5 percent, from the fourth quarter of 2016. Period end commercial line utilization of 34 percent was flat from both the third quarter of 2017 and the fourth quarter of 2016.

Average consumer portfolio loan and lease balances were up 1 percent sequentially and decreased 1 percent from the fourth quarter of 2016. The sequential increase was primarily driven by the increase in other consumer loans and leases, partially offset by a decline in average home equity loans. The year-over-year decrease was primarily driven by the decline in average automobile loans which continues to reflect a decision to reduce lower-return originations to improve returns on capital.

               
Deposits
                                         
($ in millions) For the Three Months Ended     % Change
December September June March December
2017   2017   2017   2017   2016   Seq   Yr/Yr
Average Deposits
Demand $35,519 $34,850 $34,915 $35,084 $36,412 2% (2%)
Interest checking 26,992 25,765 26,014 26,760 25,644 5% 5%
Savings 13,593 13,889 14,238 14,117 13,979 (2%) (3%)
Money market 20,023 20,028 20,278 20,603 20,476 - (2%)
Foreign office(f)     323     395     380     454     497     (18%)   (35%)
Total transaction deposits $96,450 $94,927 $95,825 $97,018 $97,008 2% (1%)
Other time     3,792     3,722     3,745     3,827     3,941     2%   (4%)
Total core deposits $100,242 $98,649 $99,570 $100,845 $100,949 2% (1%)
Certificates - $100,000 and over 2,429 2,625 2,623 2,579 2,539 (7%) (4%)
Other     119     560     264     162     115     (79%)   3%
Total average deposits     $102,790     $101,834     $102,457     $103,586     $103,603     1%   (1%)
 

Average core deposits increased 2 percent sequentially and decreased 1 percent from the fourth quarter of 2016. Average transaction deposits increased 2 percent sequentially and decreased 1 percent from the fourth quarter of 2016. The sequential increase was primarily driven by increases in commercial interest checking deposit and commercial demand deposit account balances, partially offset by lower consumer savings and commercial money market account balances. Year-over-year performance was primarily driven by lower commercial money market and commercial demand deposit account balances, largely offset by higher consumer money market and commercial interest checking deposit account balances. Other time deposits increased by 2 percent sequentially and decreased 4 percent year-over-year.

Average total commercial transaction deposits of $43 billion increased 4 percent sequentially and decreased 4 percent from the fourth quarter of 2016. Average total consumer transaction deposits of $53 billion were flat sequentially and increased 3 percent from the fourth quarter of 2016.

               
Wholesale Funding
                                         
($ in millions) For the Three Months Ended     % Change
December September June March December
2017   2017   2017   2017   2016   Seq   Yr/Yr
Average Wholesale Funding
Certificates - $100,000 and over $2,429 $2,625 $2,623 $2,579 $2,539 (7%) (4%)
Other deposits 119 560 264 162 115 (79%) 3%
Federal funds purchased 602 675 311 639 280 (11%) NM
Other short-term borrowings 2,316 4,212 4,194 1,893 1,908 (45%) 21%
Long-term debt     14,631     13,457     13,273     13,856     15,173     9%   (4%)
Total average wholesale funding     $20,097     $21,529     $20,665     $19,129     $20,015     (7%)   -
 

Average wholesale funding of $20.1 billion decreased $1.4 billion, or 7 percent, sequentially and was flat compared with the fourth quarter of 2016. The sequential decline was primarily due to a decrease in other short-term borrowings reflecting higher core deposit balances, partially offset by an increase in long-term debt from 3-year bank debt issued in October of 2017. The year-over-year results reflect an increase in other short-term borrowings, largely offset by a decrease in long-term debt.

               
Noninterest Income
                               
($ in millions) For the Three Months Ended   % Change
December September June March December
2017   2017   2017   2017   2016   Seq   Yr/Yr
Noninterest Income
Service charges on deposits $138 $138 $139 $138 $141 - (2%)
Corporate banking revenue 77 101 101 74 101 (24%) (24%)
Mortgage banking net revenue 54 63 55 52 65 (14%) (17%)
Wealth and asset management revenue 106 102 103 108 100 4% 6%
Card and processing revenue 80 79 79 74 79 1% 1%
Other noninterest income 123 1,076 85 77 137 (89%) (10%)
Securities gains (losses), net 1 - - - (3) NM NM
Securities gains (losses), net - non-qualifying
hedges on mortgage servicing rights     (2)   2   2   -   -   NM   NM
Total noninterest income     $577   $1,561   $564   $523   $620   (63%)   (7%)
 

Noninterest income of $577 million decreased $984 million sequentially and decreased $43 million compared with prior year results. The sequential and year-over-year comparisons reflect the impact of the following items.

 
Noninterest Income excluding certain items
                             
($ in millions)     For the Three Months Ended     % Change
December   September     December      
2017   2017     2016     Seq   Yr/Yr
Noninterest Income excluding certain items
Noninterest income (U.S. GAAP) $577 $1,561 $620
Valuation of Visa total return swap 11 47 (6)
Gain on sale of Vantiv shares - (1,037) -
Vantiv warrant valuation - - (9)
Securities (gains) / losses (1)     -     3          
Noninterest income excluding certain items(d)     $587     $571     $608     3%   (3%)
 

Excluding the items in the table above, noninterest income of $587 million was up 3 percent from the previous quarter and decreased 3 percent from the fourth quarter of 2016. The sequential increase was primarily due to $44 million in revenue recognized from Vantiv related to the tax receivable agreement in the fourth quarter of 2017, and an increase in wealth and asset management revenue. This was partially offset by declines in corporate banking and mortgage banking revenue. Corporate banking revenue was negatively impacted by a $25 million lease remarketing impairment in the fourth quarter of 2017. The year-over-year decrease was driven by lower corporate banking and mortgage banking revenue.

Corporate banking revenue of $77 million was down 24 percent both sequentially and year-over-year. The sequential and year-over-year decreases were primarily driven by the aforementioned lease remarketing impairment. Excluding the impact of the lease impairment, corporate banking revenue was flat sequentially and year-over-year.

               
Mortgage Banking Net Revenue
                               
($ in millions) For the Three Months Ended   % Change
December September June March December
2017   2017   2017   2017   2016   Seq   Yr/Yr
Mortgage Banking Net Revenue
Origination fees and gains on loan sales $32 $40 $37 $29 $30 (20%) 7%
Net mortgage servicing revenue:
Gross mortgage servicing fees 54 56 49 47 48 (4%) 13%
MSR amortization - - - - (35) NM NM
Net valuation adjustments on MSRs and (32) (33) (31) (24) 22 (3%) NM
free-standing derivatives purchased to
economically hedge MSRs                              
Net mortgage servicing revenue     22   23   18   23   35   (4%)   (37%)
Total mortgage banking net revenue     $54   $63   $55   $52   $65   (14%)   (17%)
 

Mortgage banking net revenue was $54 million in the fourth quarter of 2017, down $9 million from the third quarter of 2017 and down $11 million from the fourth quarter of 2016. The sequential decrease was driven by lower origination fees and gains on loan sales. The year-over-year decrease was driven by a reduction in net valuation adjustments (including MSR amortization) of $19 million. Originations of $1.9 billion in the current quarter decreased 10 percent sequentially and decreased 30 percent from the fourth quarter of 2016.

Wealth and asset management revenue of $106 million increased 4 percent from the third quarter of 2017 and increased 6 percent from the fourth quarter of 2016. The sequential and year-over-year increase was primarily driven by higher personal asset management revenue.

Card and processing revenue of $80 million in the fourth quarter of 2017 was up 1 percent both sequentially and year-over-year. The sequential and year-over-year performance reflected increased credit card spend volume, largely offset by higher rewards.

Other noninterest income totaled $123 million in the fourth quarter of 2017, compared with $1.076 billion in the previous quarter and $137 million in the fourth quarter of 2016. The reported results included Vantiv-related transactions and adjustments and the valuation of the Visa total return swap in the table on page 8. For the fourth quarter of 2017, excluding these items, other noninterest income of $134 million increased approximately $48 million, or 56 percent, from the third quarter of 2017 and increased $12 million, or 10 percent, from the fourth quarter of 2016. The sequential increase was primarily due to the $44 million in revenue recognized from Vantiv related to the tax receivable agreement in the fourth quarter of 2017. The year-over-year increase was due to an $11 million increase in the aforementioned tax receivable agreement.

Net gains on investment securities were $1 million in the fourth quarter of 2017, compared with no gains or losses in the third quarter of 2017 and a $3 million net loss in the fourth quarter of 2016. Net gains/losses on securities held as non-qualifying hedges for the MSR portfolio were net losses of $2 million in the fourth quarter of 2017 and net gains of $2 million in the third quarter of 2017.

                       
Noninterest Expense
                                         
($ in millions) For the Three Months Ended     % Change
December September June March December
2017   2017     2017     2017     2016     Seq   Yr/Yr
Noninterest Expense
Salaries, wages and incentives $418 $407 $397 $411 $403 3% 4%
Employee benefits 82 77 86 111 76 6% 8%
Net occupancy expense 74 74 70 78 73 - 1%
Technology and communications 68 62 57 58 56 10% 21%
Equipment expense 29 30 29 28 29 (3%) -
Card and processing expense 34 32 33 30 31 6% 10%
Other noninterest expense     368     293     285     270     292     26%   26%
Total noninterest expense     $1,073     $975     $957     $986     $960     10%   12%
 

Noninterest expense of $1.073 billion increased $98 million, or 10 percent, compared with the third quarter of 2017, and increased $113 million, or 12 percent, compared with the fourth quarter of 2016. Results reflected the affordable housing impairment, one-time employee bonuses, and the Fifth Third Foundation contribution referenced on page 2. Excluding these items, noninterest expense of $975 million was flat compared with the third quarter of 2017, impacted by lower other noninterest expense and salaries, wages and incentives, offset by higher employee benefits and technology and communications expense. Excluding the aforementioned items, noninterest expense increased 2 percent compared to the fourth quarter of 2016, impacted by higher employee benefits and technology and communications expense, offset by lower other noninterest expense.

           
Summary of Credit Loss Experience
                               
($ in millions) For the Three Months Ended
December September June March December
2017   2017   2017   2017   2016
Net losses charged-off
Commercial and industrial loans ($32) ($27) ($18) ($36) ($25)
Commercial mortgage loans 1 (3) (5) (5) (2)
Commercial leases (1) - (1) (1) (1)
Residential mortgage loans (1) 1 (2) (5) (2)
Home equity (4) (3) (5) (6) (6)
Automobile loans (10) (8) (6) (11) (11)
Credit card (20) (20) (22) (22) (19)
Other consumer loans and leases     (9)     (8)     (5)     (3)     (7)
Total net losses charged-off ($76) ($68) ($64) ($89) ($73)
 
Total losses charged-off ($94) ($85) ($95) ($107) ($97)
Total recoveries of losses previously charged-off     18     17     31     18     24
Total net losses charged-off ($76) ($68) ($64) ($89) ($73)
 
Ratios (annualized)
Net losses charged-off as a percent of average portfolio loans and
leases (excluding held for sale) 0.33% 0.29% 0.28% 0.40% 0.31%
Commercial 0.22% 0.21% 0.17% 0.29% 0.20%
Consumer     0.51%     0.43%     0.46%     0.56%     0.49%
 

Net charge-offs were $76 million, or 33 bps of average portfolio loans and leases on an annualized basis, in the fourth quarter of 2017 compared with net charge-offs of $68 million, or 29 bps, in the third quarter of 2017 and $73 million, or 31 bps, in the fourth quarter of 2016.

Commercial net charge-offs of $32 million, or 22 bps, increased $2 million sequentially. This primarily reflected a $5 million increase in net charge-offs of C&I loans, partially offset by a $4 million reduction in net charge-offs of commercial mortgage loans.

Consumer net charge-offs of $44 million, or 51 bps, increased $6 million sequentially. This primarily reflected a $2 million increase in net charge-offs on residential mortgage loans and the automobile loans.

       
($ in millions)     For the Three Months Ended
December   September   June   March   December
2017   2017   2017   2017   2016
Allowance for Credit Losses
Allowance for loan and lease losses, beginning $1,205 $1,226 $1,238 $1,253 $1,272
Total net losses charged-off (76) (68) (64) (89) (73)
Provision for loan and lease losses 67 67 52 74 54
Deconsolidation of a variable interest entity     -     (20)     -     -     -
Allowance for loan and lease losses, ending $1,196 $1,205 $1,226 $1,238 $1,253
 
Reserve for unfunded commitments, beginning $157 $162 $159 $161 $162
Provision for unfunded commitments     4     (5)     3     (2)     (1)
Reserve for unfunded commitments, ending $161 $157 $162 $159 $161
 
Components of allowance for credit losses:
Allowance for loan and lease losses $1,196 $1,205 $1,226 $1,238 $1,253
Reserve for unfunded commitments     161     157     162     159     161
Total allowance for credit losses $1,357 $1,362 $1,388 $1,397 $1,414
Allowance for loan and lease losses ratio
As a percent of portfolio loans and leases 1.30% 1.31% 1.34% 1.35% 1.36%
As a percent of nonperforming portfolio loans and leases(g) 274% 238% 200% 188% 190%
As a percent of nonperforming portfolio assets(g)     245%     217%     185%     172%     170%
 

The provision for loan and lease losses totaled $67 million in the fourth quarter of 2017, flat sequentially, reflecting improvement in criticized assets and nonperforming loans, offset by an increase in net charge-offs and higher period-end portfolio loan balances. Provision expense increased $13 million from the fourth quarter of 2016.

As of quarter end, the allowance for loan and lease loss ratio represented 1.30 percent of total portfolio loans and leases outstanding, compared with 1.31 percent last quarter, and represented 274 percent of nonperforming loans and leases, and 245 percent of nonperforming assets.

       
($ in millions)     As of
December   September   June   March   December
Nonperforming Assets and Delinquent Loans 2017   2017   2017   2017   2016
Nonaccrual portfolio loans and leases:
Commercial and industrial loans $144 $144 $225 $251 $302
Commercial mortgage loans 12 14 15 21 27
Commercial leases - 1 1 - 2
Residential mortgage loans 17 19 19 21 17
Home equity     56   56   52   53   55
Total nonaccrual portfolio loans and leases (excludes restructured loans) $229 $234 $312 $346 $403
Nonaccrual restructured portfolio commercial loans and leases(h) 150 214 244 251 192
Nonaccrual restructured portfolio consumer loans and leases     58   58   58   60   65
Total nonaccrual portfolio loans and leases $437 $506 $614 $657 $660
Repossessed property 9 10 11 14 15
OREO     43   39i   37i   50i   63i
Total nonperforming portfolio assets(g) $489 $555 $662 $721 $738
Nonaccrual loans held for sale 5 18 7 7 4
Nonaccrual restructured loans held for sale     1   2   1   2   9
Total nonperforming assets     $495   $575   $670   $730   $751
 
Restructured portfolio consumer loans and leases (accrual) $927 $929 $933 $950 $959
Restructured portfolio commercial loans and leases (accrual)(h) $249 $232 $224 $277 $321
 
Total loans and leases 30-89 days past due (accrual) $280 $252 $190 $180 $231
Total loans and leases 90 days past due (accrual) $97 $77 $75 $75 $84
 
Nonperforming portfolio loans and leases as a percent of portfolio
loans and leases and OREO(g) 0.48% 0.55% 0.67% 0.72% 0.72%
Nonperforming portfolio assets as a percent of portfolio loans and
leases and OREO(g)     0.53%   0.60%   0.72%   0.79%   0.80%
 

Total nonperforming portfolio assets decreased $66 million, or 12 percent, from the previous quarter to $489 million. Portfolio nonperforming loans and leases (NPLs) at quarter-end decreased $69 million from the previous quarter to $437 million. NPLs as a percent of total loans, leases and OREO at quarter end decreased 7 bps from the previous quarter to 0.48 percent.

Commercial portfolio NPLs decreased $67 million from last quarter to $306 million, or 0.54 percent of commercial portfolio loans, leases and OREO. Consumer portfolio NPLs decreased $2 million from last quarter to $131 million, or 0.37 percent of consumer portfolio loans, leases and OREO.

OREO balances increased $4 million from the prior quarter to $43 million, and included $18 million in commercial OREO and $25 million in consumer OREO. Repossessed personal property decreased $1 million from the prior quarter to $9 million.

Loans over 90 days past due and still accruing increased $20 million from the third quarter of 2017 at $97 million. Loans 30-89 days past due of $280 million increased $28 million from the previous quarter.

           
Capital and Liquidity Position
                             
For the Three Months Ended
December September June March December
2017   2017   2017   2017   2016
Capital Position
Average total Bancorp shareholders' equity to average assets 11.69% 11.93% 11.84% 11.72% 11.66%
Tangible equity(d) 9.90% 9.84% 9.98% 10.12% 9.82%
Tangible common equity (excluding unrealized gains/losses)(d) 8.94% 8.89% 9.02% 9.15% 8.87%
Tangible common equity (including unrealized gains/losses)(d) 8.99% 9.00% 9.12% 9.20% 8.91%
 
Regulatory Capital and Liquidity Ratios
CET1 capital(e) 10.61% 10.59% 10.63% 10.76% 10.39%
Tier I risk-based capital(e) 11.74% 11.72% 11.76% 11.90% 11.50%
Total risk-based capital(e) 15.16% 15.16% 15.22% 15.45% 15.02%
Tier I leverage 10.01% 9.97% 10.07% 10.15% 9.90%
Modified liquidity coverage ratio (LCR)(i)     129%     124%     115%   119%     128%
 

Capital ratios remained strong during the quarter. The CET1 ratio was 10.61 percent, the tangible common equity to tangible assets ratio(d) was 8.94 percent (excluding unrealized gains/losses), and 8.99 percent (including unrealized gains/losses). The Tier I risk-based capital ratio was 11.74 percent, the Total risk-based capital ratio was 15.16 percent, and the Tier I leverage ratio was 10.01 percent.

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

  • On December 18, 2017, Fifth Third settled the forward contract related to the August 15, 2017 $990 million share repurchase agreement. An additional 4.3 million shares were repurchased in connection with the completion of this agreement.
  • On December 19, 2017, Fifth Third initially settled a share repurchase agreement whereby Fifth Third would purchase $273 million of its outstanding stock. This reduced fourth quarter common shares outstanding by 7.7 million shares. Settlement of the forward contract related to this agreement is expected to occur on or before March 19, 2018.

In total, common shares outstanding decreased by approximately 11.7 million shares in the fourth quarter of 2017 from the third quarter of 2017.

Tax Rate

An income tax benefit was recognized in the fourth quarter of 2017. This was a result of the new tax legislation and was primarily due to the remeasurement of deferred tax liabilities at the lower statutory rate. The benefit was partially offset by a tax expense related to a gain on the sale of Vantiv shares sold in the prior quarter. The prior quarter’s tax rate was also impacted by the aforementioned gain on the sale of Vantiv shares. On a full year basis, the 2017 effective rate was 20.8 percent compared with 24.4 percent for the full year of 2016.

Other

As of December 31, 2017, Fifth Third Bank owned 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 $73.55 on December 31, 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 February 6, 2018 by dialing 800-585-8367 for domestic access or 404-537-3406 for international access (passcode 8195768#).

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of December 31, 2017, the Company had $142 billion in assets and operates 1,154 full-service Banking Centers, and 2,469 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 54,000 fee-free ATMs across the United States. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Wealth & Asset Management. As of December 31, 2017, Fifth Third also had an 8.6% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest and, as of December 31, 2017, had $362 billion in assets under care, of which it managed $37 billion for individuals, corporations and not-for-profit organizations through its Trust and Registered Investment Advisory businesses. Investor information and press releases can be viewed at www.53.com. Fifth Third’s common stock is traded on the NASDAQ® Global Select Market under the symbol “FITB.”

Earnings Release End Notes

(a)

 

Certain tax legislation amounts are considered reasonable estimates as of December 31, 2017. As a result, the amounts could be adjusted during the measurement period, which will end in December 2018.

 

(b)

Assumes a 35% tax rate.

 

(c)

On January 16, 2018, Vantiv, Inc. changed its name to Worldpay, Inc. and completed the previously announced acquisition of Worldpay Group Limited, formerly Worldpay Group plc.

 

(d)

Non-GAAP measure; see discussion of non-GAAP and Reg. G reconciliation beginning on page 30 in Exhibit 99.1 of 8-K filing dated 1/23/2018.

 

(e)

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. Under the banking agencies’ Final Rule published in November 2017 pertaining to certain regulatory capital items for banks subject to the standardized approach, the Bancorp is no longer subject to certain transition provisions and phase-outs beyond 2017. Current period regulatory capital ratios are estimated.

 

(f)

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

 

(g)

Excludes nonaccrual loans held for sale.

 

(h)

As of June 30, 2017, March 31, 2017 and December 31, 2016, excludes $7 million of restructured accruing loans and $19 million of restructured nonaccrual loans associated with a consolidated VIE in which the Bancorp has no continuing credit risk due to the risk being assumed by a third party.

 

(i)

The Bancorp became subject to the Modified LCR regulations effective January 1, 2016. Current period LCR is estimated.

 

FORWARD-LOOKING STATEMENTS

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

There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) general economic or real estate market conditions, either nationally or in the states in which Fifth Third, one or more acquired entities and/or the combined company do business, weaken or are less favorable than expected; (2) deteriorating credit quality; (3) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (4) changes in the interest rate environment reduce interest margins; (5) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; (6) Fifth Third’s ability to maintain required capital levels and adequate sources of funding and liquidity; (7) maintaining capital requirements and adequate sources of funding and liquidity may limit Fifth Third’s operations and potential growth; (8) changes and trends in capital markets; (9) problems encountered by larger or similar financial institutions may adversely affect the banking industry and/or Fifth Third; (10) competitive pressures among depository institutions increase significantly; (11) changes in customer preferences or information technology systems; (12) effects of critical accounting policies and judgments; (13) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (FASB) or other regulatory agencies; (14) legislative or regulatory changes or actions, or significant litigation, adversely affect Fifth Third, one or more acquired entities and/or the combined company or the businesses in which Fifth Third, one or more acquired entities and/or the combined company are engaged, including the Dodd-Frank Wall Street Reform and Consumer Protection Act; (15) ability to maintain favorable ratings from rating agencies; (16) failure of models or risk management systems or controls; (17) fluctuation of Fifth Third’s stock price; (18) ability to attract and retain key personnel; (19) ability to receive dividends from its subsidiaries; (20) potentially dilutive effect of future acquisitions on current shareholders’ ownership of Fifth Third; (21) declines in the value of Fifth Third’s goodwill or other intangible assets; (22) effects of accounting or financial results of one or more acquired entities; (23) loss of income from any sale or potential sale of businesses (24) difficulties in separating the operations of any branches or other assets divested; (25) losses or adverse impacts on the carrying values of branches and long-lived assets in connection with their sales or anticipated sales; (26) inability to achieve expected benefits from branch consolidations and planned sales within desired timeframes, if at all; (27) ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; (28) the acquisition of Worldpay Group Limited, formerly Worldpay Group plc. by Worldpay, Inc., formerly Vantiv, Inc.; and(29)difficulties from Fifth Third’s investment in, relationship with, and nature of operations of Worldpay, Inc. 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 1/23/2018.

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