8-KOther Events

FIFTH THIRD BANCORP 8-K Report, Corporate Update (Jul 22, 2015)

Filed July 22, 2015For Securities:FITBFITBOFITBPFITB-PIFITB-PMFITB-PAFITBIFITB-PK

Summary

Fifth Third Bancorp (FITB) reported its second quarter 2015 results on July 22, 2015. Net income available to common shareholders was $292 million, or $0.36 per diluted share, a decrease from both the previous quarter ($346 million, $0.42 per share) and the prior year's second quarter ($416 million, $0.49 per share). This decline was influenced by several factors, including a $97 million non-cash impairment charge related to branch network changes, a $2 million charge from the valuation of the Visa total return swap, and a $14 million positive valuation adjustment on the Vantiv warrant. The company's net interest income saw a sequential increase due to earning asset growth and lower deposit costs, though it decreased year-over-year. Noninterest income experienced a sequential and year-over-year decline, largely impacted by the aforementioned branch network impairment charge. However, excluding certain one-time items, core noninterest income showed growth, driven by corporate banking and mortgage banking revenues. Credit quality metrics remained stable, with net charge-offs decreasing sequentially and year-over-year. Nonperforming assets also showed a notable decline. Capital ratios remained strong, with CET1 capital at 9.41% and Tier 1 risk-based capital at 10.49%, indicating a solid capital position. The company also continued its share repurchase program, reducing outstanding shares.

Key Highlights

  • 1Second quarter 2015 net income available to common shareholders was $292 million, or $0.36 per diluted share, down from $346 million ($0.42 per share) in Q1 2015 and $416 million ($0.49 per share) in Q2 2014.
  • 2A significant $97 million non-cash impairment charge related to branch network changes impacted second quarter results.
  • 3Net interest income increased sequentially to $892 million, driven by earning asset growth and lower deposit costs, but decreased by 1% year-over-year.
  • 4Excluding specific items, noninterest income grew 13% sequentially and 9% year-over-year, primarily due to strength in corporate banking and mortgage banking.
  • 5Net charge-offs decreased to $86 million (37 bps of average loans) from $91 million (41 bps) in the prior quarter and $101 million (45 bps) in the prior year quarter.
  • 6Total nonperforming assets declined by 10% sequentially to $627 million, with nonperforming loans at 0.51% of total loans.
  • 7Capital ratios remained robust, with Common Equity Tier 1 (CET1) at 9.41% and Tier 1 risk-based capital at 10.49%.

Frequently Asked Questions

The primary reason for the decrease in net income compared to the previous year was a significant $97 million non-cash impairment charge related to previously announced changes in the branch network. Other factors impacting year-over-year results included a $125 million gain on the sale of Vantiv shares in Q2 2014 and a $63 million positive valuation adjustment on the Vantiv warrant in Q2 2014, which were not present in Q2 2015.

The average loan and lease balances increased by 2% sequentially and 2% year-over-year. Growth was primarily driven by increases in commercial and industrial (C&I) loans and commercial construction loans, partially offset by declines in commercial mortgage and home equity loans. Credit quality improved, with net charge-offs decreasing both sequentially and year-over-year, and nonperforming assets also showing a significant decline.

While reported noninterest income decreased due to the branch impairment charge, excluding these specific items, the underlying noninterest income showed growth, particularly in corporate banking and mortgage banking revenue. Noninterest expense increased slightly sequentially due to higher incentive-based compensation but decreased year-over-year due to lower litigation reserve charges. The company expects continued operating expense reductions from branch consolidations.

Fifth Third Bancorp maintained a strong capital position. The Common Equity Tier 1 (CET1) capital ratio was 9.41%, and the Tier 1 risk-based capital ratio was 10.49%. These ratios are well above the regulatory minimums, indicating the bank's ability to withstand potential financial stress and support future growth.