Fifth Third Bancorp is continuing to de-risk its loan portfolio, management said during a Jan. 24 earnings conference call.
The company reported fourth-quarter net income available to common shareholders of $372 million, or 49 cents per share, compared to $634 million, or 79 cents per share, a year ago.
Residential mortgage loans were a bright spot during the fourth quarter, with a 10% increase year over year. Going into 2017, Executive Vice President and CFO Tayfun Tuzun said the company is expecting 2% loan growth, driven by increased commercial loan, construction, leasing and mortgage loan portfolios. President and CEO Gregory Carmichael added that the company is focusing on growing its "strategic portfolio," which he said should grow 4% to 5% in 2017.
Nonperforming loans totaled $660 million, up $59 million from the third quarter.
Average portfolio loan and lease balances decreased by $547 million, or 1%, from the third quarter of 2016, and by $630 million, or 1%, compared to the fourth quarter of 2015. The company's automobile portfolio dropped 13% year over year. In the company's earnings release, management said the decline was a "strategic decision" intended to improve return on shareholders' equity.
The decline in loan balances was also attributed to "deliberate exits from certain commercial and industrial loans that did not meet risk-adjusted profitability targets." Tuzun said the company is "becoming more selective," noting it has exited approximately two-thirds of the commercial lending relationships that did not meet its "desired profile," and will cut roughly another $1.5 billion in 2017. Average C&I loans decreased by $568 million, or 1% from the prior quarter, and by $606 million, or 1%, from the fourth quarter of 2015.
The company also used the call to announce a new partnership with QED Investors, a fintech venture-capital firm, and to tout its investment in companies such as GreenSky LLC and Black Knight LLC.
Carmichael said the initiatives will "improve the profitability of our bank while enhancing our ability to serve our customers." He said the Black Knight platform will lower residential mortgage costs and increase mortgage loan origination.
Net interest margin improved by three basis points sequentially, which Tuzun said was driven by pricing discipline in the company's loan portfolio and by short-term market rates. He said he expects NIM to widen by approximately eight to nine basis points in the first quarter, to between 2.95% and 3%.