Fifth Third Bank

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Fifth Third Announces Fourth Quarter Earnings Per Diluted Share of $0.43

2013 Earnings Per Diluted Share of $2.02, Up 22 Percent from 2012

Record full year net income and net income to common shareholders

  • 4Q13 net income available to common shareholders of $383 million, or $0.43 per diluted common share
  • 4Q13 return on average assets (ROA) of 1.24%; return on average common equity of 10.8%; return on average tangible common equity** of 13.1%
  • Pre-provision net revenue (PPNR)** of $614 million in 4Q13, including $91 million pre-tax gains on the valuation of the Vantiv warrant and $69 million increased litigation reserves
    • Net interest income (FTE) of $905 million, up 1% sequentially; net interest margin of 3.21%
      • Period end portfolio loans of $88.6 billion, up $1.4 billion; average portfolio loans up 1% sequentially
    • Noninterest income of $703 million compared with $721 million in prior quarter (gains on Vantiv investments similar in each quarter)
    • Noninterest expense of $989 million, up 3% from 3Q13, driven by higher litigation reserve expense partially offset by a benefit to the mortgage repurchase provision
  • Overall credit trends remain favorable
    • 4Q13 net charge-offs of $148 million (0.67% of loans and leases) vs. 3Q13 NCOs of $109 million (0.49% of loans and leases) and 4Q12 NCOs of $147 million (0.70% of loans and leases); 4Q13 results included $43 million of charge-offs on a loan restructured during the quarter and $6 million of home equity charge-offs due to a change in policy, which together contributed 22 bps to the 4Q13 charge off ratio
    • 4Q13 provision expense of $53 million vs. $51 million in 3Q13 and $76 million in 4Q12
    • Allowance for loan and lease losses decreased $95 million sequentially reflecting continued improvement in credit trends and charges to the allowance; allowance to loan ratio of 1.79%
    • Total nonperforming assets (NPAs) of $986 million, including loans held-for-sale (HFS), declined $39 million, or 4%, sequentially; portfolio NPA ratio of 1.10% down 6 bps from 3Q13, NPL ratio of 0.84% down 4 bps from 3Q13; results reflect $46 million of additions due to a change in policy on home equity nonaccruals
  • Strong capital ratios*; sequentially reduced due to 4Q13 repurchases
    • Tier 1 common ratio 9.38%**, vs. 9.88% in 3Q13 (Basel III pro forma estimate of ~9.0%**)
    • Tier 1 risk-based capital ratio 10.35%, Total risk-based capital ratio 14.07%, Leverage ratio 9.64%
    • Tangible common equity ratio** of 8.63% excluding unrealized gains/losses; 8.69% including them
  • Book value per share of $15.85; tangible book value per share** of $13.00; down 1% from 3Q13 and up 5% from 4Q12
  • Repurchased 32 million common shares in 4Q13; reduced average diluted share count by 12 million

* 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 1/23/14.

CINCINNATI--(BUSINESS WIRE)--Jan. 23, 2014-- Fifth Third Bancorp (Nasdaq: FITB) today reported record full year 2013 net income of $1.8 billion, up 16 percent from net income of $1.6 billion in 2012. After preferred dividends, 2013 net income available to common shareholders was a record $1.8 billion, or $2.02 per diluted share, up 17 percent compared with 2012 net income available to common shareholders of $1.5 billion, or $1.66 per diluted share.

Fourth quarter 2013 net income was $402 million, a decrease of 4 percent from net income of $421 million in the third quarter of 2013 and an increase of 1 percent from net income of $399 million in the fourth quarter of 2012. After preferred dividends, net income available to common shareholders was $383 million, or $0.43 per diluted share, in the fourth quarter 2013, compared with $421 million, or $0.47 per diluted share, in the third quarter 2013, and $390 million, or $0.43 per diluted share, in the fourth quarter of 2012.

Fourth quarter 2013 included:

Income

  • $91 million positive valuation adjustment on the Vantiv warrant
  • ($18 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
  • $9 million annual payment received from Vantiv pursuant to tax receivable agreement

Expenses

  • ($69 million) in net charges to increase litigation reserves
  • ($8 million) of debt extinguishment costs associated with the redemption of Fifth Third Capital Trust IV trust preferred securities (TruPS)
  • ($8 million) contribution to Fifth Third Foundation
  • ($8 million) in severance expense

Results also included a benefit to the mortgage repurchase provision of $28 million primarily related to Fifth Third’s settlement with Freddie Mac and corresponding expectations for future repurchase requests and file claims. (As previously announced, Fifth Third entered into a settlement for $25 million with Freddie Mac to resolve certain repurchase claims associated with mortgage loans originated and sold prior to January 1, 2009, which was charged against the representation and warranty reserve.)

Third quarter 2013 included:

Income

  • $85 million gain on the sale of Vantiv shares
  • $6 million positive valuation adjustment on the Vantiv warrant
  • ($2 million) charge related to the valuation of the Visa total return swap

Expenses

  • ($30 million) in charges to increase litigation reserves
  • ($5 million) in severance expense
  • ($5 million) in large bank assessments for 2012 and 2013 initiated by regulators under the Dodd-Frank Act
  • ($4 million) seasonal pension settlement charge

Results also included a benefit to the mortgage repurchase provision of $4 million.

Fourth quarter 2012 included:

Income

  • $157 million gain on the sale of Vantiv shares
  • ($19 million) negative valuation adjustment on the Vantiv warrant
  • ($15 million) charge related to the valuation of the Visa total return swap

Expenses

  • ($134 million) of debt extinguishment costs associated with the termination of Federal Home Loan Bank (FHLB) debt
  • ($13 million) in charges to increase litigation reserves
  • ($3 million) in severance expense

Other

  • Fourth quarter 2012 taxes were reduced by approximately $10 million due to the termination of certain leases

Results also included the impact of $47 million in mortgage repurchase provision.

 
Earnings Highlights
                           
For the Three Months Ended % Change
December September June March December  
2013 2013 2013 2013 2012 Seq   Yr/Yr
Earnings ($ in millions)
Net income attributable to Bancorp $ 402 $ 421 $ 591 $ 422 $ 399 (4 %) 1 %
Net income available to common shareholders $ 383 $ 421 $ 582 $ 413 $ 390 (9 %) (2 %)
 
Common Share Data
Earnings per share, basic 0.44 0.47 0.67 0.47 0.44 (6 %) -
Earnings per share, diluted 0.43 0.47 0.65 0.46 0.43 (9 %) -
Cash dividends per common share 0.12 0.12 0.12 0.11 0.10 - 20 %
 
Financial Ratios
Return on average assets 1.24 % 1.35 % 1.94 % 1.41 % 1.33 % (8 %) (7 %)
Return on average common equity 10.8 12.1 17.3 12.5 11.5 (10 %) (6 %)
Return on average tangible common equity 13.1 14.7 21.1 15.4 14.1 (11 %) (7 %)
Tier I risk-based capital 10.35 11.14 11.07 10.83 10.65 (7 %) (3 %)
Tier I common equity 9.38 9.88 9.43 9.70 9.51 (5 %) (1 %)
Net interest margin(a) 3.21 3.31 3.33 3.42 3.49 (3 %) (8 %)
Efficiency(a) 61.5 59.2 53.2 59.8 65.2 4 % (6 %)
 
Common shares outstanding (in thousands) 855,306 887,030 851,474 874,645 882,152 (4 %) (3 %)
Average common shares outstanding
(in thousands):
Basic 868,077 880,183 858,583 870,923 884,676 (1 %) (2 %)
Diluted 877,511 888,111 900,625 913,163 925,585 (1 %) (5 %)
 
(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 and not the rounded dollar amounts.
NM: Not meaningful.
 

“Fifth Third reported full year net income available to common shareholders of $1.8 billion in 2013, which marks the best result in our Company’s history and represents 17 percent growth from strong 2012 earnings,” said Kevin T. Kabat, Vice Chairman and CEO of Fifth Third Bancorp. “Return on average assets of 1.48 percent increased 11 percent over last year, and return on average tangible common equity of 16.0 percent was up 12 percent over last year.

“Fourth quarter earnings of $402 million rounded out a very good year. Earning asset growth, including 2 percent sequential loan growth, contributed to a $7 million increase in net interest income. Total deposits were up 5 percent sequentially, highlighted by 8 percent demand deposit growth. Most fee income comparisons were up, led by mortgage banking which increased 4 percent sequentially, and service charges on deposits, investment advisory revenue, and card and processing revenue which all increased in the low single digits.

“Full year net charge-offs were down more than $200 million, or 29 percent from last year, and were at the lowest levels since 2007. Nonperforming assets were down 24 percent from last year and were at the lowest levels since 2006.

“We continued to prudently and actively manage our capital position, reducing our share count by 3 percent, inclusive of the additional 35.5 million shares attributable to the conversion of our Series G preferred stock to common stock during the year. We also increased our annual dividends to $0.47 per share, up 31 percent from 2012. Despite these substantial returns, shareholders’ equity increased 4 percent from a year ago. Fifth Third performed very well in 2013, and we feel the Company is well positioned to succeed as we enter 2014.”

* Non-GAAP measure; see Reg. G reconciliation on page 34 in Exhibit 99.1 of 8-k filing dated 1/23/14.

Income Statement Highlights
                           
For the Three Months Ended   % Change
December   September   June   March   December    
2013   2013   2013   2013   2012   Seq   Yr/Yr
Condensed Statements of Income ($ in millions)

Net interest income (taxable equivalent)

$ 905 $ 898 $ 885 $ 893 $ 903 1 % -
Provision for loan and lease losses 53 51 64 62 76 5 % (30 %)
Total noninterest income 703 721 1,060 743 880 (2 %) (20 %)
Total noninterest expense   989       959       1,035       978       1,163     3 %   (15 %)

Income before income taxes (taxable equivalent)

  566       609       846       596       544     (7 %)   4 %
 
Taxable equivalent adjustment 5 5 5 5 4 4 % 17 %
Applicable income taxes   159       183       250       179       144     (13 %)   11 %
Net income 402 421 591 412 396 (5 %) 2 %
Less: Net income attributable to noncontrolling interests   -       -       -       (10 )     (3 )   NM     (89 %)
Net income attributable to Bancorp 402 421 591 422 399 (4 %) 1 %
Dividends on preferred stock   19       -       9       9       9     -     NM  
Net income available to common shareholders   383       421       582       413       390     (9 %)   (2 %)
Earnings per share, diluted $ 0.43     $ 0.47     $ 0.65     $ 0.46     $ 0.43     (9 %)   -  
 
Net Interest Income
                           
For the Three Months Ended   % Change
December September June March December
2013   2013   2013   2013   2012   Seq   Yr/Yr
Interest Income ($ in millions)
Total interest income (taxable equivalent) $ 1,007 $ 997 $ 989 $ 1,000 $ 1,020 1 % (1 %)
Total interest expense   102       99       104       107       117     3 %   (13 %)
Net interest income (taxable equivalent) $ 905     $ 898     $ 885     $ 893     $ 903     1 %   -  
 
Average Yield
Yield on interest-earning assets (taxable equivalent) 3.57 % 3.68 % 3.73 % 3.84 % 3.94 % (3 %) (9 %)
Rate paid on interest-bearing liabilities   0.52 %     0.54 %     0.57 %     0.59 %     0.65 %   (3 %)   (20 %)
Net interest rate spread (taxable equivalent)   3.05 %     3.14 %     3.16 %     3.25 %     3.29 %   (3 %)   (7 %)
Net interest margin (taxable equivalent) 3.21 % 3.31 % 3.33 % 3.42 % 3.49 % (3 %) (8 %)
 
Average Balances ($ in millions)
Loans and leases, including held for sale $ 88,865 $ 89,154 $ 89,473 $ 88,880 $ 86,180 - 3 %
Total securities and other short-term investments 23,043 18,528 16,962 16,846 16,765 24 % 37 %
Total interest-earning assets 111,908 107,682 106,435 105,726 102,945 4 % 9 %
Total interest-bearing liabilities 77,573 73,190 73,363 74,038 71,420 6 % 9 %
Bancorp shareholders' equity   14,757       14,440       14,221       13,779       13,855     2 %   7 %
 

Net interest income of $905 million on a fully taxable equivalent basis increased $7 million from the third quarter. The increase was driven by higher balances and yields in investment securities, higher portfolio loan balances, and the benefit from high-priced CDs that matured during the quarter. These benefits were partially offset by the effects of loan repricing, lower held-for-sale loan balances, and higher interest expense as a result of debt issuances during the quarter.

The net interest margin was 3.21 percent, a decrease of 10 bps from 3.31 percent in the previous quarter. The decline in net interest margin was largely due to higher cash balances driven by strong deposit growth as well as the impact of the debt issuances during the quarter. Otherwise, the benefit from the maturity of high-priced CDs and higher securities yields offset the impact of lower loan yields.

Compared with the fourth quarter of 2012, net interest income increased $2 million and the net interest margin decreased 28 bps, driven by lower asset yields partially offset by higher average loan balances, lower long-term debt expense due to a reduction in higher cost average long-term debt, and run-off in higher-priced CDs.

Securities

Average securities and other short-term investments were $23.0 billion in the fourth quarter of 2013 compared with $18.5 billion in the previous quarter and $16.8 billion in the fourth quarter of 2012. Average securities of $18.4 billion increased $1.8 billion from the prior quarter, largely due to net securities added during the third quarter of 2013 and approximately $550 million net additions in the fourth quarter of 2013. Other short-term investments average balances of $4.6 billion increased $2.7 billion sequentially with higher interest-bearing cash balances held at the Federal Reserve at quarter end related to deposit growth and the debt issuances during the quarter.

Loans
                                       
  For the Three Months Ended   % Change
December   September   June   March   December    
2013   2013   2013   2013   2012   Seq   Yr/Yr
Average Portfolio Loans and Leases ($ in millions)
Commercial:
Commercial and industrial loans $ 38,835 $ 38,133 $ 37,630 $ 36,395 $ 34,301 2 % 13 %
Commercial mortgage loans 8,047 8,273 8,618 8,965 9,193 (3 %) (12 %)
Commercial construction loans 952 793 713 695 686 20 % 39 %
Commercial leases     3,578       3,572       3,552       3,556       3,509     -     2 %
Subtotal - commercial loans and leases     51,412       50,771       50,513       49,611       47,689     1 %   8 %
Consumer:
Residential mortgage loans 12,609 12,486 12,260 12,096 11,846 1 % 6 %
Home equity 9,296 9,432 9,625 9,872 10,129 (1 %) (8 %)
Automobile loans 12,019 12,083 11,887 11,961 11,944 (1 %) 1 %
Credit card 2,202 2,140 2,071 2,069 2,029 3 % 9 %
Other consumer loans and leases     357       360       351       294       306     (1 %)   17 %
Subtotal - consumer loans and leases     36,483       36,501       36,194       36,292       36,254     -     1 %
Total average loans and leases (excluding held for sale) $ 87,895 $ 87,272 $ 86,707 $ 85,903 $ 83,943 1 % 5 %
 
Average loans held for sale     970       1,882       2,766       2,977       2,237     (48 %)   (57 %)
 

Average loan and lease balances (excluding loans held-for-sale) increased $623 million, or 1 percent, sequentially and increased $4.0 billion, or 5 percent, from the fourth quarter of 2012. The increase in average loans and leases was primarily driven by growth in the commercial and industrial (C&I), commercial construction, and residential mortgage loan portfolios. The growth was partially offset by declines in commercial mortgage, home equity, and auto loans. Period end loans and leases (excluding loans held-for-sale) of $88.6 billion increased $1.4 billion, or 2 percent, sequentially and $2.8 billion, or 3 percent, from a year ago.

Average commercial portfolio loan and lease balances increased $641 million, or 1 percent, sequentially and increased $3.7 billion, or 8 percent, from the fourth quarter of 2012. The increase from prior periods was largely driven by growth in average C&I loans of $702 million from the prior quarter and $4.5 billion from the fourth quarter of 2012, partially offset by lower average commercial real estate balances. Within commercial real estate, average commercial mortgage balances continued to decline although average commercial construction balances increased for the fourth consecutive quarter. Commercial line usage, on an end of period basis, was 29 percent of committed lines in the fourth quarter of 2013 compared with 30 percent in the third quarter of 2013 and 31 percent in the fourth quarter of 2012.

Average consumer portfolio loan and lease balances were flat sequentially and increased 1 percent year-over-year. Average residential mortgage loans increased $123 million sequentially and $763 million from a year ago, reflecting the continued retention of certain residential mortgage loans. Otherwise, on a sequential basis, average home equity and auto loans each declined 1 percent due to seasonally lower production volumes while average bankcard loans increased 3 percent reflecting growth in actively used cards and seasonally higher balances. Compared with the fourth quarter of 2012, growth in all other consumer loan categories was partially offset by lower home equity balances as paydowns continue to outpace new production.

Average loans held-for-sale balances of $970 million decreased $912 million sequentially and $1.3 billion compared with the fourth quarter of 2012. Period end loans held-for-sale of $944 million decreased $386 million from the previous quarter and $2.0 billion from the fourth quarter of 2012. Both comparisons reflected lower residential mortgage held-for-sale balances due to the lower volume of mortgage originations.

Deposits
                                         
    For the Three Months Ended   % Change
December   September   June   March   December    
2013   2013   2013   2013   2012   Seq   Yr/Yr
Average Deposits ($ in millions)
Demand $ 30,765 $ 30,655 $ 29,682 $ 28,565 $ 29,223 - 5 %
Interest checking 24,650 23,116 22,796 23,763 23,556 7 % 5 %
Savings 17,323 18,026 18,864 19,576 20,216 (4 %) (14 %)
Money market 11,285 9,693 8,918 7,932 6,026 16 % 87 %
Foreign office(a)     1,717       1,755       1,418       1,102       1,174     (2 %)   46 %
Subtotal - Transaction deposits 85,740 83,245 81,678 80,938 80,195 3 % 7 %
Other time     3,529       3,676       3,859       3,982       4,094     (4 %)   (14 %)
Subtotal - Core deposits 89,269 86,921 85,537 84,920 84,289 3 % 6 %
Certificates - $100,000 and over 7,456 7,315 6,519 4,017 3,084 2 % 142 %
Other     -       17       10       40       32     (99 %)   (99 %)
Total deposits   $ 96,725     $ 94,253     $ 92,066     $ 88,977     $ 87,405     3 %   11 %

(a)

 

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

 

Average core deposits increased $2.3 billion, or 3 percent, sequentially and increased $5.0 billion, or 6 percent, from the fourth quarter of 2012. Average transaction deposits, which are included in core deposits, increased $2.5 billion, or 3 percent, from the third quarter of 2013 and $5.5 billion, or 7 percent from the fourth quarter of 2012 driven by higher money market account, interest checking, and demand deposit balances, partially offset by lower savings balances. Other time deposits, primarily CDs, decreased 4 percent sequentially and 14 percent compared with the fourth quarter of 2012.

Commercial average transaction deposits increased 6 percent sequentially and 10 percent from the previous year. Sequential and year-over-year growth reflected higher money market account, interest checking, and demand deposit balances due to new accounts and customers holding higher balances.

Consumer average transaction deposits increased 1 percent sequentially and 4 percent from the fourth quarter of 2012. The sequential increase reflected higher interest checking and money market account balances, which were partially offset by lower savings and demand deposit balances. Year-over-year growth was driven by increased money market account and demand deposit balances partially offset by lower savings balances. Consumer CDs included in core deposits declined 4 percent sequentially and 14 percent year-over-year driven by maturities of higher-rate CDs.

Wholesale Funding
                                       
  For the Three Months Ended   % Change
December   September   June   March   December    
2013   2013   2013   2013   2012   Seq   Yr/Yr
Average Wholesale Funding ($ in millions)
Certificates - $100,000 and over $ 7,456 $ 7,315 $ 6,519 $ 4,017 $ 3,084 2 % NM
Other deposits - 17 10 40 32 (99 %) (99 %)
Federal funds purchased 301 464 560 691 794 (35 %) (62 %)
Other short-term borrowings 2,177 1,675 2,867 5,429 4,553 30 % (52 %)
Long-term debt   9,135       7,453       7,552       7,506       7,891     23 %   16 %
Total wholesale funding $ 19,069     $ 16,924     $ 17,508     $ 17,683     $ 16,354     13 %   17 %
 

Average wholesale funding of $19.1 billion increased $2.1 billion, or 13 percent, sequentially and increased $2.7 billion, or 17 percent, compared with the fourth quarter of 2012. The sequential increase was driven by an increase in long-term debt and short-term borrowings, however, short-term borrowings on an end of period basis decreased by $2.1 billion from the prior quarter due to a decline in FHLB borrowings. The year-over-year increase reflected the issuance of certificates $100,000 and over and an increase in long-term debt, partially offset by a decrease in short-term borrowings. Average long-term debt balances reflected the issuance of $750 million in Bancorp subordinated debt and $1.75 billion in Bank senior debt in the fourth quarter of 2013, as well as the full quarter impact of the $1.3 billion in long-term funding issued in conjunction with the auto securitization in August of 2013. On December 30, 2013, Fifth Third also redeemed $750 million of Fifth Third Capital Trust IV TruPS, which did not impact the average balances due to the timing of the redemption.

Noninterest Income              
                             
For the Three Months Ended   % Change
December September June March December
2013   2013   2013   2013   2012   Seq   Yr/Yr
Noninterest Income ($ in millions)
Service charges on deposits $ 142 $ 140 $ 136 $ 131 $ 134 1 % 6 %
Corporate banking revenue 94 102 106 99 114 (8 %) (18 %)
Mortgage banking net revenue 126 121 233 220 258 4 % (51 %)
Investment advisory revenue 98 97 98 100 93 2 % 6 %
Card and processing revenue 71 69 67 65 66 3 % 8 %
Other noninterest income 170 185 414 109 215 (7 %) (21 %)
Securities gains, net 2 2 - 17 2 (36 %) (23 %)
Securities gains (losses), net - non-qualifying
hedges on mortgage servicing rights     -     5     6     2     (2 )   (100 %)   100 %
Total noninterest income   $ 703   $ 721   $ 1,060   $ 743   $ 880     (2 %)   (20 %)
 

Noninterest income of $703 million decreased $18 million sequentially and $177 million compared with prior year results. These comparisons reflect the impacts described below.

Fourth quarter 2013 results included a $91 million positive valuation adjustment on the Vantiv warrant as well as $9 million in payments received pursuant to Fifth Third’s tax receivable agreement with Vantiv which is expected to be an annual payment from this point forward. This compares with an $85 million gain on the sale of Vantiv shares and a $6 million positive warrant valuation adjustment in the third quarter of 2013, and a $157 million gain on the sale of Vantiv shares and a $19 million negative warrant valuation adjustment in the fourth quarter of 2012. Quarterly results also included charges 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 $18 million, $2 million, and $15 million in the in the fourth quarter of 2013, the third quarter of 2013, and the fourth quarter of 2012, respectively. Excluding these items and net securities gains in all periods, noninterest income of $619 million decreased $11 million, or 2 percent, from the previous quarter and decreased $136 million, or 18 percent, from the fourth quarter of 2012. The sequential decline was primarily due to lower corporate banking revenue and other noninterest income. The year-over-year decline was primarily the result of lower mortgage banking net revenue and corporate banking revenue.

Service charges on deposits of $142 million increased 1 percent from the third quarter and increased 6 percent compared with the same quarter last year. Retail service charges were flat sequentially and increased 6 percent from the fourth quarter of 2012. The year-over-year increase was primarily related to the transition to our new and simplified deposit product offerings. Commercial service charges increased 2 percent sequentially and 6 percent from a year ago primarily as a result of new customer accounts and higher treasury management fees.

Corporate banking revenue of $94 million decreased 8 percent from the third quarter of 2013 and decreased 18 percent from the same period last year. The sequential decline was primarily driven by lower lease remarketing and syndication fees, partially offset by higher institutional sales revenue, foreign exchange fees and business lending fees. The year-over-year decline was primarily driven by lower lease remarketing, syndication fees, interest rate derivatives and letter of credit fees, which benefited the year-ago quarter from higher activity in anticipation of changes to tax rules. The decline in lease remarketing fees was driven by a $9 million write-down of equipment value on an operating lease during the quarter.

Mortgage banking net revenue was $126 million in the fourth quarter of 2013, a 4 percent increase from the third quarter of 2013 and a 51 percent decrease from the fourth quarter of 2012. Fourth quarter 2013 originations were $2.6 billion, compared with $4.8 billion in the previous quarter and $7.0 billion in the fourth quarter of 2012. Fourth quarter 2013 originations resulted in gains of $60 million on mortgages sold, compared with gains of $74 million during the previous quarter and $239 million during the fourth quarter of 2012. The decrease from the prior quarter reflected lower production partially offset by increased gain on sale margins, while the decrease from the prior year reflected lower production and lower gain on sale margins. Mortgage servicing fees this quarter were $64 million, compared with $63 million in the previous quarter and $64 million in the fourth quarter of 2012. Mortgage banking net revenue is also affected by net servicing asset valuation adjustments, which include mortgage servicing rights (MSR) amortization and MSR valuation adjustments (including mark-to-market adjustments on free-standing derivatives used to economically hedge the MSR portfolio). These net servicing asset valuation adjustments were positive $3 million in the fourth quarter of 2013 (reflecting MSR amortization of $23 million and MSR valuation adjustments of positive $26 million); negative $16 million in the third quarter of 2013 (MSR amortization of $39 million and MSR valuation adjustments of positive $23 million); and negative $45 million in the fourth quarter of 2012 (MSR amortization of $52 million and MSR valuation adjustments of positive $7 million). The mortgage servicing asset, net of the valuation reserve, was $967 million at quarter end on a servicing portfolio of $69 billion.

Net gains on securities held as non-qualifying hedges for the MSR portfolio were zero in the fourth quarter of 2013, compared with net gains of $5 million in the third quarter of 2013 and net losses of $2 million in the fourth quarter of 2012.

Investment advisory revenue of $98 million increased 2 percent from the third quarter and 6 percent year-over-year. The sequential and year-over-year increase was attributable to higher brokerage fees and private client services revenue reflecting strong production and market performance. These increases were partially offset by a decrease in institutional trust fees.

Card and processing revenue of $71 million in the fourth quarter of 2013 increased 3 percent sequentially and 8 percent from the fourth quarter of 2012, reflecting the impact of higher transaction volumes and an increase in the number of actively used cards.

Other noninterest income totaled $170 million in the fourth quarter of 2013, compared with $185 million in the previous quarter and $215 million in the fourth quarter of 2012. Other noninterest income 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 December 31, 2013, September 30, 2013, and December 31, 2012, the impact of warrant valuation adjustments were positive $91 million, positive $6 million, and negative $19 million, respectively, and changes in income related to the Visa total return swap were losses of $18 million, $2 million, and $15 million, respectively. The fourth quarter of 2013 also included $9 million in payments received pursuant to Fifth Third’s tax receivable agreement with Vantiv which is expected to be an annual payment from this point forward. Gains on the sale of Vantiv shares were $85 million in the third quarter of 2013 and $157 million in the fourth quarter of 2012. Excluding the items detailed above, other noninterest income of $88 million decreased approximately $8 million, or 8 percent, from the third quarter of 2013 and decreased approximately $4 million, or 4 percent, from the fourth quarter of 2012.

Net credit-related costs recognized in other noninterest income were $5 million in the fourth quarter of 2013 versus $5 million last quarter and $13 million in the fourth quarter of 2012. Fourth quarter 2013 results primarily reflected $6 million of losses on other real estate owned (OREO) and $2 million of fair value charges on commercial loans held-for-sale. Third quarter 2013 results primarily reflected $5 million of losses on OREO. Fourth quarter 2012 results included $4 million of net gains on sales of commercial loans held-for-sale and $3 million of fair value charges on commercial loans held-for-sale, as well as $10 million of losses on OREO.

Net gains on investment securities were $2 million in the fourth quarter of 2013, compared with $2 million in the previous quarter and $2 million in the fourth quarter of 2012.

Noninterest Expense
                                       
  For the Three Months Ended     % Change
December   September     June     March     December      
2013   2013     2013     2013     2012     Seq   Yr/Yr
Noninterest Expense ($ in millions)
Salaries, wages and incentives $ 388 $ 389 $ 404 $ 399 $ 416 - (7 %)
Employee benefits 78 83 83 114 96 (6 %) (19 %)
Net occupancy expense 77 75 76 79 76 2 % 1 %
Technology and communications 53 52 50 49 52 2 % 2 %
Equipment expense 29 29 28 28 27 - 8 %
Card and processing expense 37 33 33 31 31 13 % 18 %
Other noninterest expense     327       298       361       278       465     10 %   (30 %)
Total noninterest expense   $ 989     $ 959     $ 1,035     $ 978     $ 1,163     3 %   (15 %)
 

Noninterest expense of $989 million increased 3 percent from the third quarter of 2013 and decreased 15 percent versus the fourth quarter of 2012.

Fourth quarter 2013 expenses included $69 million in charges to increase litigation reserves, $8 million of debt extinguishment costs associated with the redemption of Fifth Third Capital Trust IV, an $8 million contribution to Fifth Third Foundation, and $8 million in severance expense. Third quarter 2013 expenses included $30 million in charges to increase litigation reserves, $5 million in severance expense, and $5 million in large bank assessment fees. Fourth quarter 2012 expenses included $134 million of debt extinguishment costs associated with the termination of $1 billion of FHLB debt, $13 million in charges to increase litigation reserves and $3 million in severance expense. Excluding these items, the sequential and year-over-year decline reflected lower credit-related costs, including the benefit of a reduction in the mortgage representation and warranty reserve in the fourth quarter, lower compensation-related expense and benefits expense, primarily in the mortgage business, and lower marketing-related expenses.

Credit costs related to problem assets recorded as noninterest expense were a benefit of $12 million in the fourth quarter of 2013, compared with expense of $16 million in the third quarter of 2013 and expense of $68 million in the fourth quarter of 2012. Fourth quarter credit-related expenses included provision for mortgage repurchases that was a benefit of $26 million reflecting the reduction in the mortgage representation and warranty reserve primarily related to Fifth Third’s settlement with Freddie Mac and corresponding expectations for future repurchase requests and file claims. This is compared with a benefit of $4 million in the third quarter and expense of $44 million a year ago. (Realized mortgage repurchase losses were $33 million in the fourth quarter of 2013 reflecting the previously mentioned settlement payment with Freddie Mac, compared with $13 million last quarter and $15 million in the fourth quarter of 2012). Provision for unfunded commitments was a benefit of $5 million in the current quarter, compared with an expense of $1 million last quarter and an expense of $3 million a year ago. Derivative valuation adjustments related to customer credit risk were positive $2 million for the current quarter, immaterial last quarter, and positive $2 million for the year ago quarter. OREO expense was $4 million this quarter, compared with $5 million last quarter and $5 million a year ago. Other problem asset-related expenses were $17 million in the fourth quarter, compared with $14 million the previous quarter and $19 million in the same period last year.

Credit Quality
                             
  For the Three Months Ended
December   September   June   March   December
2013   2013   2013   2013   2012
Total net losses charged off ($ in millions)
Commercial and industrial loans ($66 ) ($44 ) ($33 ) ($25 ) ($36 )
Commercial mortgage loans (8 ) (2 ) (10 ) (26 ) (17 )
Commercial construction loans (4 ) 2 - (3 ) (4 )
Commercial leases - - (2 ) - 1
Residential mortgage loans (13 ) (12 ) (15 ) (20 ) (23 )
Home equity (26 ) (19 ) (23 ) (30 ) (34 )
Automobile loans (6 ) (6 ) (5 ) (4 ) (9 )
Credit card (21 ) (19 ) (19 ) (20 ) (19 )
  Other consumer loans and leases (4 )     (9 )     (5 )     (5 )     (6 )
Total net losses charged off (148 ) (109 ) (112 ) (133 ) (147 )
 
Total losses (183 ) (141 ) (145 ) (168 ) (177 )
Total recoveries 35       32       33       35       30  
Total net losses charged off ($148 ) ($109 ) ($112 ) ($133 ) ($147 )
Ratios (annualized)
Net losses charged off as a percent of average loans and leases
(excluding held for sale) 0.67 % 0.49 % 0.51 % 0.63 % 0.70 %
Commercial 0.60 % 0.35 % 0.36 % 0.44 % 0.46 %
  Consumer 0.76 %     0.70 %     0.73 %     0.89 %     1.01 %
 

Net charge-offs were $148 million in the fourth quarter of 2013, or 67 bps of average loans on an annualized basis, compared with net charge-offs of $109 million in the third quarter 2013 and $147 million in the fourth quarter 2012. During the fourth quarter of 2013, we restructured a single large credit resulting in a charge-off of $43 million, or 19 bps. This charge-off was absorbed by existing reserves for this credit. Additionally, we changed the timing of when home equity loans are placed on nonaccrual and we changed our policy regarding treatment of second lien mortgages behind nonperforming first lien mortgages. This resulted in additional home equity net charge-offs of $6 million, or 3 bps.

Commercial net charge-offs were $78 million, or 60 bps, up $34 million sequentially. C&I net charge-offs of $66 million increased $22 million from the previous quarter primarily reflecting the single restructured credit mentioned above. Excluding the $43 million charge-off on that credit, commercial and C&I net charge-offs declined from the prior quarter. Commercial real estate net charge-offs increased $12 million from an immaterial amount in the previous quarter.

Consumer net charge-offs were $70 million, or 76 bps, up $5 million sequentially. Net charge-offs on residential mortgage loans in the portfolio were $13 million, up $1 million from the previous quarter. Home equity net charge-offs were $26 million, up $7 million from the third quarter of 2013 primarily due to the change in nonaccrual accounting policy. Net charge-offs on brokered home equity loans represented 32 percent of fourth quarter home equity losses; such loans are 13 percent of the total $9.2 billion home equity portfolio. Originations of these loans were discontinued in 2007. Net charge-offs in the auto portfolio of $6 million were flat compared with the prior quarter. Net charge-offs on consumer credit card loans were $21 million, up $2 million from the third quarter. Net charge-offs on other consumer loans were $4 million, down $5 million compared with the previous quarter.

  For the Three Months Ended
December   September   June   March   December
2013   2013   2013   2013   2012
Allowance for Credit Losses ($ in millions)
Allowance for loan and lease losses, beginning $ 1,677 $ 1,735 $ 1,783 $ 1,854 $ 1,925
Total net losses charged off (148 ) (109 ) (112 ) (133 ) (147 )
Provision for loan and lease losses     53         51         64         62         76  
Allowance for loan and lease losses, ending 1,582 1,677 1,735 1,783 1,854
 
Reserve for unfunded commitments, beginning 167 166 168 179 176
Provision (benefit) for unfunded commitments     (5 )       1         (2 )       (11 )       3  
Reserve for unfunded commitments, ending 162 167 166 168 179
 
Components of allowance for credit losses:
Allowance for loan and lease losses 1,582 1,677 1,735 1,783 1,854
Reserve for unfunded commitments     162         167         166         168         179  
Total allowance for credit losses $ 1,744 $ 1,844 $ 1,901 $ 1,951 $ 2,033
Allowance for loan and lease losses ratio
As a percent of loans and leases 1.79 % 1.92 % 1.99 % 2.08 % 2.16 %
As a percent of nonperforming loans and leases(a) 211 % 218 % 191 % 187 % 180 %
As a percent of nonperforming assets(a) 161 % 165 % 151 % 147 % 144 %
 
(a) Excludes nonaccrual loans and leases in loans held for sale.
 

Provision for loan and lease losses totaled $53 million in the fourth quarter of 2013, up $2 million from the third quarter of 2013 and down $23 million from the fourth quarter of 2012. The allowance for loan and lease losses declined $95 million sequentially reflecting continued improvement in credit trends and charges to the allowance. The allowance represented 1.79 percent of total loans and leases outstanding as of quarter end, compared with 1.92 percent last quarter, and represented 211 percent of nonperforming loans and leases, and 161 percent of nonperforming assets.

      As of
December   September June   March December
Nonperforming Assets and Delinquent Loans ($ in millions) 2013   2013 2013   2013 2012
Nonaccrual portfolio loans and leases:
Commercial and industrial loans $ 127 $ 146 $ 218 $ 229 $ 234
Commercial mortgage loans 90 106 169 184 215
Commercial construction loans 10 27 39 66 70
Commercial leases 3 1 1 1 1
Residential mortgage loans 83 83 96 110 114
Home equity 74 28 28 28 30
Automobile loans - - - - -
  Other consumer loans and leases     -       -       -       -       1  
Total nonaccrual loans and leases $ 387 $ 391 $ 551 $ 618 $ 665
Restructured loans and leases - commercial (nonaccrual)(c) 228 241 196 159 177
Restructured loans and leases - consumer (nonaccrual)     136       138       162       174       187  
Total nonperforming loans and leases $ 751 $ 770 $ 909 $ 951 $ 1,029
Repossessed personal property 7 7 6 7 8
Other real estate owned(a)     222       237       235       252       249  
Total nonperforming assets(b) $ 980 $ 1,014 $ 1,150 $ 1,210 $ 1,286
Nonaccrual loans held for sale 6 11 15 16 25
Restructured loans - commercial (nonaccrual) held for sale     -       -       -       3       4  
Total nonperforming assets including loans held for sale   $ 986     $ 1,025     $ 1,165     $ 1,229     $ 1,315  
 
Restructured Consumer loans and leases (accrual) $ 1,685 $ 1,694 $ 1,671 $ 1,683 $ 1,655
Restructured Commercial loans and leases (accrual)(c) $ 869 $ 499 $ 475 $ 441 $ 431
 
Total loans and leases 90 days past due $ 103 $ 156 $ 152 $ 164 $ 195

 

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

0.84 % 0.88 % 1.04 % 1.11 % 1.19 %

 

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

1.10 % 1.16 % 1.32 % 1.41 % 1.49 %
 

(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 as of December 31, 2013, September 30, 2013, June 30, 2013 and March 31, 2013.

 

Total nonperforming assets, including loans held-for-sale, were $986 million, a decline of $39 million, or 4 percent, from the previous quarter. Nonperforming assets held-for-investment (NPAs) were $980 million, or 1.10 percent, of total loans, leases and OREO, and decreased $34 million, or 3 percent, from the previous quarter. Nonperforming loans held-for-investment (NPLs) at quarter end were $751 million or 0.84 percent of total loans, leases and OREO, and decreased $19 million, or 2 percent, from the previous quarter. During the quarter, the change in nonaccrual policy increased nonaccrual home equity loans by $46 million, or 5 bps.

Commercial portfolio NPAs were $607 million, or 1.16 percent of commercial loans, leases and OREO, and decreased $73 million, or 11 percent, from the third quarter. Commercial portfolio NPLs were $458 million, or 0.88 percent of commercial loans and leases, and decreased $63 million from last quarter. C&I portfolio NPAs of $290 million decreased $31 million from the prior quarter. Commercial mortgage portfolio NPAs were $252 million, down $44 million from the previous quarter. Commercial construction portfolio NPAs were $59 million, a decrease of $3 million from the previous quarter. Commercial lease portfolio NPAs were $5 million, an increase of $4 million from the previous quarter. Commercial real estate loans in Michigan and Florida represented 52 percent of commercial real estate NPAs and 35 percent of our total commercial real estate portfolio. Commercial portfolio NPAs included $228 million of nonaccrual troubled debt restructurings (TDRs), compared with $241 million last quarter.

Consumer portfolio NPAs of $373 million, or 1.02 percent of consumer loans, leases and OREO, increased $39 million from the third quarter. Consumer portfolio NPLs were $293 million, or 0.80 percent of consumer loans and leases and increased $44 million from last quarter. Of consumer NPAs, $332 million were in residential real estate portfolios. Residential mortgage NPAs were $223 million, $6 million lower than last quarter, with Florida representing 38 percent of residential mortgage NPAs and 13 percent of total residential mortgage loans. Home equity NPAs of $109 million were up $46 million compared with last quarter due to the change in nonaccrual policy. Credit card NPAs of $33 million decreased $1 million compared to the previous quarter. Consumer nonaccrual TDRs were $136 million in the fourth quarter of 2013, compared with $138 million in the third quarter 2013.

Fourth quarter OREO balances included in portfolio NPA balances described above were $222 million, down $15 million from the third quarter, and included $149 million in commercial OREO and $73 million in consumer OREO. Repossessed personal property of $7 million consisted largely of autos.

Loans still accruing over 90 days past due were $103 million, down $53 million, or 34 percent, from the third quarter of 2013. Commercial balances over 90 days past due were immaterial and consumer balances 90 days past due of $103 million were down $50 million from the previous quarter. The sequential decline was primarily due to a $46 million decrease in home equity loans over 90 days past due, which resulted from the previously mentioned change in nonaccrual policy. Loans 30-89 days past due of $276 million increased $18 million, or 7 percent, from the previous quarter. Commercial balances 30-89 days past due of $17 million were up $4 million sequentially and consumer balances 30-89 days past due of $259 million increased $14 million from the third quarter. The above delinquencies figures exclude nonaccruals described previously.

Commercial nonaccrual loans held-for-sale were $6 million, compared with $11 million at the end of the third quarter.

Capital Position
                             
  For the Three Months Ended
December   September   June   March   December
2013   2013   2013   2013   2012
Capital Position
Average shareholders' equity to average assets 11.51 % 11.71 % 11.64 % 11.38 % 11.65 %
Tangible equity(a) 9.44 % 9.75 % 9.65 % 9.36 % 9.17 %
Tangible common equity (excluding unrealized gains/losses)(a) 8.63 % 9.27 % 8.83 % 9.03 % 8.83 %
Tangible common equity (including unrealized gains/losses)(a) 8.69 % 9.42 % 8.94 % 9.28 % 9.10 %
Tangible common equity as a percent of risk-weighted assets (excluding unrealized gains/losses)(a)(b) 9.45 % 9.95 % 9.49 % 9.77 % 9.57 %
Regulatory capital ratios:(c)
Tier I risk-based capital 10.35 % 11.14 % 11.07 % 10.83 % 10.65 %
Total risk-based capital 14.07 % 14.35 % 14.34 % 14.35 % 14.42 %
Tier I leverage 9.64 % 10.58 % 10.40 % 10.03 % 10.05 %
Tier I common equity(a) 9.38 % 9.88 % 9.43 % 9.70 % 9.51 %
Book value per share 15.85 15.84 15.56 15.42 15.10
Tangible book value per share(a) 13.00 13.09 12.69 12.62 12.33
 

(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 during the quarter, reflecting growth in retained earnings, and included the impact of the redemption of TruPS and issuance of preferred stock during the quarter as well as the payment of preferred dividends and share repurchase activity. Compared with the prior quarter, the Tier 1 common equity ratio* of 9.38 percent decreased 50 bps. The tangible common equity to tangible assets ratio* was 8.63 percent (excluding unrealized gains/losses) and 8.69 percent (including unrealized gains/losses). The Tier 1 risk-based capital ratio decreased 79 bps to 10.35 percent. The Total risk-based capital ratio decreased 28 bps to 14.07 percent and the Leverage ratio decreased 94 bps to 9.64 percent.

Book value per share at December 31, 2013 was $15.85 and tangible book value per share* was $13.00, compared with September 30, 2013 book value per share of $15.84 and tangible book value per share of $13.09.

As previously announced, Fifth Third entered into a share repurchase agreement with a counterparty on November 13, 2013, whereby Fifth Third would purchase approximately $200 million of its outstanding common stock. For the quarter, this transaction reduced Fifth Third’s share count by 8.5 million shares on the initial transaction date, which had a 4 million impact on average share count. Fifth Third expects the settlement of the forward contract to occur on or before February 28, 2014. Additionally, as previously announced, Fifth Third entered into another share repurchase agreement with a counterparty on December 10, 2013, whereby Fifth Third would purchase approximately $456 million of its outstanding common stock. For the quarter, this transaction reduced Fifth Third’s share count by 19.1 million shares on the initial transaction date, which had a 4 million impact on average share count. Fifth Third expects the settlement of the forward contract to occur on or before March 26, 2014. Also, the settlement of the forward contract related to the May 21, 2013 share repurchase agreement occurred on October 1, 2013, and an additional 4.3 million shares were repurchased upon completion of the agreement which was reflected in the fourth quarter share count.

As previously announced, pursuant to Fifth Third’s 2013 CCAR capital plan, Fifth Third issued 6.625 percent fixed-to-floating noncumulative perpetual preferred stock (Series I preferred stock) for net proceeds of $443 million on December 4, 2013.

U.S. banking regulators have 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 December 31, 2013 under the final capital rule, assuming the Company elected to maintain the current treatment of AOCI components in capital, would be approximately 9.0 percent**. This would compare with 9.4 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 6 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, mortgage servicing rights, and lending commitments of less than a year.) Should Fifth Third make the election to include AOCI components in capital, the December 31, 2013 pro forma Basel III Tier 1 common ratio would be increased by approximately 7 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 TruPS for banking organizations greater than $15 billion by January 1, 2016. On December 30, 2013, Fifth Third redeemed the $750 million of Fifth Third Capital Trust IV due to a determination of a Capital Treatment Event. Fifth Third’s Tier 1 and Total capital levels at December 31, 2013 included $60 million of TruPS.

Fifth Third is subject to the Federal Reserve’s (FRB) Capital Plan Rule which was issued November 1, 2013. Under this rule, we are required to submit our annual capital plan to the Federal Reserve, for its objection or non-objection. Fifth Third submitted its 2014 capital plan on January 6, 2014, as required. 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 2014 through the first quarter of 2015. Our plan for the covered period included the possibility that we would increase our common dividend consistent with the FRB’s 30 percent payout ratio guidance and conduct common share repurchases at levels which would be expected to maintain common equity capital levels in the current range. Any such actions would be based on the FRB’s non-objection, 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. The Federal Reserve has indicated to the BHCs that it will issue its response on or before March 31, 2014.

* Non-GAAP measure; see Reg. G reconciliation on page 34 in Exhibit 99.1 of 8-k filing dated 1/23/14.
** 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 28.4 percent this quarter compared with 30.3 percent in the third quarter and 26.8 percent in the fourth quarter of 2012.

Other

Fifth Third Bank owns 48.8 million units representing a 25 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 $32.61 on December 31, 2013, our interest in Vantiv was valued at approximately $1.6 billion. Next month in our 10-K, we will update our disclosure of the carrying value of our interest in Vantiv stock, which was $415 million as of September 30, 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 $384 million as of December 31, 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, February 6 by dialing 800-585-8367 for domestic access and 404-537-3406 for international access (passcode 14428758#).

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of December 31, 2013, the Company had $130 billion in assets and operated 17 affiliates with 1,320 full-service Banking Centers, including 104 Bank Mart® locations, most open seven days a week, inside select grocery stores and 2,586 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 25% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest and, as of December 31, 2013, had $302 billion in assets under care, of which it managed $27 billion for individuals, corporations and not-for-profit organizations. Investor information and press releases can be viewed at www.53.com. Fifth Third’s common stock is traded on the NASDAQ® Global Select Market under the symbol “FITB.”

Forward-Looking Statements

This 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
Jim Eglseder (Investors), 513-534-8424
Laura Wehby (Investors), 513-534-7407
Larry Magnesen (Media), 513-534-8055