Fifth Third Bank

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Fifth Third Announces Second Quarter 2013 Net Income to Common Shareholders of $594 Million or $0.66 Per Diluted Share
  • 2Q13 net income available to common shareholders of $594 million, or $0.66 per diluted common share, vs. $413 million or $0.46 per share in 1Q13, up 43%, and $376 million or $0.40 per share in 2Q12, up 65%
  • 2Q13 results included a benefit of $242 million pre-tax (~$157 million after-tax, or ~$0.17 per share) on the sale of shares of Vantiv and $76 million pre-tax (~$49 million after-tax, or ~$0.05 per share) on the valuation of the warrant Fifth Third holds in Vantiv
    • In 1Q13 and 2Q12, the benefit of the valuation of the warrant Fifth Third holds in Vantiv was $34 million pre-tax (~$22 million after-tax, or ~$0.02 per share) and $56 million pre-tax (~$36 million after-tax, or ~$0.04 per share), respectively
  • 2Q13 return on assets (ROA) of 1.98%; return on average common equity of 17.6%; return on average tangible common equity** of 21.6%
  • Pre-provision net revenue (PPNR)** of $923 million in 2Q13
    • Net interest income (FTE) of $885 million, down 1% sequentially; net interest margin 3.33%; average portfolio loans up 1% sequentially (includes impact from 1Q13 securitization of auto loans); period end loans up 2%
    • Noninterest income of $1.1 billion compared with $743 million in prior quarter; increase largely driven by sale of Vantiv shares. Excluding Vantiv, noninterest income of $742 million up 5% from $709 million in 1Q13
    • Noninterest expense of $1.0 billion, up 4% from 1Q13; largely driven by increase in litigation reserves
  • 2Q13 effective tax rate of 29.8% compared with 30.4% in 1Q13 and 31.8% in 2Q12
  • Credit trends remain favorable
    • 2Q13 net charge-offs of $112 million (0.51% of loans and leases) vs. 1Q13 NCOs of $133 million (0.63% of loans and leases) and 2Q12 NCOs of $181 million (0.88% of loans and leases)
    • 2Q13 provision expense of $64 million vs. provision of $62 million in 1Q13 and $71 million in 2Q12
    • Loan loss allowance decreased $48 million sequentially reflecting continued improvement in credit trends; allowance to loan ratio of 1.99%, 151% of nonperforming assets, 191% of nonperforming loans and leases
    • Total nonperforming assets (NPAs) of $1.2 billion, including loans held-for-sale (HFS), declined $64 million, or 5%, sequentially; portfolio NPA ratio of 1.32% down 9 bps from 1Q13, NPL ratio of 1.04% down 7 bps from 1Q13
  • Strong capital ratios*
    • Tier 1 common ratio 9.44%**, down 26 bps sequentially, largely due to repurchases of ~$539 million in common shares announced during the quarter (Basel III pro forma estimate of ~9.10%)
    • Tier 1 capital ratio 11.07%, Total capital ratio 14.35%, Leverage ratio 10.41%
    • Tangible common equity ratio** of 8.83% excluding unrealized gains/losses; 8.95% including them
    • Repurchased ~26 million common shares in 2Q13; average diluted share count reduced by 13 million shares including impact from 1Q13 and 2Q13 share repurchases
  • Book value per share of $15.57; tangible book value per share** of $12.71 up 1% from 1Q13 and 7% from 2Q12

* Capital ratios estimated; presented under current U.S. capital regulations. The pro forma Basel III Tier I common equity ratio is management’s estimate based upon its current interpretation of recent prospective regulatory capital requirements approved in July 2013. See “Capital Position” section for more information.
** Non-GAAP measure; see Reg. G reconciliation on page 34 in Exhibit 99.1 of 8-k filing dated 7/18/13.

CINCINNATI--(BUSINESS WIRE)--Jul. 18, 2013-- Fifth Third Bancorp (Nasdaq: FITB) today reported second quarter 2013 net income of $603 million, compared with net income of $422 million in the first quarter of 2013 and net income of $385 million in the second quarter of 2012. After preferred dividends, second quarter 2013 net income available to common shareholders was $594 million, or $0.66 per diluted share, compared with first quarter net income to common shareholders of $413 million, or $0.46 per diluted share, and net income to common shareholders of $376 million, or $0.40 per diluted share, in the second quarter of 2012.

Second quarter 2013 noninterest income results included a $242 million gain on the sale of Vantiv shares; a $76 million positive valuation adjustment on the Vantiv warrant; a pre-tax benefit of $10 million resulting from a settlement related to a previously surrendered bank-owned life insurance (BOLI) policy; and a $5 million charge related to the valuation of the Visa total return swap. Second quarter noninterest expense included $33 million in charges to increase litigation reserves.

First quarter 2013 noninterest income included a $34 million positive valuation adjustment on the Vantiv warrant; a $7 million gain on the sale of certain Fifth Third Asset Management (FTAM) advisory contracts; and a $7 million charge related to the valuation of the Visa total return swap. Net gains on investment securities were $17 million. First quarter noninterest expense included $9 million in charges to increase litigation reserves. First quarter income tax expense was higher by $12 million due to the seasonal expiration of employee stock options.

Second quarter 2012 results included a $56 million positive valuation adjustment on the Vantiv warrant; a $17 million negative valuation adjustment associated with bank premises held-for-sale; and an $11 million charge related to the valuation of the Visa total return swap. Net gains on investment securities were $3 million. Second quarter 2012 noninterest expense included a $9 million reduction to FDIC insurance expense.

       

 

   

 

Earnings Highlights

                   
                                               

For the Three Months Ended

   

% Change

June March December September June
2013     2013     2012     2012     2012     Seq     Yr/Yr
Earnings ($ in millions)
Net income attributable to Bancorp $603 $422 $399 $363 $385 43% 57%
Net income available to common shareholders $594 $413 $390 $354 $376 44% 58%
 
Common Share Data
Earnings per share, basic 0.69 0.47 0.44 0.39 0.41 47% 68%
Earnings per share, diluted 0.66 0.46 0.43 0.38 0.40 43% 65%
Cash dividends per common share 0.12 0.11 0.10 0.10 0.08 9% 50%
 
Financial Ratios
Return on average assets 1.98 % 1.41 % 1.33 % 1.23 % 1.32 % 40% 50%
Return on average common equity 17.6 12.5 11.5 10.4 11.4 41% 54%
Return on average tangible common equity 21.6 15.4 14.1 12.8 14.1 40% 53%
Tier I capital 11.07 10.83 10.65 10.85 12.31 2% (10%)
Tier I common equity 9.44 9.70 9.51 9.67 9.77 (3%) (3%)
Net interest margin(a) 3.33 3.42 3.49 3.56 3.56 (3%) (6%)
Efficiency(a) 52.3 59.8 65.2 63.7 59.4 (12%) (12%)
 
Common shares outstanding (in thousands) 851,474 874,645 882,152 897,467 918,913 (3%) (7%)

Average common shares outstanding (in thousands):

Basic 858,583 870,923 884,676 904,475 913,541 (1%) (6%)
Diluted 900,625 913,163 925,585 944,821 954,622 (1%) (6%)
 
(a) Presented on a fully taxable equivalent basis
The percentages in all of the tables in this earning release are calculated on actual dollar amounts not the rounded dollar amounts.
 

“Second quarter results were again strong for Fifth Third,” said Kevin T. Kabat, CEO of Fifth Third Bancorp. “The Company reported $594 million in net income to common shareholders. Return on assets was 1.98 percent and return on average tangible common equity* was 21.6 percent for the quarter including Vantiv-related gains, and were 1.30 percent and 14.1 percent, respectively, excluding them.

“We posted our tenth consecutive quarter of sequential average portfolio loan growth, driven by C&I loan growth of 3 percent. Nearly all fee income categories increased quarter-over-quarter, highlighted by mortgage banking net revenue and corporate banking revenue, which grew 6 and 7 percent, respectively. All major fee categories showed mid-single digit growth year-over-year.

“Credit trends continued to improve as net charge-offs declined 16 percent to $112 million, or 51 basis points of loans, and we saw continued, broad based improvement in nearly every key credit metric.

“During the quarter, we entered into an agreement to repurchase $539 million of common shares. We have approximately $600 million of repurchase capacity remaining under our current CCAR plan extending through March 31, 2014, excluding any potential gains from Vantiv share sales in the future. At the beginning of the third quarter, we converted our Series G preferred stock into common stock, although those shares were already included in our fully diluted share count. Regulatory approval of final capital rules for U.S. banks provides welcome clarity for our management of capital, and our capital position under those rules would remain strong with an estimated pro forma Tier 1 common equity ratio* of 9.1 percent under the new final rules compared with 9.4 percent under current rules.”

* Non-GAAP measure; see Reg. G reconciliation on page 34 in Exhibit 99.1 of 8-k filing dated 7/18/13.

             

 

Income Statement Highlights

                   
                                                 
 

For the Three Months Ended

   

% Change

June March December September June
  2013     2013     2012     2012     2012     Seq     Yr/Yr
Condensed Statements of Income ($ in millions)
Net interest income (taxable equivalent) $885 $893 $903 $907 $899 (1 %) (2 %)
Provision for loan and lease losses

64

 

62

76

65

 

71

 

2 % (11 %)
Total noninterest income 1,060 743 880 671 678 43 % 56 %
Total noninterest expense           1,017       978       1,163       1,006       937       4 %     9 %
Income before income taxes (taxable equivalent)           864       596       544       507       569       45 %     52 %
 
Taxable equivalent adjustment 5 5 4 4 4 5 % 8 %
Applicable income taxes           256       179       144       139       180       42 %     42 %
Net income 603 412 396 364 385 46 % 56 %
Less: Net income attributable to noncontrolling interest           -      

(10

)

    (3 )     1       -      

NM 

    10 %
Net income attributable to Bancorp 603 422 399 363 385 43 % 57 %
Dividends on preferred stock           9       9       9       9       9       2 %     2 %
Net income available to common shareholders           594       413       390       354       376       44 %     58 %
Earnings per share, diluted           $0.66       $0.46       $0.43       $0.38       $0.40       43 %     65 %
 
       

 

   

 

Net Interest Income

                     

For the Three Months Ended

   

% Change

June     March     December     September     June    
2013     2013     2012     2012     2012     Seq     Yr/Yr
Interest Income ($ in millions)
Total interest income (taxable equivalent) $989 $1,000 $1,020 $1,027 $1,031 (1 %) (4 %)
Total interest expense         104       107       117       120       132       (3 %)     (21 %)
Net interest income (taxable equivalent)         $885       $893       $903       $907       $899       (1 %)     (2 %)
 
Average Yield
Yield on interest-earning assets (taxable equivalent)

3.73

%

3.84

%

3.94

%

4.03 % 4.08 % (3 %) (9 %)
Yield on interest-bearing liabilities        

0.57

%

   

0.59

%

   

0.65

%

    0.67 %     0.73 %     (3 %)     (22 %)
Net interest rate spread (taxable equivalent)        

3.16

%

   

3.25

%

   

3.29

%

    3.36 %     3.35 %     (3 %)     (6 %)
Net interest margin (taxable equivalent)

3.33

%

3.42

%

3.49

%

3.56 % 3.56 % (3 %) (6 %)
 
Average Balances ($ in millions)
Loans and leases, including held for sale $89,473 $88,880 $86,180 $84,829 $84,508 1 % 6 %
Total securities and other short-term investments 16,962 16,846 16,765 16,588 17,168 1 % (1 %)
Total interest-earning assets 106,435 105,726 102,945 101,417 101,676 1 % 5 %
Total interest-bearing liabilities 73,363 74,038 71,420 72,026 73,162 (1 %) -
Bancorp shareholders' equity         14,221       13,779       13,855       13,887       13,628       3 %     4 %
 

Net interest income of $885 million on a fully taxable equivalent basis decreased $8 million from the first quarter and included a $6 million increase due to higher day count in the second quarter. Excluding the impact of day count, the decline in net interest income reflected loan repricing and maturities of interest rate floors, partially offset by net loan growth and the benefit of higher yields on investment securities. Net interest income also benefited from a decline in interest expense driven by the maturity of $750 million in holding company debt and related swaps during the quarter, partially offset by the full quarter impact of the $1.3 billion bank note issuance and related swaps in the first quarter.

The net interest margin was 3.33 percent, a decrease of 9 bps from 3.42 percent in the previous quarter. The decline in net interest margin was primarily driven by lower loan yields and the maturity of interest rate floors, partially offset by higher securities yields and the debt maturity in the first quarter. The impact of day count reduced the net interest margin by 1 bp.

Compared with the second quarter of 2012, net interest income decreased $14 million and the net interest margin decreased 23 bps, driven by lower asset yields partially offset by higher average loan balances, lower long-term debt expense, and run-off in higher-priced CDs.

Securities

Average securities and other short-term investments were $17.0 billion in the second quarter of 2013 compared with $16.8 billion in the previous quarter and $17.2 billion in the second quarter of 2012. On an end of period basis, available for sale securities of $16.2 billion increased $924 million from the prior quarter as a result of the pre-investment of expected portfolio cash flows. Other short-term investment end of period balances of $1.1 billion declined $1.2 billion from unusually high cash balances held at the Federal Reserve at the end of the first quarter.

       

 

   

 

Loans

                 

For the Three Months Ended

   

% Change

June     March     December     September     June    
2013     2013     2012     2012     2012     Seq     Yr/Yr
Average Portfolio Loans and Leases ($ in millions)
Commercial:
Commercial and industrial loans $37,630 $36,395 $34,301 $33,111 $32,734 3 % 15 %
Commercial mortgage 8,618 8,965 9,193 9,567 9,810 (4 %) (12 %)
Commercial construction 713 695 686 742 873 3 % (18 %)
Commercial leases         3,552       3,556       3,509       3,481       3,469       -       2 %
Subtotal - commercial loans and leases         50,513       49,611       47,689       46,901       46,886       2 %     8 %
Consumer:
Residential mortgage loans 12,260 12,096 11,846 11,578 11,274 1 % 9 %
Home equity 9,625 9,872 10,129 10,312 10,430 (2 %) (8 %)
Automobile loans 11,887 11,961 11,944 11,812 11,755 (1 %) 1 %
Credit card 2,071 2,069 2,029 1,971 1,915 - 8 %
Other consumer loans and leases         351       294       306       314       326       20 %     8 %
Subtotal - consumer loans and leases         36,194       36,292       36,254       35,987       35,700       -       1 %
Total average loans and leases (excluding held for sale) $86,707 $85,903 $83,943 $82,888 $82,586 1 % 5 %
 
Average loans held for sale         2,766       2,977       2,237       1,941       1,922       (7 %)     44 %
 

Average loan and lease balances (excluding loans held-for-sale) increased $804 million, or 1 percent, sequentially and increased $4.1 billion, or 5 percent, from the second quarter of 2012. Period end loan and lease balances (excluding loans held-for-sale) increased $1.4 billion, or 2 percent sequentially and increased $4.7 billion, or 6 percent, from a year ago. Comparisons reflect the securitization of approximately $500 million of auto loans in March 2013, as the full quarter impact of the securitization reduced average portfolio loans by $338 million compared with the first quarter of 2013.

Average commercial portfolio loan and lease balances were up $902 million, or 2 percent, sequentially and increased $3.6 billion, or 8 percent, from the second quarter of 2012. Average commercial and industrial (C&I) loans increased 3 percent sequentially and increased 15 percent compared with the second quarter of 2012. Average commercial mortgage and commercial construction loan balances combined declined 3 percent sequentially and declined 13 percent from the same period in the previous year. Commercial line usage, on an end of period basis, was 31 percent of committed lines in the second quarter of 2013 compared with 31 percent in the first quarter of 2013 and 32 percent in the second quarter of 2012.

Average consumer portfolio loan and lease balances were flat sequentially and increased $494 million, or 1 percent, from the second quarter of 2012. In the first quarter, approximately $500 million in auto loans were reclassified to held-for-sale in anticipation of their securitization and sale, which took place at the end of March. The full quarter impact of the securitization reduced average portfolio loans by $338 million compared with the first quarter of 2013. Average residential mortgage loans increased 1 percent sequentially and increased 9 percent from a year ago, reflecting the continued retention of certain shorter term residential mortgage loans. Average auto loans declined 1 percent sequentially and increased 1 percent from the second quarter of 2012, and included the effect of the first quarter 2013 auto securitization. Average home equity loan balances declined 2 percent sequentially and declined 8 percent year-over-year due to lower demand and production.

Average loans held-for-sale balances of $2.8 billion decreased $211 million sequentially, primarily reflecting a $135 million decrease in auto loans that were moved to held-for-sale prior to being securitized and sold at the end of March. Average loans held-for-sale balances increased $844 million compared with the second quarter of 2012. Period end loans held-for-sale of $2.1 billion decreased $543 million from the previous quarter and increased $285 million from the second quarter of 2012 reflecting fluctuations in residential mortgage held-for-sale balances.

       

 

   

 

Deposits

                 

For the Three Months Ended

   

% Change

June     March     December     September     June    
2013     2013     2012     2012     2012     Seq     Yr/Yr
Average Deposits ($ in millions)
Demand deposits $29,682 $28,565 $29,223 $27,127 $26,351 4 % 13 %
Interest checking 22,796 23,763 23,556 22,967 23,548 (4 %) (3 %)
Savings 18,864 19,576 20,216 21,283 22,143 (4 %) (15 %)
Money market 8,918 7,932 6,026 4,776 4,258 12 % NM
Foreign office(a)         1,418       1,102       1,174       1,345       1,321       29 %     7 %
Subtotal - Transaction deposits 81,678 80,938 80,195 77,498 77,621 1 % 5 %
Other time         3,859       3,982       4,094       4,224       4,359       (3 %)     (11 %)
Subtotal - Core deposits 85,537 84,920 84,289 81,722 81,980 1 % 4 %
Certificates - $100,000 and over 6,519 4,017 3,084 3,016 3,130 62 %

NM 

Other         10       40       32       32       23       (74 %)     (55 %)
Total deposits         $92,066       $88,977       $87,405       $84,770       $85,133       3 %     8 %

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

 

Average core deposits increased $617 million, or 1 percent, sequentially and increased $3.6 billion, or 4 percent, from the second quarter of 2012. Average transaction deposits, which are included in core deposits, increased $740 million, or 1 percent, from the first quarter of 2013 primarily driven by higher demand deposits and money market balances, partially offset by lower interest checking and savings balances. Year-over-year transaction deposits increased $4.1 billion, or 5 percent, driven by higher money market and demand deposits, partially offset by lower savings and interest checking balances. Other time deposits, primarily CDs, decreased 3 percent sequentially and 11 percent compared with the second quarter of 2012.

Commercial average transaction deposits increased 1 percent sequentially and increased 4 percent from the previous year. Sequential performance reflected higher foreign office, demand deposit, and money market balances partially offset by lower interest checking balances. Year-over-year growth was primarily driven by higher inflows to demand deposit and money market account balances. Average public funds balances were $5.2 billion compared with $5.5 billion in the first quarter of 2013 and $5.7 billion in the second quarter of 2012.

Consumer average transaction deposits increased 1 percent sequentially and increased 6 percent from the second quarter of 2012. The sequential increase reflected higher demand deposit and money market deposits, which were partially offset by lower savings and interest checking balances. Year-over-year growth was driven by increased money market and demand deposit balances partially offset by lower savings and interest checking balances. Consumer CDs included in core deposits declined 3 percent sequentially, driven by customer reluctance to purchase CDs given the continued low rate environment, and declined 11 percent year-over-year driven by maturities of higher-rate CDs.

       

 

   

 

Wholesale Funding

                 

For the Three Months Ended

   

% Change

June     March     December     September     June    
2013     2013     2012     2012     2012     Seq     Yr/Yr
Average Wholesale Funding ($ in millions)
Certificates - $100,000 and over $6,519 $4,017 $3,084 $3,016 $3,130 62 %

NM 

Other deposits 10 40 32 32 23 (74 %) (55 %)
Federal funds purchased 560 691 794 664 408 (19 %) 37 %
Other short-term borrowings 2,867 5,429 4,553 4,856 4,303 (47 %) (33 %)
Long-term debt         7,552       7,506       7,891       8,863       9,669       1 %     (22 %)
Total wholesale funding         $17,508       $17,683       $16,354       $17,431       $17,533       (1 %)     -  
 

Average wholesale funding of $17.5 billion decreased $175 million, or 1 percent, sequentially and was flat compared with the second quarter of 2012. The sequential and year-over-year comparisons reflect lower short-term borrowings, primarily short-term FHLB borrowings, partially offset by the issuance of certificates $100,000 and over. Average long-term debt balances reflected the full quarter impact of the $1.3 billion bank note issuance in the first quarter partially offset by the $750 million and $500 million senior note maturities in the second quarter of 2013.

                               
Noninterest Income
                                               
For the Three Months Ended     % Change
June March December September June
2013     2013     2012     2012     2012     Seq     Yr/Yr
Noninterest Income ($ in millions)
Service charges on deposits $136 $131 $134 $128 $130 4 % 4 %
Corporate banking revenue

106

 

99

 

114

 

101

 

102

 

7 % 4 %
Mortgage banking net revenue 233 220 258 200 183 6 % 28 %
Investment advisory revenue 98 100 93 92 93 (2 %) 6 %
Card and processing revenue 67 65 66 65 64 4 % 6 %
Other noninterest income 414 109 215 78 103

NM 

NM 

Securities gains, net - 17 2 2 3 (99 %) (96 %)
Securities gains (losses), net - non-qualifying
hedges on mortgage servicing rights         6       2       (2 )     5       -      

NM 

   

NM 

Total noninterest income $1,060 $743 $880 $671 $678 43 % 56 %
 
NM: Not Meaningful                                              
 

Noninterest income of $1.1 billion increased $317 million sequentially and increased $382 million compared with prior year results. The sequential and year-over-year increases were driven by the $242 million gain on the sale of Vantiv shares and a higher valuation adjustment on the Vantiv warrant. Vantiv warrant valuation adjustments were a positive $76 million in the second quarter of 2013 compared with positive $34 million and positive $56 million in the first quarter of 2013 and second quarter of 2012, respectively. Excluding these Vantiv-related benefits, noninterest income increased $33 million, or 5 percent, from the first quarter and $120 million, or 19 percent, from the second quarter of 2012.

Second quarter 2013 results also included a pre-tax benefit of $10 million resulting from a settlement related to a previously surrendered BOLI policy and a $5 million charge related to the valuation of the total return swap entered into as part of the 2009 sale of Visa, Inc. Class B shares. Negative valuation adjustments on this swap were $7 million in the first quarter of 2013 and $11 million in the second quarter of 2012. First quarter 2013 results also included $7 million in gains on the sale of certain FTAM advisory contracts. Second quarter 2012 results also included $17 million in lower of cost or market adjustments associated with bank premises held-for-sale. Excluding these items, the aforementioned Vantiv-related impacts, and investment securities gains in all periods, noninterest income of $737 million increased $45 million, or 7 percent, from the previous quarter and increased $90 million, or 14 percent, from the second quarter of 2012. The sequential comparison primarily reflected higher mortgage banking net revenue, corporate banking revenue, and service charges on deposits. The year-over-year comparison primarily reflected higher mortgage banking net revenue and mid-single digit growth in most other fee categories.

Service charges on deposits of $136 million increased 4 percent from the first quarter and increased 4 percent compared with the same quarter last year. Retail service charges increased 10 percent sequentially and 4 percent from the second quarter of 2012 primarily due to the transition to our new and simplified deposit product offerings. Commercial service charges increased 1 percent sequentially and increased 5 percent from a year ago primarily as a result of higher treasury management fees.

Corporate banking revenue of $106 million increased 7 percent from the first quarter of 2013 and 4 percent from the same period last year. The sequential and year-over-year increases were primarily driven by higher syndication fees, interest rate derivatives, foreign exchange fees, and business lending fees, partially offset by lower institutional sales revenue and letter of credit fees.

Mortgage banking net revenue was $233 million in the second quarter of 2013, a 6 percent increase from the first quarter of 2013 and a 28 percent increase from the second quarter of 2012. Second quarter 2013 originations were a record $7.5 billion, compared with $7.4 billion in the previous quarter and $5.9 billion in the second quarter of 2012. Second quarter 2013 originations resulted in gains of $150 million on mortgages sold, compared with gains of $169 million during the previous quarter and $183 million during the second quarter of 2012. The decline from the prior quarter and prior year primarily reflected lower gain on sale margins. Mortgage servicing fees this quarter were $62 million, compared with $61 million in the previous quarter and $63 million in the second quarter of 2012. Mortgage banking net revenue is also affected by net servicing asset value 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 $21 million in the second quarter of 2013 (reflecting MSR amortization of $51 million and MSR valuation adjustments of positive $72 million); negative $10 million in the first quarter of 2013 (MSR amortization of $53 million and MSR valuation adjustments of positive $43 million); and negative $63 million in the second quarter of 2012 (MSR amortization of $41 million and MSR valuation adjustments of negative $22 million). The mortgage servicing asset, net of the valuation reserve, was $894 million at quarter end on a servicing portfolio of $67 billion.

Net gains on securities held as non-qualifying hedges for the MSR portfolio were $6 million in the second quarter of 2013, compared with net gains of $2 million in the first quarter of 2013 and no gains or losses in the second quarter of 2012.

Investment advisory revenue of $98 million decreased 2 percent from record first quarter levels and increased 6 percent year-over-year. The sequential decline reflected lower tax-related private client services revenue, which is seasonally strong in the first quarter. The year-over-year increase was due to higher private client services revenue, brokerage fees, and institutional fees, resulting from increased production and an improvement in equity and bond market values. This fee revenue was partially offset by the absence of mutual fund fees due to the sale of certain Fifth Third funds in the third quarter of 2012.

Card and processing revenue of $67 million in the second quarter of 2013 increased 4 percent sequentially and increased 6 percent from the second quarter of 2012. The sequential increase reflected higher transactions volumes compared with seasonally weaker first quarter volumes. The year-over-year increase reflected the impact of higher transaction volumes, higher levels of consumer spending, and the benefit of new products.

Other noninterest income totaled $414 million in the second quarter of 2013, compared with $109 million in the previous quarter and $103 million in the second quarter of 2012. The second quarter of 2013 included a $242 million gain from the sale of Vantiv shares and a $10 million benefit resulting from a settlement related to a previously surrendered BOLI policy. Other noninterest income also included effects of the valuation of the Vantiv warrant and changes in income related to the valuation of the Visa total return swap. For the quarters ending June 30, 2013, March 31, 2013, and June 30, 2012, the impact of warrant valuation adjustments were positive $76 million, positive $34 million, and positive $56 million, respectively, and changes in income related to the Visa total return swap were losses of $5 million, $7 million, and $11 million, respectively. First quarter 2013 results also included $7 million in gains on the sale of certain FTAM advisory contracts. Second quarter 2012 results also included $17 million in lower of cost or market adjustments associated with bank premises held-for-sale. Excluding the items detailed above, other noninterest income of $91 million increased approximately $16 million, or 21 percent, from the first quarter of 2013 and the second quarter of 2012.

Net credit-related costs recognized in other noninterest income were $6 million in the second quarter of 2013 versus $10 million last quarter and $17 million in the second quarter of 2012. Second quarter 2013 results included no material gains or losses on sales of commercial loans held-for-sale and $1 million of fair value charges on commercial loans held-for-sale, as well as $5 million of losses on other real estate owned (OREO). First quarter 2013 results included $2 million of net gains on sales of commercial loans held-for-sale and $1 million of fair value charges on commercial loans held-for-sale, as well as $10 million of losses on OREO. Second quarter 2012 results included $8 million of net gains on sales of commercial loans held-for-sale, $5 million of fair value charges on commercial loans held-for-sale, and $19 million of losses on OREO.

Net gains on investment securities were immaterial in the second quarter of 2013, compared with investment securities gains of $17 million in the previous quarter and $3 million in the second quarter of 2012.

                               
Noninterest Expense
                                               
For the Three Months Ended     % Change
June March December September June
2013     2013     2012     2012     2012     Seq     Yr/Yr
Noninterest Expense ($ in millions)
Salaries, wages and incentives

$404

$399 $416 $399 $393 1 % 3 %
Employee benefits

83

 

114

 

96

 

79

 

84

 

(27 %) (1 %)
Net occupancy expense 76 79 76 76 74 (3 %) 4 %
Technology and communications 50 49 52 49 48 - 3 %
Equipment expense 28 28 27 28 27 (1 %) 1 %
Card and processing expense 33 31 31 30 30 6 % 10 %
Other noninterest expense         343       278       465       345       281       23 %     22 %
Total noninterest expense         $1,017       $978       $1,163       $1,006       $937       4 %     9 %
 

Noninterest expense of $1.0 billion increased 4 percent from the first quarter of 2013 and increased 9 percent versus the second quarter of 2012. Second quarter 2013 expenses included $33 million in charges to increase litigation reserves; and a $2 million benefit from the sale of affordable housing investments. First quarter 2013 expenses included a $9 million benefit from the sale of affordable housing investments and $9 million in charges to increase litigation reserves. Second quarter 2012 expenses included a $9 million reduction to FDIC insurance expense and an $8 million benefit from the sale of affordable housing investments. Excluding these items, noninterest expense of $986 million increased $8 million, or 1 percent, compared with the first quarter of 2013 and increased $32 million, or 3 percent, compared with the second quarter of 2012. Second quarter 2013 also included a net $6 million increase in the mortgage representation and warranty reserve, driven by a $9 million increase in the reserve as a result of additional information obtained from Freddie Mac regarding changes to their selection criteria for future mortgage repurchases and file requests. As such, we are able to better estimate the losses that are probable on loans sold to Freddie Mac with representation and warranty provisions. (Freddie Mac loans represent approximately 53 percent of the outstanding balance of sold loans.) The sequential comparison included a decrease in benefits expense due to seasonally higher FICA and unemployment costs in the first quarter. Sequential and year-over-year comparisons also reflected increased compensation-related expenses.

Credit costs related to problem assets recorded as noninterest expense totaled $35 million in the second quarter of 2013, compared with $24 million in the first quarter of 2013 and $40 million in the second quarter of 2012. Second quarter credit-related expenses included provision expense for mortgage repurchases of $20 million, compared with $20 million in the first quarter and $18 million a year ago. (Realized mortgage repurchase losses were $14 million in the second quarter of 2013, compared with $20 million last quarter and $16 million in the second quarter of 2012.) Provision for unfunded commitments was a benefit of $2 million in the current quarter, compared with a benefit of $11 million last quarter and a benefit of $1 million a year ago. Derivative valuation adjustments related to customer credit risk were a net zero, positive $1 million, and a net zero for this quarter, last quarter and the year ago quarter, respectively. OREO expense was $3 million this quarter, compared with $4 million last quarter and $5 million a year ago. Other problem asset-related expenses were $14 million in the second quarter, compared with $12 million the previous quarter and $19 million in the same period last year.

                       
Credit Quality
                                   
For the Three Months Ended
June March December September June
2013     2013     2012     2012     2012
Total net losses charged off ($ in millions)
Commercial and industrial loans ($33 ) ($25 ) ($36 ) ($29 ) ($46 )
Commercial mortgage loans (10 ) (26 ) (17 ) (28 ) (25 )
Commercial construction loans - (3 ) (4 ) (4 ) -
Commercial leases (2 ) - 1 (1 ) (7 )
Residential mortgage loans (15 ) (20 ) (23 ) (26 ) (36 )
Home equity (23 ) (30 ) (34 ) (37 ) (39 )
Automobile loans (5 ) (4 ) (9 ) (7 ) (7 )
Credit card (19 ) (20 ) (19 ) (18 ) (18 )
Other consumer loans and leases         (5 )     (5 )     (6 )     (6 )     (3 )
Total net losses charged off (112 ) (133 ) (147 ) (156 ) (181 )
 
Total losses (145 ) (168 ) (177 ) (188 ) (219 )
Total recoveries         33       35       30       32       38  
Total net losses charged off ($112 ) ($133 ) ($147 ) ($156 ) ($181 )
Ratios (annualized)
Net losses charged off as a percent of average loans and leases
(excluding held for sale) 0.51 % 0.63 % 0.70 % 0.75 % 0.88 %
Commercial 0.36 % 0.44 % 0.46 % 0.53 % 0.67 %
Consumer         0.73 %     0.89 %     1.01 %     1.04 %     1.15 %
 

Net charge-offs were $112 million in the second quarter of 2013, or 51 bps of average loans on an annualized basis, the lowest ratio since the first quarter of 2007. Net charge-offs declined 16 percent compared with first quarter 2013 net charge-offs of $133 million, and declined 39 percent versus second quarter 2012 net charge-offs of $181 million.

Commercial net charge-offs were $45 million, or 36 bps, the lowest ratio since the third quarter of 2007. Commercial net charge-offs declined $9 million compared with $54 million, or 44 bps, in the first quarter. C&I net charge-offs were $33 million, an increase of $8 million from $25 million in the previous quarter. Commercial mortgage net charge-offs totaled $10 million, down $16 million compared with $26 million in the prior quarter. Commercial construction net charge-offs were zero in the second quarter, down $3 million compared with the previous quarter.

Consumer net charge-offs were $67 million, or 73 bps, down $12 million sequentially to the lowest ratio since the second quarter of 2007. Net charge-offs on residential mortgage loans in the portfolio were $15 million, down $5 million from the previous quarter. Home equity net charge-offs were $23 million, down $7 million from the first quarter of 2013. Net charge-offs on brokered home equity loans represented 32 percent of second quarter home equity losses; such loans are 13 percent of the total home equity portfolio. The home equity portfolio included $1.2 billion of brokered loans, down from a peak of $2.6 billion in 2007; originations of these loans were discontinued in 2007. Net charge-offs in the auto portfolio of $5 million increased $1 million compared with the prior quarter. Net charge-offs on consumer credit card loans were $19 million, down $1 million from first quarter. Net charge-offs on other consumer loans were $5 million, or flat compared with the previous quarter.

                   
        For the Three Months Ended
June     March     December     September     June
2013     2013     2012     2012     2012
Allowance for Credit Losses ($ in millions)
Allowance for loan and lease losses, beginning $1,783 $1,854 $1,925 $2,016 $2,126
Total net losses charged off (112 ) (133 ) (147 ) (156 ) (181 )
Provision for loan and lease losses         64       62       76       65       71  
Allowance for loan and lease losses, ending 1,735 1,783 1,854 1,925 2,016
 
Reserve for unfunded commitments, beginning 168 179 176 178 179
Provision for unfunded commitments         (2 )     (11 )     3       (2 )     (1 )
Reserve for unfunded commitments, ending 166 168 179 176 178
 
Components of allowance for credit losses:
Allowance for loan and lease losses 1,735 1,783 1,854 1,925 2,016
Reserve for unfunded commitments         166       168       179       176       178  
Total allowance for credit losses $1,901 $1,951 $2,033 $2,101 $2,194
Allowance for loan and lease losses ratio
As a percent of loans and leases 1.99 % 2.08 % 2.16 % 2.32 % 2.45 %
As a percent of nonperforming loans and leases(a) 191 % 187 % 180 % 167 % 150 %
As a percent of nonperforming assets(a) 151 % 147 % 144 % 133 % 125 %
 
(a) Excludes nonaccrual loans and leases in loans held for sale
 

Provision for loan and lease losses totaled $64 million in the second quarter of 2013, up $2 million from the first quarter of 2013 and down $7 million from the second quarter of 2012. The allowance for loan and lease losses declined $48 million sequentially reflecting continued improvement in credit trends. The allowance represented 1.99 percent of total loans and leases outstanding as of quarter end, compared with 2.08 percent last quarter, and represented 191 percent of nonperforming loans and leases, and 151 percent of nonperforming assets.

             
        As of
June   March   December   September   June
Nonperforming Assets and Delinquent Loans ($ in millions) 2013   2013   2012   2012   2012
Nonaccrual portfolio loans and leases:
Commercial and industrial loans $274 $229 $234 $309 $377
Commercial mortgage loans 169 184 215 263 357
Commercial construction loans 39 66 70 76 99
Commercial leases 1 1 1 5 3
Residential mortgage loans 96 110 114 126

135

Home equity 28 28 30 29 30
Automobile loans - - - - 1
Other consumer loans and leases         -     -     1     -     -  
Total nonaccrual loans and leases $607 $618 $665 $808 $1,002
Restructured loans and leases - commercial (nonaccrual) 140 (c) 159 (c) 177 153 147
Restructured loans and leases - consumer (nonaccrual)         162     174     187     192     193  
Total nonperforming loans and leases $909 $951 $1,029 $1,153 $1,342
Repossessed personal property 6 7 8 10 9
Other real estate owned(a)         235     252     249     283     268  
Total nonperforming assets(b) $1,150 $1,210 $1,286 $1,446 $1,619
Nonaccrual loans held for sale 15 16 25 38 55
Restructured loans - commercial (nonaccrual) held for sale         -     3     4     5     5  
Total nonperforming assets including loans held for sale         $1,165     $1,229     $1,315     $1,489     $1,679  
 
Restructured Consumer loans and leases (accrual) $1,671 $1,683 $1,655 $1,641 $1,634
Restructured Commercial loans and leases (accrual) $475 (c) $441 (c) $431 $442 $455
 
Total loans and leases 90 days past due $152 $164 $195 $201 $203
Nonperforming loans and leases as a percent of portfolio loans,
leases and other assets, including other real estate owned(b) 1.04% 1.11% 1.19% 1.38% 1.62%
Nonperforming assets as a percent of portfolio loans, leases
and other assets, including other real estate owned(b) 1.32% 1.41% 1.49% 1.73% 1.96%
 
(a) Excludes government insured advances.
(b) Does not include nonaccrual loans held for sale.
(c) Excludes $21.5 million of restructured nonaccrual loans and $7.6 million of restructured accruing loans associated with a consolidated variable interest entity in which the Bancorp has no continuing credit risk.
 

Total nonperforming assets, including loans held-for-sale, were $1.2 billion, a decline of $64 million, or 5 percent, from the previous quarter. Nonperforming assets held-for-investment (NPAs) were $1.2 billion, or 1.32 percent, of total loans, leases and OREO, and decreased $60 million, or 5 percent, from the previous quarter. Nonperforming loans held-for-investment (NPLs) at quarter end were $909 billion or 1.04 percent of total loans, leases and OREO, and decreased $42 million, or 4 percent, from the previous quarter.

Commercial portfolio NPAs were $794 million, or 1.56 percent of commercial loans, leases and OREO, and decreased $34 million, or 4 percent, from the first quarter. Commercial portfolio NPLs were $623 million, or 1.23 percent of commercial loans and leases, and decreased $16 million from last quarter. C&I portfolio NPAs of $361 million increased $29 million from the prior quarter. Commercial mortgage portfolio NPAs were $355 million, down $54 million from the previous quarter. Commercial construction portfolio NPAs were $69 million, a decrease of $9 million from the previous quarter. Commercial real estate loans in Michigan and Florida represented 50 percent of commercial real estate NPAs and 36 percent of our total commercial real estate portfolio. Within the overall commercial loan portfolio, residential real estate builder and developer portfolio NPAs of $63 million declined $16 million from the first quarter, of which $38 million were commercial mortgage assets, $18 million were commercial construction assets and $7 million were C&I assets. Commercial portfolio NPAs included $140 million of nonaccrual troubled debt restructurings (TDRs), compared with $159 million last quarter.

Consumer portfolio NPAs of $356 million, or 0.98 percent of consumer loans, leases and OREO, decreased $26 million from the first quarter. Consumer portfolio NPLs were $286 million, or 0.79 percent of consumer loans and leases and decreased $26 million from last quarter. Of consumer NPAs, $312 million were in residential real estate portfolios. Residential mortgage NPAs were $254 million, $21 million lower than last quarter, with Florida representing 44 percent of residential mortgage NPAs and 13 percent of total residential mortgage loans. Home equity NPAs of $57 million were down $1 million compared with last quarter. Credit card NPAs were down $3 million compared to the previous quarter at $37 million. Consumer nonaccrual TDRs were $162 million in the second quarter of 2013, compared with $174 million in the first quarter 2013.

Second quarter OREO balances included in portfolio NPA balances described above were $235 million, down $17 million from the first quarter, and included $171 million in commercial OREO and $64 million in consumer OREO. Repossessed personal property of $6 million consisted largely of autos.

Loans still accruing over 90 days past due were $152 million, down $12 million, or 7 percent, from the first quarter of 2013. Commercial balances over 90 days past due were immaterial. Consumer balances 90 days past due of $152 million were down $11 million from the previous quarter. Loans 30-89 days past due of $258 million decreased $48 million, or 16 percent, from the previous quarter. Commercial balances 30-89 days past due of $7 million were down $30 million sequentially and consumer balances 30-89 days past due of $251 million decreased $18 million from the first quarter, reflecting declines in most categories. The above delinquencies figures exclude nonaccruals described previously.

Commercial nonaccrual loans held-for-sale were $15 million, compared with $19 million at the end of the first quarter.

                       
Capital Position
                                           
For the Three Months Ended
June March December September June
2013     2013     2012     2012     2012
Capital Position

Average shareholders' equity to average assets

11.64% 11.38% 11.65% 11.82% 11.58%
Tangible equity(a) 9.65% 9.36% 9.17% 9.45% 9.50%

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

8.83% 9.03% 8.83% 9.10% 9.15%

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

8.95% 9.28% 9.10% 9.45% 9.49%

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

9.50% 9.77% 9.57% 9.74% 9.84%

Regulatory capital ratios:(c)

Tier I capital 11.07% 10.83% 10.65% 10.85% 12.31%
Total risk-based capital 14.35% 14.35% 14.42% 14.76% 16.24%
Tier I leverage 10.41% 10.03% 10.05% 10.09% 11.39%
Tier I common equity(a) 9.44% 9.70% 9.51% 9.67% 9.77%
Book value per share 15.57 15.42 15.10 14.84 14.56
Tangible book value per share(a) 12.71 12.62 12.33 12.12 11.89
 

(a) The tangible equity, tangible common equity, tier I common equity and tangible book value per share ratios, while not required by accounting principles generally accepted in the United States of America (U.S. GAAP), are considered to be critical metrics with which to analyze banks. The 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 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 resulting in the Bancorp's total risk weighted assets.

(c) Current period regulatory capital data ratios are estimated.

 

Capital ratios remained strong, reflecting growth in retained earnings, the perpetual preferred stock issuance, and the impact of share repurchase activity during the quarter. Compared with the prior quarter, the Tier 1 common equity ratio* decreased 26 bps to 9.44 percent, and included a 48 bps reduction due to repurchases of approximately $539 million in common shares announced during the quarter. The tangible common equity to tangible assets ratio* was 8.83 percent (excluding unrealized gains/losses) and 8.95 percent (including unrealized gains/losses). The Tier 1 capital ratio increased 24 bps to 11.07 percent. The Total capital ratio was flat at 14.35 percent and the Leverage ratio increased 38 bps to 10.41 percent. The Tier 1 and Total capital ratios reflected the $593 million issuance of perpetual preferred stock during the quarter.

Book value per share at June 30, 2013 was $15.57 and tangible book value per share* was $12.71, compared with March 31, 2013 book value per share of $15.42 and tangible book value per share of $12.62. Both measures included the impact of retained earnings and share repurchase activity.

As previously announced, Fifth Third entered into a share repurchase agreement with a counterparty on January 28, 2013, whereby Fifth Third would purchase approximately $125 million of its outstanding common stock. Upon completion of the agreement on April 5, 2013, an additional 849,037 shares were repurchased. This transaction reduced average share count by approximately 2 million shares in the second quarter. Additionally, as previously announced, Fifth Third entered into a share repurchase agreement with a counterparty on May 21, 2013, whereby Fifth Third would purchase approximately $539 million of its outstanding common stock. For the quarter, this transaction reduced Fifth Third’s share count by 25 million shares on the initial transaction date, which had a 10 million share impact on average share count. Fifth Third expects the settlement of this forward contract to occur on or before October 21, 2013.

U.S. banking regulators recently approved final capital rules for U.S. banks, including changes to the definition of capital components (i.e. the numerator of capital ratios) and changes to risk-weighting rules for assets (i.e. the denominator of capital ratios). These final rules implement portions of rules proposed by international banking regulators known as Basel III and Basel II. Fifth Third is not a Basel “Advanced Approaches” institution. Therefore, Fifth Third would be subject to the general capital rules governing the capital or numerator portion of these final rules and the “Standardized Approach” for risk-weighting assets. Additionally, Fifth Third would have a one-time irrevocable option to neutralize certain accumulated other comprehensive income (AOCI) components in capital, comparable to treatment under prevailing capital rules. Fifth Third will also be subject to the Market Risk Rule for trading assets and liabilities, which has been re-proposed for alignment with the other final capital rules. We continue to evaluate the final rule and its impact, which would apply beginning reporting periods after January 1, 2015.

Our current estimate of the pro-forma fully phased in Tier I common equity ratio at June 30, 2013 under the final capital rule, assuming the Company elected to maintain the current treatment of AOCI components in capital, would be approximately 9.10 percent**. This would compare with 9.44 percent* as calculated under the currently prevailing Basel I capital framework. The primary drivers of the change from the prevailing capital framework to the Basel III framework would be an increase in Tier I common equity of approximately 9 bps, which would be more than offset by modestly higher risk-weighted assets. (The largest impact to the numerator is that the new rules would not require the current 10 percent deduction of mortgage servicing rights assets; the largest changes to the denominator would be the treatment of securitizations and lending commitments of less than a year.) Fifth Third’s previous estimates of its pro forma Basel III Tier 1 common equity ratio assumed, as previously proposed, the inclusion of AOCI components in capital and the proposed risk-weighting treatment for 1-4 family senior and junior lien residential mortgages. Those factors would have caused the most significant pro forma impacts to previously proposed regulatory common equity ratios. Should Fifth Third make the election to include AOCI components in capital, the June 30, 2013 pro forma Basel III Tier 1 common ratio would be increased by approximately 13 bps. Fifth Third’s pro forma Tier 1 common equity ratio exceeds the minimum buffered Tier 1 common equity ratio of 7 percent, comprising a minimum of 4.5 percent plus a capital conservation buffer of 2.5 percent. The pro forma Tier 1 common equity ratio does not include the effect of any mitigating actions the Bancorp may undertake to offset any impact of the final capital rules.

The new regulations approved by U.S. banking regulators also cease Tier 1 capital treatment for outstanding trust preferred securities (“TruPS”) for banking organizations greater than $15 billion by January 1, 2016. Fifth Third’s Tier 1 and Total capital levels at June 30, 2013 included $810 million of TruPS, or 72 bps of risk weighted assets. Based on regulatory developments, Fifth Third will continue to evaluate the role of these types of securities in its capital structure. Fifth Third included the potential redemption of $750 million in TruPS in its 2013 CCAR plan. To the extent these types of securities remain outstanding during and after the phase-in period, they would continue to be included in Total capital, as approved in the capital rules described above. We expect to manage our capital structure over time – including the components represented by common equity and non-common equity – to adapt to and reflect the effect of changes in U.S. bank capital regulations, transition periods for inclusion of capital components in capital, regulatory expectations, and our goals for capital levels and capital composition, as appropriate.

Fifth Third is subject to the Federal Reserve’s (FRB) Capital Plans Rule which was issued November 9, 2012. Under this rule, we are required to submit our annual capital plan to the Federal Reserve, for its objection or non-objection. The plan includes those capital actions Fifth Third intends to pursue or contemplate during the period covered by the FRB’s response, which is the second quarter of 2013 through the first quarter of 2014. These actions were more fully described in our March 14, 2013 announcement that the FRB did not object to Fifth Third’s 2013 CCAR capital plan. Any such actions would be based on environmental and market conditions, earnings results, our capital position, and other factors, as well as approval by the Fifth Third Board of Directors, at the time.

Pursuant to Fifth Third’s 2013 CCAR capital plan, Fifth Third issued $593 million of 5.10 percent fixed-to-floating non-cumulative perpetual preferred stock (Series H preferred stock) on May 16, 2013. Additionally, pursuant to its capital plan, on June 11, 2013, Fifth Third provided notice that its Board of Directors had authorized the conversion of all $398 million in outstanding Depositary Shares representing Series G 8.5 percent convertible preferred stock into approximately 35.5 million common shares issued to the holders. (Note that these securities have been accounted for under the “if-converted” method for inclusion in common shares for diluted earnings per share reporting purposes.) Effective as of the close of the market on July 1, 2013, after the close of the second quarter of 2013, Fifth Third converted all remaining outstanding shares of Series G Preferred Stock, represented by 4,110,500 Depositary Shares, into shares of Fifth Third’s Common Stock. Each Depositary Share was convertible into 8.6393 shares of Common Stock, and the aggregate number of shares of Common Stock issued in this conversion was 35,511,740.

* Non-GAAP measure; see Reg. G reconciliation on page 34 in Exhibit 99.1 of 8-k filing dated 7/18/13.
** Capital ratios estimated; presented under current U.S. capital regulations. The pro forma Basel III Tier I common equity ratio is management’s estimate based upon its current interpretation of recent prospective regulatory capital requirements approved in July 2013.

Tax Rate

The effective tax rate was 29.8 percent this quarter compared with 30.4 percent in the first quarter. The higher first quarter tax rate included the seasonal impact of the expiration of employee stock options.

Other

Fifth Third Bank owns 53.8 million units representing a 28 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 $27.60 on June 28, 2013, our interest in Vantiv was valued at approximately $1.5 billion. Next month in our 10-Q, we will update our disclosure of the carrying value of our interest in Vantiv stock, which was $574 million as of March 31, 2013. 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 $287 million as of June 30, 2013.

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 by Thomson Financial and may be accessed through the Fifth Third Investor Relations website at www.53.com (click on “About Fifth Third” then “Investor Relations”). The webcast also is being distributed over Thomson Financial’s Investor Distribution Network to both institutional and individual investors. Individual investors can listen to the call through Thomson Financial’s individual investor center at www.earnings.com or by visiting any of the investor sites in Thomson Financial’s Individual Investor Network. Institutional investors can access the call via Thomson Financial’s password-protected event management site, StreetEvents (www.streetevents.com).

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 beginning approximately two hours after the conference call until Thursday, August 1 by dialing 800-585-8367 for domestic access and 404-537-3406 for international access (passcode 88820035#).

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of June 30, 2013, the Company had $123 billion in assets and operated 18 affiliates with 1,326 full-service Banking Centers, including 104 Bank Mart® locations open seven days a week inside select grocery stores and 2,433 ATMs in Ohio, Kentucky, Indiana, 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 28% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest and, as of June 30, 2013, had $313 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® National Global Select Market under the symbol “FITB.”

Forward-Looking Statements

This news 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,” “is anticipated,” “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. 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 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 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 the separation of or the results of 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) ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; and (23) 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.

Source: Fifth Third Bancorp

Fifth Third Bancorp
Investors
Jim Eglseder, 513-534-8424
Laura Wehby, 513-534-7407
or
Media
Larry Magnesen, 513-534-8055