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Fifth Third Announces Second Quarter 2017 Net Income to Common Shareholders of $344 Million, or $0.45 Per Diluted Share

CINCINNATI--(BUSINESS WIRE)--Fifth Third Bancorp (Nasdaq:FITB) today reported second quarter 2017 net income of $367 million versus net income of $305 million in the first quarter of 2017 and $328 million in the second quarter of 2016. After preferred dividends, net income available to common shareholders was $344 million, or $0.45 per diluted share, in the second quarter of 2017, compared with $290 million, or $0.38 per diluted share, in the first quarter of 2017, and $305 million, or $0.39 per diluted share, in the second quarter of 2016.

“The strength of our second quarter performance reflects our continued discipline with respect to expenses, credit quality, and balance sheet management. We are very encouraged by the improvement in all of our return metrics including our ROA and ROTCE both sequentially as well as year over year”

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Second quarter 2017 included:

Income

  • ($9 million) charge related to the valuation of the Visa total return swap

First quarter 2017 included:

Income

  • $12 million benefit related to the revision to the 4Q16 estimated charge to net interest income for refunds to certain bankcard customers
  • ($13 million) charge related to the valuation of the Visa total return swap

Second quarter 2016 included:

Income

  • $19 million positive valuation adjustment on the Vantiv warrant
  • $11 million gain on sale of Pennsylvania branches as part of the previously announced branch consolidation and sales plan
  • $11 million gain on the sale of the non-strategic agented bankcard loan portfolio
  • ($50 million) charge related to the valuation of the Visa total return swap, primarily reflecting the rejection of the merchant litigation settlement

Expenses

  • ($9 million) in compensation-related expenses due to retirement eligibility changes
Earnings Highlights
For the Three Months Ended % Change
June March December September June
2017 2017 2016 2016(d) 2016(d) Seq Yr/Yr
Earnings ($ in millions)
Net income attributable to Bancorp $367 $305 $395 $516 $328 20% 12%
Net income available to common shareholders $344 $290 $372 $501 $305 19% 13%
Common Share Data
Earnings per share, basic $0.46 $0.38 $0.49 $0.66 $0.40 21% 15%
Earnings per share, diluted 0.45 0.38 0.49 0.65 0.39 18% 15%
Cash dividends per common share 0.14 0.14 0.14 0.13 0.13 - 8%
Common shares outstanding (in thousands) 738,873 750,145 750,479 755,582 766,346 (2%) (4%)
Average common shares outstanding
(in thousands):
Basic 741,401 747,668 746,367 750,886 759,105 (1%) (2%)
Diluted 752,328 760,809 757,704 757,856 764,811 (1%) (2%)
Financial Ratios bps Change
Return on average assets 1.05 % 0.88 % 1.11 % 1.44 % 0.92 % 17 13
Return on average common equity 9.0 7.8 9.7 12.8 8.0 120 100
Return on average tangible common equity(b) 10.7 9.3 11.6 15.2 9.6 140 110
CET1 capital(c) 10.63 10.76 10.39 10.17 9.94 (13) 69
Tier I risk-based capital(c) 11.76 11.90 11.50 11.27 11.03 (14) 73
CET1 capital (fully-phased in)(b)(c) 10.52 10.66 10.29 10.09 9.86 (14) 66
Net interest margin (taxable equivalent)(b) 3.01 3.02 2.86 2.88 2.88 (1) 13
Efficiency (taxable equivalent)(b) 63.4 67.4 62.8 55.5 65.3 (400) (190)

“The strength of our second quarter performance reflects our continued discipline with respect to expenses, credit quality, and balance sheet management. We are very encouraged by the improvement in all of our return metrics including our ROA and ROTCE both sequentially as well as year over year,” said Greg D. Carmichael, President and CEO of Fifth Third Bancorp.

“The recently announced CCAR results provide further proof of our commitment to our shareholders. Over the next four quarters we expect to return a significant amount of capital to our shareholders based on our strong capital position, the improved risk profile of our balance sheet and our strong internal capital generation capacity. As previously announced, we expect to do so through dividend increases along with a sizeable increase in capital deployed for share repurchases.”

Income Statement Highlights
($ in millions, except per-share data) For the Three Months Ended

% Change

June March December September June
2017 2017 2016 2016(d) 2016(d) Seq Yr/Yr
Condensed Statements of Income
Net interest income (taxable equivalent)(b) $945 $939 $909 $913 $908 1% 4%
Provision for loan and lease losses 52 74 54 80 91 (30%) (43%)
Total noninterest income 564 523 620 840 599 8% (6%)
Total noninterest expense 957 986 960 973 983 (3%) (3%)
Income before income taxes (taxable equivalent)(b) $500 $402 $515 $700 $433 24% 15%
Taxable equivalent adjustment 6 6 6 6 6 - -
Applicable income tax expense 127 91 114 178 103 40% 23%
Net income $367 $305 $395 $516 $324 20% 13%
Less: Net income attributable to noncontrolling interests - - - - (4) - (100%)
Net income attributable to Bancorp $367 $305 $395 $516 $328 20% 12%
Dividends on preferred stock 23 15 23 15 23 53% -
Net income available to common shareholders $344 $290 $372 $501 $305 19% 13%
Earnings per share, diluted $0.45 $0.38 $0.49 $0.65 $0.39 18% 15%
Net Interest Income
(Taxable equivalent basis; $ in millions)(b) For the Three Months Ended % Change
June March December September June
2017 2017 2016 2016 2016 Seq Yr/Yr
Interest Income
Total interest income $1,112 $1,092 $1,058 $1,063 $1,052 2% 6%
Total interest expense 167 153 149 150 144 9% 16%
Net interest income $945 $939 $909 $913 $908 1% 4%
Average Yield bps Change
Yield on interest-earning assets 3.54% 3.51% 3.33% 3.36% 3.34% 3 20
Rate paid on interest-bearing liabilities 0.79% 0.73% 0.70% 0.70% 0.67% 6 12
Net interest rate spread 2.75% 2.78% 2.63% 2.66% 2.67% (3) 8
Net interest margin 3.01% 3.02% 2.86% 2.88% 2.88% (1) 13
Average Balances % Change
Loans and leases, including held for sale $92,653 $92,791 $93,981 $94,417 $94,807 - (2%)
Total securities and other short-term investments 33,481 33,177 32,567 31,675 32,040 1% 4%
Total interest-earning assets 126,134 125,968 126,548 126,092 126,847 - (1%)
Total interest-bearing liabilities 85,320 84,890 84,552 85,193 86,145 1% (1%)
Bancorp shareholders' equity(d) 16,615 16,429 16,545 16,883 16,584 1% -

Net interest income for the first quarter of 2017 included the $12 million reversal of a previously-estimated charge for refunds to certain bankcard customers. Excluding the impact of this item, taxable equivalent net interest income in the second quarter of 2017 was up $18 million sequentially, reflecting the impact of higher short-term market rates during the quarter and a higher day count. The taxable equivalent net interest margin was 3.01 percent, up 3 bps from the prior quarter’s adjusted net interest margin, primarily driven by higher short-term market rates, partially offset by a higher day count.

Compared to the second quarter of 2016, taxable equivalent net interest income was up 4 percent, primarily driven by higher short-term market rates. The net interest margin was up 13 bps from the second quarter of 2016, also primarily driven by higher short-term market rates.

Securities

Average securities and other short-term investments were $33.5 billion in the second quarter of 2017 compared to $33.2 billion in the previous quarter and $32.0 billion in the second quarter of 2016. Average other short-term investments were stable sequentially at $1.3 billion.

Loans
($ in millions) For the Three Months Ended % Change
June March December September June
2017 2017 2016 2016 2016 Seq Yr/Yr
Average Portfolio Loans and Leases
Commercial:
Commercial and industrial loans $41,601 $41,854 $42,548 $43,116 $43,876 (1%) (5%)
Commercial mortgage loans 6,845 6,941 6,957 6,888 6,831 (1%) -
Commercial construction loans 4,306 3,987 3,890 3,848 3,551 8% 21%
Commercial leases 4,036 3,901 3,921 3,962 3,898 3% 4%
Total commercial loans and leases $56,788 $56,683 $57,316 $57,814 $58,156 - (2%)
Consumer:
Residential mortgage loans $15,417 $15,200 $14,854 $14,455 $14,046 1% 10%
Home equity 7,385 7,581 7,779 7,918 8,054 (3%) (8%)
Automobile loans 9,410 9,786 10,162 10,508 10,887 (4%) (14%)
Credit card 2,080 2,141 2,180 2,165 2,134 (3%) (3%)
Other consumer loans and leases 892 755 673 651 654 18% 36%
Total consumer loans and leases $35,184 $35,463 $35,648 $35,697 $35,775 (1%) (2%)
Total average portfolio loans and leases $91,972 $92,146 $92,964 $93,511 $93,931 - (2%)
Average loans held for sale $681 $645 $1,017 $906 $876 6% (22%)

Average portfolio loan and lease balances were flat sequentially and decreased $2.0 billion, or 2 percent, from the second quarter of 2016. The year-over-year decrease was primarily driven by declines in commercial and industrial (C&I) and automobile loans. The year-over-year decline in C&I loans was primarily due to deliberate exits from certain C&I loans that did not meet risk-adjusted profitability targets. The year-over-year decline in automobile loans continues to reflect our decision to reduce lower-return originations to improve returns on capital. Period end portfolio loans and leases of $91.4 billion, were also flat sequentially, and decreased $2.5 billion, or 3 percent, from a year ago. On a year-over-year basis, the decrease in period end loan balances was primarily due to declines in C&I and automobile loans, partially offset by increases in residential mortgage and commercial construction loans.

Average commercial portfolio loan and lease balances were flat sequentially, and decreased $1.4 billion, or 2 percent, from the second quarter of 2016. Average C&I loans decreased $253 million, or 1 percent, from the prior quarter and decreased $2.3 billion, or 5 percent, from the second quarter of 2016. The decline in C&I loans was primarily due to the aforementioned deliberate exits. Average commercial real estate loans increased $223 million, or 2 percent, from the prior quarter and increased $769 million, or 7 percent, from the second quarter of 2016. Within commercial real estate, average commercial mortgage balances decreased $96 million and average commercial construction balances increased $319 million sequentially. Period end commercial line utilization of 34 percent was flat from the first quarter of 2017 and decreased 1 percent from the second quarter of 2016.

Average consumer portfolio loan and lease balances decreased $279 million, or 1 percent, sequentially and decreased $591 million, or 2 percent, from the second quarter of 2016. This was primarily driven by average automobile loans which decreased 4 percent sequentially and 14 percent from a year ago. Average residential mortgage loans increased 1 percent sequentially and 10 percent from the previous year. Average home equity loans decreased 3 percent sequentially and 8 percent from the second quarter of 2016. Average credit card loans decreased 3 percent sequentially and from the second quarter of 2016.

Deposits
($ in millions) For the Three Months Ended % Change
June March December September June
2017 2017 2016 2016 2016 Seq Yr/Yr
Average Deposits
Demand $34,915 $35,084 $36,412 $35,918 $35,912 - (3%)
Interest checking 26,014 26,760 25,644 24,475 24,714 (3%) 5%
Savings 14,238 14,117 13,979 14,232 14,576 1% (2%)
Money market 20,278 20,603 20,476 19,706 19,243 (2%) 5%
Foreign office(e) 380 454 497 524 484 (16%) (21%)
Total transaction deposits $95,825 $97,018 $97,008 $94,855 $94,929 (1%) 1%
Other time 3,745 3,827 3,941 4,020 4,044 (2%) (7%)
Total core deposits $99,570 $100,845 $100,949 $98,875 $98,973 (1%) 1%
Certificates - $100,000 and over 2,623 2,579 2,539 2,768 2,819 2% (7%)
Other 264 162 115 749 467 63% (43%)
Total average deposits $102,457 $103,586 $103,603 $102,392 $102,259 (1%) -

Average core deposits decreased $1.3 billion, or 1 percent, sequentially and increased $597 million, or 1 percent, from the second quarter of 2016. Average transaction deposits decreased $1.2 billion, or 1 percent, sequentially and increased $896 million, or 1 percent, from the second quarter of 2016. Sequential performance was primarily driven by decreases in commercial demand deposit account balances and money market account balances, partially offset by higher consumer money market account balances and...


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