- 2Q18 net income available to common
shareholders of $563 million, or $0.80 per diluted common
share
- Results included a net positive $0.17
impact on reported 2Q18 EPS:
- $205 million pre-tax (~$162 million
after-tax)(a) gain related to the sale of Worldpay, Inc.
(“Worldpay”) shares
- $30 million pre-tax (~$24 million
after-tax)(a) charge to other noninterest income related to our
branch optimization efforts, including the decision to close 29
branches and sell 21 parcels of land
- $19 million pre-tax (~$15 million
after-tax)(a) in compensation expense primarily related to the
previously announced staffing review
- $11 million pre-tax (~$9 million
after-tax)(a) gain related to our ownership stake in GreenSky
(including a $16 million pre-tax gain from the IPO recorded in
other noninterest income, partially offset by a negative $5 million
pre-tax securities mark)
- $10 million pre-tax (~$8 million
after-tax)(a) charge to other noninterest income related to the
valuation of the Visa total return swap
- $10 million pre-tax (~$8 million
after-tax)(a) contribution to the Fifth Third Foundation
- Reported net interest income (NII) of
$1.020 billion; taxable equivalent NII of $1.024 billion(b), up 3%
from 1Q18 and up 8% from 2Q17
- Taxable equivalent net interest margin
(NIM) of 3.21%(b), up 3 bps from 1Q18 and up 20 bps from 2Q17
- Average portfolio loans and leases of
$92.6 billion, flat from 1Q18 and up 1% from 2Q17
- Noninterest income of $743 million,
compared with $909 million in 1Q18 and $564 million in 2Q17; 2Q18
performance includes the aforementioned gain from the sale of
Worldpay shares; 1Q18 results included a $414 million pre-tax
Worldpay step-up gain
- Noninterest expense of $1.037 billion,
down 1% from 1Q18 and up 8% from 2Q17; excluding the 2Q18 expenses
noted above and an $8 million pre-tax litigation charge in 1Q18,
noninterest expense was down 3% from 1Q18
- Net charge-offs (NCOs) of $94 million,
up $13 million from 1Q18 and up $30 million from 2Q17; NCO ratio of
0.41% compared to 0.36% in 1Q18 and 0.28% in 2Q17; criticized
assets as a percentage of commercial loans of 3.87% compared to
4.83% in 1Q18 and 5.50% in 2Q17
- Portfolio nonperforming asset (NPA)
ratio of 0.52%, down 3 bps from 1Q18 and down 20 bps from 2Q17
- 2Q18 provision expense of $33 million
compared to $23 million in 1Q18 and $52 million in 2Q17
- Common equity Tier 1 (CET1) ratio of
10.91%(c); tangible common equity ratio of 8.98%(b), or 9.33%
excluding unrealized gains/losses(b)
- Book value per share of $21.97, up 1%
from 1Q18 and up 8% from 2Q17; tangible book value per share(b) of
$18.30 up 1% from 1Q18 and up 7% from 2Q17
Fifth Third Bancorp (Nasdaq: FITB) today reported second quarter
2018 net income of $586 million versus net income of $704 million
in the first quarter of 2018 and $367 million in the second quarter
of 2017. After preferred dividends, net income available to common
shareholders was $563 million, or $0.80 per diluted share, in the
second quarter of 2018, compared with $689 million, or $0.97 per
diluted share, in the first quarter of 2018, and $344 million, or
$0.45 per diluted share, in the second quarter of 2017.
Earnings Highlights
For
the Three Months Ended % Change June
March December September June 2018 2018 2017
2017 2017 Seq Yr/Yr
Income
Statement Data ($ in millions) Net income attributable to
Bancorp $ 586 $ 704 $ 509 $ 1,014 $ 367 (17 %) 60 % Net income
available to common shareholders $ 563 $ 689 $ 486 $ 999 $ 344 (18
%) 64 %
Earnings Per Share Data Average common shares
outstanding (in thousands): Basic 683,345 689,820 703,372 721,280
741,401 (1 %) (8 %) Diluted 696,210 704,101 716,908 733,285 752,328
(1 %) (7 %) Earnings per share, basic $ 0.81 $ 0.99 $ 0.68 $ 1.37 $
0.46 (18 %) 76 % Earnings per share, diluted 0.80 0.97 0.67 1.35
0.45 (18 %) 78 %
Common Share Data Cash dividends per
common share $ 0.18 $ 0.16 $ 0.16 $ 0.16 $ 0.14 13 % 29 % Book
value per share 21.97 21.68 21.67 21.30 20.42 1 % 8 % Tangible book
value per share(b) 18.30 18.05 18.10 17.86 17.11 1 % 7 % Common
shares outstanding (in thousands) 678,162 684,942 693,805 705,474
738,873 (1 %) (8 %)
Financial Ratios bps Change
Return on average assets 1.66 % 2.02 % 1.43 % 2.85 % 1.05 % (36 )
61 Return on average common equity 15.3 18.6 12.7 25.6 9.0 (330 )
630 Return on average tangible common equity(b) 18.4 22.4 15.2 30.4
10.7 (400 ) 770 CET1 capital(c) 10.91 10.82 10.61 10.59 10.63 9 28
Tier I risk-based capital(c) 12.02 11.95 11.74 11.72 11.76 7 26
Taxable equivalent net interest margin (b) 3.21 3.18 3.02 3.07 3.01
3 20 Taxable equivalent efficiency(b) 58.7
54.8 69.7
38.4 63.4
390 (470 )
“We had a very productive second quarter and remained focused on
achieving our long-term objectives. Our quarterly results were very
strong, as evidenced by the continued expansion in our net interest
margin, lower operating expenses, record capital markets revenue
and another very significant decline in the level of criticized
assets. Our commercial middle market loan originations were also
very strong and we expect this trend to continue over the remainder
of the year,” said Greg D. Carmichael, Chairman, President and CEO
of Fifth Third Bancorp.
“During the quarter, we continued to execute on expense
initiatives and also took further actions to optimize our branch
network. We are very excited about reallocating our resources to
grow branches in high-growth markets which should significantly
boost household growth. I am confident that these decisions are in
the best long-term interests of our shareholders. We remain focused
on achieving our enhanced profitability targets.”
“Also during the second quarter we announced the acquisition of
MB Financial, which will create a leading retail and commercial
franchise in the attractive Chicago market. We are purchasing a
well-respected and successful bank, and combining forces will allow
us to build scale in the strategically important Chicago market.
Since the announcement in May, we have made significant progress in
finalizing the composition of the management team in Chicago. We
are very confident that the talent we have in place will help us
achieve the financial outcomes that we discussed during the
announcement. We are looking forward to completing the merger as
soon as possible so that we can begin realizing the substantial
cost and revenue synergies we have identified.”
“Lastly, the recently announced CCAR results provide further
proof of our commitment to our shareholders. Over the next four
quarters, we expect to return a significant amount of capital
through a 33% increase in our quarterly common dividend and a 42%
increase in share repurchases compared to last year’s capital plan.
We are also pleased that a resubmission of our capital plan, given
the pending acquisition of MB Financial, will not delay our capital
distribution plans.”
Income
Statement Highlights
($ in millions, except per-share data)
For the Three Months Ended % Change
June March December September June 2018 2018 2017
2017 2017 Seq Yr/Yr
Condensed
Statements of Income Taxable equivalent net interest income(b)
$ 1,024 $ 999 $ 963 $ 977 $945 3 % 8 % Provision for loan and lease
losses 33 23 67 67 52 43 % (37 %) Total noninterest income 743 909
577 1,561 564 (18 %) 32 % Total noninterest expense
1,037 1,046 1,073
975 957 (1 %) 8 % Taxable equivalent income
before income taxes (b) $ 697 $ 839 $ 400
$ 1,496 $500 (17 %) 39 %
Taxable equivalent adjustment 4 3 7 7 6 33 % (33 %) Applicable
income tax expense (benefit) 107 132
(116 ) 475 127 (19 %)
(16 %) Net income $ 586 $ 704 $ 509 $ 1,014 $367 (17 %) 60 %
Less: Net income attributable to noncontrolling interests
- - - -
- NM NM Net income attributable
to Bancorp $ 586 $ 704 $ 509 $ 1,014 $367 (17 %) 60 % Dividends on
preferred stock 23 15 23
15 23 53 % - Net
income available to common shareholders $ 563 $ 689
$ 486 $ 999 $344 (18 %)
64 % Earnings per share, diluted $ 0.80 $ 0.97
$ 0.67 $ 1.35 $0.45 (18 %) 78 %
Net Interest Income (Taxable
equivalent basis; $ in millions)(b) For the Three Months
Ended % Change June March December
September June 2018 2018 2017
2017 2017 Seq Yr/Yr
Interest
Income Total interest income $ 1,273 $ 1,209 $ 1,151 $ 1,159 $
1,112 5% 14% Total interest expense 249
210 188 182
167 19% 49% Taxable equivalent
net interest income (NII) $ 1,024 $ 999
$ 963 $ 977 $ 945
3% 8%
Average Yield bps Change Yield on
interest-earning assets 3.98 % 3.85 % 3.61 % 3.64 % 3.54 % 13 44
Adjusted yield on interest-earning assets 3.98 % 3.85 % 3.69 % 3.64
% 3.54 % 13 44 Rate paid on interest-bearing liabilities 1.12 %
0.97 % 0.88 % 0.85 % 0.79 % 15 33
Ratios Taxable
equivalent net interest rate spread 2.86 % 2.88 % 2.73 % 2.79 %
2.75 % (2) 11 Taxable equivalent net interest margin (NIM) 3.21 %
3.18 % 3.02 % 3.07 % 3.01 % 3 20 Adjusted taxable equivalent NIM
3.21 % 3.18 % 3.10 % 3.07 % 3.01 % 3 20
Average
Balances % Change Loans and leases, including held for sale $
93,232 $ 92,869 $ 92,865 $ 92,617 $ 92,653 - 1% Total securities
and other short-term investments 34,935 34,677 33,756 33,826 33,481
1% 4% Total interest-earning assets 128,167 127,546 126,621 126,443
126,134 - 2% Total interest-bearing liabilities 89,222 87,607
84,820 85,328 85,320 2% 5% Bancorp shareholders' equity
16,108 16,313
16,493 16,820 16,615
(1%) (3%)
Taxable equivalent NII of $1.024 billion in the second quarter
of 2018 increased $25 million, or 3 percent, from the prior
quarter. Performance reflected higher short-term market rates, a
higher day count and growth in middle market commercial and
industrial (C&I) loans. Taxable equivalent NIM of 3.21 percent
in the second quarter of 2018 increased 3 bps from the prior
quarter, primarily driven by higher short-term market rates,
partially offset by a higher day count.
Compared to the second quarter of 2017, taxable equivalent NII
increased $79 million, or 8 percent. Performance reflected higher
short-term rates and an increase in investment portfolio balances.
Taxable equivalent NIM increased 20 bps from the second quarter of
2017, primarily driven by higher short-term market rates.
Securities
Average securities and other short-term investments were $34.9
billion in the second quarter of 2018 compared to $34.7 billion in
the previous quarter and $33.5 billion in the second quarter of
2017. Average available-for-sale debt and other securities of $32.6
billion in the second quarter of 2018 were up $395 million, or 1
percent, sequentially and up $1.3 billion, or 4 percent, from the
second quarter of 2017.
Loans
($ in millions) For the Three Months Ended
% Change June March December September June 2018 2018
2017 2017 2017 Seq Yr/Yr
Average Portfolio Loans and Leases Commercial loans and
leases: Commercial and industrial loans $ 42,292 $ 41,782 $ 41,438
$ 41,302 $ 41,601 1 % 2 % Commercial mortgage loans 6,514 6,582
6,751 6,807 6,845 (1 %) (5 %) Commercial construction loans 4,743
4,671 4,660 4,533 4,306 2 % 10 % Commercial leases
3,847 3,960 4,016 4,072
4,036 (3 %) (5 %) Total commercial
loans and leases $ 57,396 $ 56,995 $ 56,865
$ 56,714 $ 56,788 1 % 1 % Consumer
loans: Residential mortgage loans $ 15,581 $ 15,575 $ 15,590 $
15,523 $ 15,417 - 1 % Home equity 6,672 6,889 7,066 7,207 7,385 (3
%) (10 %) Automobile loans 8,968 9,064 9,175 9,267 9,410 (1 %) (5
%) Credit card 2,221 2,224 2,202 2,140 2,080 - 7 % Other consumer
loans 1,719 1,587 1,352
1,055 892 8 % 93 % Total
consumer loans $ 35,161 $ 35,339 $ 35,385
$ 35,192 $ 35,184 (1 %) - Total
average portfolio loans and leases $ 92,557 $ 92,334 $ 92,250 $
91,906 $ 91,972 - 1 % Average loans held for sale $
675 $ 535 $ 615 $ 711 $ 681 26 %
(1 %)
Average portfolio loan and lease balances were flat sequentially
and up 1 percent year-over-year. Sequential performance was
primarily driven by increases in C&I and other consumer loans,
offset by decreases in home equity loans and commercial leases.
Year-over-year performance was primarily driven by increases in
other consumer and C&I loans, partially offset by decreases in
home equity and automobile loans. Period end portfolio loans and
leases of $92.0 billion were flat sequentially and up 1 percent
year-over-year.
Average commercial portfolio loan and lease balances were up 1
percent both sequentially and from the second quarter of 2017.
Sequential performance was primarily driven by an increase in
C&I loans reflecting solid growth in middle market lending,
partially offset by a decrease in commercial leases consistent with
the planned reduction in indirect non-relationship based lease
originations. Within commercial real estate, commercial mortgage
balances decreased 1 percent and commercial construction balances
were up 2 percent sequentially. Year-over-year overall commercial
performance was primarily driven by an increase in C&I and
commercial construction loans, partially offset by a decrease in
commercial mortgage. Period end commercial line utilization was 35
percent in both the first and second quarter of 2018, compared to
34 percent in the second quarter of 2017.
Average consumer portfolio loan and lease balances were down 1
percent sequentially and were flat year-over-year. Sequential
performance was primarily driven by a decline in home equity and
automobile loan balances, partially offset by an increase in other
consumer loans. Year-over-year performance was primarily driven by
an increase in other consumer and residential mortgage loans,
offset by lower home equity and automobile loan balances.
Deposits ($ in millions)
For the Three Months Ended % Change June
March December September June
2018 2018 2017 2017 2017
Seq Yr/Yr
Average Deposits
Demand $ 32,834 $ 33,825 $
35,519 $ 34,850 $ 34,915 (3 %) (6 %) Interest checking 28,715
28,403 26,992 25,765 26,014 1 % 10 % Savings 13,618 13,546 13,593
13,889 14,238 1 % (4 %) Money market 22,036 20,750 20,023 20,028
20,278 6 % 9 % Foreign office(d) 371
494 323
395 380
(25 %) (2 %) Total transaction deposits
$ 97,574 $ 97,018 $ 96,450 $ 94,927 $ 95,825 1 % 2 % Other time
4,018 3,856
3,792 3,722
3,745 4 % 7
% Total core deposits $ 101,592 $ 100,874 $ 100,242 $ 98,649 $
99,570 1 % 2 % Certificates - $100,000 and over 2,155 2,284 2,429
2,625 2,623 (6 %) (18 %) Other 198
379 119
560 264
(48 %) (25 %) Total average deposits
$ 103,945 $ 103,537
$ 102,790 $ 101,834
$ 102,457 -
1 %
Average core deposits increased 1 percent sequentially and were
up 2 percent year-over-year. Average transaction deposits increased
1 percent sequentially and were up 2 percent compared with the
second quarter of 2017. The sequential performance continued to
reflect deposit migration from demand deposits to interest-bearing
accounts. Sequential and year-over-year growth was primarily driven
by increases in consumer money market account balances and
commercial interest checking deposits, partially offset by lower
commercial demand deposit account balances. Other time deposits
increased by 4 percent sequentially and 7 percent
year-over-year.
Average total commercial transaction deposits of $42 billion
decreased 1 percent sequentially and were flat from the second
quarter of 2017. Average total consumer transaction deposits of $55
billion increased 2 percent sequentially and increased 3 percent
from the second quarter of 2017.
Wholesale Funding
($ in millions) For the Three Months
Ended % Change June March December
September June 2018 2018 2017
2017 2017 Seq Yr/Yr
Average
Wholesale Funding
Certificates - $100,000 and over $ 2,155 $ 2,284 $ 2,429 $ 2,625 $
2,623 (6 %) (18 %) Other deposits 198 379 119 560 264 (48 %) (25 %)
Federal funds purchased 1,080 692 602 675 311 56 % 247 % Other
short-term borrowings 2,452 2,423 2,316 4,212 4,194 1 % (42 %)
Long-term debt 14,579
14,780 14,631
13,457 13,273
(1 %) 10 % Total average wholesale funding $
20,464 $ 20,558 $ 20,097
$ 21,529 $ 20,665
- (1 %)
Average wholesale funding of $20.5 billion decreased $94 million
sequentially and decreased $201 million, or 1 percent, from the
second quarter of 2017. The sequential decrease in average
wholesale funding reflected lower long-term debt balances resulting
from maturities in the first and second quarter of 2018 exceeding a
debt issuance in the second quarter of 2018 as well as lower other
deposits and jumbo CD balances, partially offset by an increase in
Federal funds borrowings. The year-over-year decrease primarily
resulted from the ability to fund interest-earning asset growth
with core deposits.
Noninterest Income ($ in millions)
For the Three Months Ended % Change June March
December September June 2018
2018 2017 2017 2017 Seq
Yr/Yr
Noninterest Income Service charges on deposits $ 137 $
137 $ 138 $ 138 $ 139 - (1%) Corporate banking revenue 120 88 77
101 101 36 % 19% Mortgage banking net revenue 53 56 54 63 55 (5 %)
(4%) Wealth and asset management revenue 108 113 106 102 103 (4 %)
5% Card and processing revenue 84 79 80 79 79 6 % 6% Other
noninterest income 250 460 123 1,076 85 (46 %) 194% Securities
gains (losses), net (5 ) (11 ) 1 - - 55 % NM
Securities gains (losses), net -
non-qualifyinghedges on mortgage servicing rights
(4 ) (13 ) (2 )
2 2 69 % NM Total noninterest
income $ 743 $ 909 $ 577
$ 1,561 $ 564 (18 %) 32%
Noninterest income of $743 million decreased $166 million
sequentially and increased $179 million year-over-year. The
sequential and year-over-year comparisons reflect the impact of the
following items:
Noninterest Income excluding certain items
($ in millions) For the Three Months Ended
% Change June March June
2018 2018 2017 Seq
Yr/Yr
Noninterest Income excluding certain items
Noninterest income (U.S. GAAP) $ 743 $ 909 $ 564 Worldpay
step-up gain - (414 ) - Gain on sale of Worldpay shares (205 ) - -
Gain from GreenSky IPO
(16 ) - - Branch and land network impairment charge 30 8 -
Valuation of Visa total return swap 10 39 9 Securities losses /
(gains), net 5 11
-
Noninterest income excluding certain items(b) $ 567
$ 553 $ 573
3 % (1 %)
Excluding the items in the table above, noninterest income of
$567 million increased $14 million, or 3 percent, from the previous
quarter and decreased 1 percent from the second quarter of 2017.
The sequential performance was primarily driven by increases in
corporate banking revenue and card and processing revenue,
partially offset by a decrease in wealth and asset management
revenue compared to the seasonally strong performance in the first
quarter of 2018.
Corporate banking revenue of $120 million was up 36 percent
sequentially and up 19 percent year-over-year. The sequential and
year-over-year increase was primarily driven by strong, broad-based
capital markets revenue growth, led by corporate bond fees and loan
syndication revenue.
Mortgage Banking Net Revenue ($ in
millions) For the Three Months Ended % Change
June March December September June
2018 2018 2017 2017 2017
Seq Yr/Yr
Mortgage Banking Net Revenue
Origination fees and gains on loan sales $ 28 $ 24 $ 32 $ 40 $ 37
17 % (24 %) Net mortgage servicing revenue: Gross mortgage
servicing fees 54 53 54 56 49 2 % 10 %
Net valuation adjustments on MSRs
andfree-standing derivatives purchased toeconomically hedge
MSRs
(29 ) (21 ) (32 ) (33 ) (31 ) 38 % (6 %)
Net mortgage servicing revenue
25 32 22
23 18 (22 %) 39 %
Total mortgage banking net revenue $ 53 $ 56
$ 54 $ 63 $ 55
(5 %) (4 %)
Mortgage banking net revenue was $53 million in the second
quarter of 2018, down 5 percent from the first quarter of 2018 and
down 4 percent from the second quarter of 2017. The sequential
decrease was driven by elevated negative net valuation adjustments,
partially offset by higher origination fees and gains on loan
sales. The year-over-year decrease was driven by lower origination
fees and gains on loan sales, partially offset by higher gross
mortgage servicing fees. Originations of $2.1 billion in the
current quarter increased 35 percent sequentially and decreased 7
percent from the second quarter of 2017.
Wealth and asset management revenue of $108 million decreased 4
percent from the first quarter of 2018 and increased 5 percent from
the second quarter of 2017. The sequential decrease was primarily
driven by seasonally strong tax-related private client service
revenue in the first quarter of 2018 and a decrease in personal
asset management revenue. The year-over-year increase was primarily
driven by higher personal asset management revenue.
Card and processing revenue of $84 million in the second quarter
of 2018 increased 6 percent both sequentially and year-over-year.
The sequential increase reflected seasonally higher credit card
spend volume and higher debit transaction volume. The
year-over-year increase in card and processing revenue was due to
higher credit card spend volume and higher debit transaction
volume.
Other noninterest income totaled $250 million in the second
quarter of 2018, compared with $460 million in the previous
quarter, and $85 million in the second quarter of 2017. As
disclosed in the table on page 8, the reported results included the
impact of Worldpay gains, a gain from the GreenSky IPO, valuation
adjustments from the Visa total return swap, and branch impairment
charges. For the second quarter of 2018, excluding these items,
other noninterest income of $69 million decreased $24 million, or
26 percent, from the first quarter of 2018 and decreased $25
million, or 27 percent, from the second quarter of 2017. The
sequential decrease was primarily due to lower private equity
investment income. The year-over-year results also reflected a
decline in equity method earnings from the ownership interest in
Worldpay.
Net losses on investment securities were $5 million in the
second quarter of 2018 (primarily due to the ownership stake in
GreenSky), compared with net losses of $11 million in the first
quarter of 2018 and no net gains/losses in the second quarter of
2017. Net losses on securities held as non-qualifying hedges for
the MSR portfolio were $4 million in the second quarter of 2018 and
$13 million in the first quarter of 2018.
Noninterest Expense ($ in millions)
For the Three Months Ended % Change June March
December September June 2018
2018 2017 2017 2017 Seq
Yr/Yr
Noninterest Expense Salaries, wages and
incentives $ 471 $ 447 $ 418 $ 407 $ 397 5 % 19 % Employee benefits
78 110 82 77 86 (29 %) (9 %) Net occupancy expense 74 75 74 74 70
(1 %) 6 % Technology and communications 67 68 68 62 57 (1 %) 18 %
Equipment expense 30 31 29 30 29 (3 %) 3 % Card and processing
expense 30 29 34 32 33 3 % (9 %) Other noninterest expense
287 286 368
293 285 - 1 % Total
noninterest expense $ 1,037 $ 1,046
$ 1,073 $ 975 $ 957 (1 %) 8 %
Noninterest expense of $1.037 billion decreased $9 million, or 1
percent, compared with the first quarter of 2018, and increased $80
million, or 8 percent, compared with the second quarter of 2017.
Excluding the $19 million compensation expense primarily related to
the previously announced staffing review and the $10 million
contribution to the Fifth Third Foundation in the second quarter of
2018, as well as an $8 million litigation reserve charge in the
first quarter of 2018, noninterest expense of $1.008 billion
decreased $30 million, or 3 percent. The sequential decrease
primarily reflected seasonally lower compensation-related expenses
and ongoing discipline in managing expenses throughout the company.
The year-over-year increase was primarily driven by higher base
compensation and technology and communications expense.
Summary of Credit Loss Experience ($ in
millions) For the Three Months Ended June March December
September June 2018 2018 2017 2017 2017
Net losses charged-off Commercial and industrial loans ($47
) ($28 ) ($32 ) ($27 ) ($18 ) Commercial mortgage loans (2 ) (1 ) 1
(3 ) (5 ) Commercial leases - - (1 ) - (1 ) Residential mortgage
loans (2 ) (3 ) (1 ) 1 (2 ) Home equity (2 ) (5 ) (4 ) (3 ) (5 )
Automobile loans (8 ) (11 ) (10 ) (8 ) (6 ) Credit card (26 ) (25 )
(20 ) (20 ) (22 ) Other consumer loans (7 )
(8 ) (9 ) (8 )
(5 ) Total net losses charged-off ($94 ) ($81
) ($76 ) ($68 ) ($64 ) Total losses charged-off ($118 )
($103 ) ($94 ) ($85 ) ($95 ) Total recoveries of losses previously
charged-off 24 22
18 17
31 Total net losses charged-off ($94 ) ($81 )
($76 ) ($68 ) ($64 )
Ratios (annualized)
Net losses charged-off as a percent of
average portfolio loans andleases
0.41 % 0.36 % 0.33 % 0.29 % 0.28 % Commercial 0.34 % 0.21 % 0.22 %
0.21 % 0.17 % Consumer 0.52 % 0.60 %
0.51 % 0.43 %
0.46 %
Net charge-offs were $94 million, or 41 bps of average portfolio
loans and leases on an annualized basis, in the second quarter of
2018 compared with net charge-offs of $81 million, or 36 bps, in
the first quarter of 2018 and $64 million, or 28 bps, in the second
quarter of 2017.
Commercial net charge-offs of $49 million, or 34 bps, increased
$20 million sequentially. This primarily reflected a $19 million
increase in net charge-offs of C&I loans.
Consumer net charge-offs of $45 million, or 52 bps, decreased $7
million sequentially. This primarily reflected a $3 million
decrease in net charge-offs on both home equity and automobile
loans.
($ in millions) For the Three Months Ended
June March December September June 2018
2018 2017 2017 2017
Allowance for
Credit Losses Allowance for loan
and lease losses, beginning $1,138 $1,196 $1,205 $1,226 $1,238
Total net losses charged-off (94) (81) (76) (68) (64) Provision for
loan and lease losses 33 23 67 67 52 Deconsolidation of a variable
interest entity (VIE) - -
- (20) - Allowance
for loan and lease losses, ending $1,077 $1,138 $1,196 $1,205
$1,226 Reserve for unfunded commitments, beginning $151 $161
$157 $162 $159 (Benefit from) provision for unfunded commitments
(20) (10) 4
(5) 3 Reserve for unfunded
commitments, ending $131 $151 $161 $157 $162 Components of
allowance for credit losses: Allowance for loan and lease losses
$1,077 $1,138 $1,196 $1,205 $1,226 Reserve for unfunded commitments
131 151 161
157 162 Total allowance for
credit losses $1,208 $1,289 $1,357 $1,362 $1,388
Allowance for
loan and lease losses ratio As a percent of portfolio loans and
leases 1.17% 1.24% 1.30% 1.31% 1.34% As a percent of nonperforming
portfolio loans and leases(e) 247% 252% 274% 238% 200% As a percent
of nonperforming portfolio assets(e) 224%
226% 245% 217%
185%
The provision for loan and lease losses totaled $33 million in
the second quarter of 2018, compared to $23 million in the first
quarter of 2018 and $52 million in the second quarter of 2017.
As of quarter end, the allowance for loan and lease loss ratio
represented 1.17 percent of total portfolio loans and leases
outstanding, compared with 1.24 percent last quarter, and
represented 247 percent of nonperforming loans and leases, and 224
percent of nonperforming assets. Performance reflected a
significant improvement in criticized assets and non-performing
loans.
($ in millions) As of June March
December September June
Nonperforming Assets and
Delinquent Loans 2018 2018 2017 2017
2017 Nonaccrual portfolio loans and leases:
Commercial and industrial loans
$ 99 $ 155 $ 144 $ 144 $ 225 Commercial mortgage loans 8 9 12 14 15
Commercial leases 25 4 - 1 1 Residential mortgage loans 13 16 17 19
19 Home equity 54 55 56 56 52 Automobile loans 3 - - - - Other
consumer loans 1 1
-
- - Total
nonaccrual portfolio loans and leases (excludes restructured loans)
$ 203 $ 240 $ 229 $ 234 $ 312 Nonaccrual restructured portfolio
commercial loans and leases(f) 173 154 150 214 244 Nonaccrual
restructured portfolio consumer loans and leases 61
58
58 58
58 Total nonaccrual portfolio loans and
leases $ 437 $ 452 $ 437 $ 506 $ 614 Repossessed property 7 9 9 10
11 OREO 36 43
43
39
37 Total nonperforming portfolio assets(e) $
480 $ 504 $ 489 $ 555 $ 662 Nonaccrual loans held for sale 5 5 5 18
7 Nonaccrual restructured loans held for sale 18
19
1 2
1 Total nonperforming assets $ 503
$ 528 $ 495
$ 575 $ 670
Restructured portfolio consumer loans and leases
(accrual) $ 1,029 $ 916 $ 927 $ 929 $ 933 Restructured portfolio
commercial loans and leases (accrual)(f) $ 111 $ 249 $ 249 $ 232 $
224 Total loans and leases 30-89 days past due (accrual) $
217 $ 299 $ 280 $ 252 $ 190 Total loans and leases 90 days past due
(accrual) $ 89 $ 107 $ 97 $ 77 $ 75
Nonperforming portfolio loans and leases
as a percent of portfolio loans and leases and
OREO(e)
0.47 % 0.49 % 0.48 % 0.55 % 0.67 %
Nonperforming portfolio assets as a
percent of portfolio loans and
leases and OREO(e)
0.52 % 0.55 %
0.53 % 0.60 %
0.72 %
Total nonperforming portfolio assets decreased $24 million, or 5
percent, from the previous quarter to $480 million. Portfolio
nonperforming loans and leases (NPLs) at quarter end decreased $15
million from the previous quarter to $437 million. NPLs as a
percent of total loans, leases and OREO at quarter end decreased 2
bps from the previous quarter to 0.47 percent.
Commercial portfolio NPLs decreased $17 million from last
quarter to $305 million, or 0.54 percent of commercial portfolio
loans, leases and OREO. Consumer portfolio NPLs increased $2
million from last quarter to $132 million, or 0.37 percent of
consumer portfolio loans, leases and OREO.
OREO balances decreased $7 million from the prior quarter to $36
million, and included $14 million in commercial OREO and $22
million in consumer OREO. Repossessed personal property decreased
$2 million from the prior quarter to $7 million.
Loans over 90 days past due and still accruing decreased $18
million from the first quarter of 2018 to $89 million. Loans 30-89
days past due of $217 million decreased $82 million from the
previous quarter.
Capital
and Liquidity Position For the Three Months Ended June
March December September June 2018 2018
2017
2017 2017
Capital Position Average total
Bancorp shareholders' equity as a percent of average assets 11.38 %
11.52 % 11.69 % 11.93 % 11.84 % Tangible equity(b) 10.29 % 10.09 %
9.90 % 9.84 % 9.98 % Tangible common equity (excluding unrealized
gains/losses)(b) 9.33 % 9.14 % 8.94 % 8.89 % 9.02 % Tangible common
equity (including unrealized gains/losses)(b) 8.98 % 8.89 % 8.99 %
9.00 % 9.12 %
Regulatory Capital and Liquidity Ratios
CET1 capital(c) 10.91 % 10.82 % 10.61 % 10.59 % 10.63 % Tier I
risk-based capital(c) 12.02 % 11.95 % 11.74 % 11.72 % 11.76 % Total
risk-based capital(c) 15.21 % 15.25 % 15.16 % 15.16 % 15.22 % Tier
I leverage 10.24 % 10.11 % 10.01 % 9.97 % 10.07 % Modified
liquidity coverage ratio (LCR) 116 %
113 % 129 % 124 %
115 %
Capital ratios remained strong and increased during the quarter.
The CET1 ratio was 10.91 percent, the tangible common equity to
tangible assets ratio(b) was 9.33 percent (excluding unrealized
gains/losses), and 8.98 percent (including unrealized
gains/losses). The Tier I risk-based capital ratio was 12.02
percent, the Total risk-based capital ratio was 15.21 percent, and
the Tier I leverage ratio was 10.24 percent.
On May 25, 2018, Fifth Third initially settled a share
repurchase agreement whereby Fifth Third would purchase $235
million of its outstanding stock. The initial settlement reduced
second quarter common shares outstanding by 6.4 million shares. On
June 15, 2018, Fifth Third settled the forward contract. An
additional 1.2 million shares were repurchased in connection with
the completion of this agreement.
On June 27, 2018, Fifth Third completed the sale of 5 million
shares of Class A common stock of Worldpay, Inc. Fifth Third had
previously received these Class A shares in exchange for Class B
Units of Vantiv Holding, LLC. Fifth Third recognized a pre-tax gain
of approximately $205 million (~ $162 million after tax)(a) related
to the sale. The sale added approximately 16 basis points to Fifth
Third’s CET1 ratio. As a result of the sale, Fifth Third
beneficially owns approximately 3.3% of Worldpay’s equity through
its ownership of approximately 10.3 million Class B Units.
On June 28, 2018, Fifth Third announced that the Board of
Governors of the Federal Reserve System did not object to Fifth
Third’s 2018 CCAR capital plan for the period beginning July 1,
2018 and ending June 30, 2019. Fifth Third’s capital plan included
the following capital actions related to common dividends and share
repurchases:
- The increase in the quarterly common
stock dividend to $0.22 from $0.18 beginning 4Q 2018 and to $0.24
beginning 2Q 2019, a 33 percent increase over the current dividend
rate
- The repurchase of common shares in an
amount up to $1.651 billion, or a 42 percent increase over the 2017
capital plan. Included in these repurchases are:
- $81 million in repurchases related to
share issuances under employee benefit plans
- $53 million in repurchases related to
previously-recognized Worldpay tax receivable agreement (“TRA”)
transaction after-tax gains
- The additional ability to repurchase
common shares in the amount of any after-tax capital generated from
the sale of Worldpay common stock (including expected share
repurchases associated with the recent sale of 5 million shares of
Worldpay which generated approximately $162 million in after-tax
capital)(a)
- The additional ability to repurchase
common shares in the amount of any after-tax cash income generated
from the termination and settlement of gross cash flows from
existing TRAs with Worldpay or potential future TRAs that may be
generated from additional sales of Worldpay
Fifth Third intends to execute open market share repurchases
associated with up to $500 million of its 2018 CCAR repurchase plan
before the beginning of the proxy solicitation in connection with
the MB Financial, Inc. shareholder vote on its merger with Fifth
Third, and may repurchase additional shares after the vote. The
timing and amount of this repurchase activity is subject to market
conditions and applicable securities laws.
Tax Rate
The effective tax rate was 15.5 percent in the second quarter of
2018 compared with 15.8 percent in the previous quarter and 25.9
percent in the second quarter of 2017. The tax rate in the second
quarter of 2018 was impacted by a $12 million tax benefit primarily
associated with the exercise and vesting of employee equity
awards.
Other
On May 20, 2018, Fifth Third Bancorp and MB Financial, Inc.
signed a definitive agreement under which MB Financial will merge
with Fifth Third in a transaction valued at approximately $4.7
billion as of May 18, 2018. The transaction is expected to reduce
Fifth Third’s regulatory common CET1 ratio by approximately 45
basis points. The pro forma tangible common equity to tangible
assets (TCE) ratio of the combined entity is projected to be 8.2
percent at closing. The transaction is subject to the satisfaction
of all customary closing conditions, including regulatory approvals
as well as the approval of MB Financial shareholders.
As of June 30, 2018, Fifth Third Bank owned approximately 10.3
million units representing a 3.3 percent interest in Vantiv
Holding, LLC, convertible into shares of Worldpay, Inc., a publicly
traded firm. Based upon Worldpay’s closing price of $81.78 on June
30, 2018, our interest in Worldpay was valued at approximately $840
million. The difference between the market value and the book value
of Fifth Third’s interest in Worldpay’s shares is not recognized in
Fifth Third’s equity or capital.
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 and may be accessed through
the Fifth Third Investor Relations website at www.53.com (click on
“About Us” then “Investor Relations”).
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 after the conference call until
approximately August 2, 2018 by dialing 800-585-8367 for domestic
access or 404-537-3406 for international access (passcode
3569128#).
Corporate Profile
Fifth Third Bancorp is a diversified financial services company
headquartered in Cincinnati, Ohio. As of June 30, 2018, the Company
had $141 billion in assets and operates 1,158 full-service Banking
Centers, and 2,458 Fifth Third branded ATMs in Ohio, Kentucky,
Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia,
Georgia and North Carolina. In total, Fifth Third provides its
customers with access to approximately 54,000 fee-free ATMs across
the United States. Fifth Third operates four main businesses:
Commercial Banking, Branch Banking, Consumer Lending, and Wealth
& Asset Management. As of June 30, 2018, Fifth Third also had a
3.3% interest in Vantiv Holding, LLC, a subsidiary of Worldpay,
Inc. Fifth Third is among the largest money managers in the Midwest
and, as of June 30, 2018, had $368 billion in assets under care, of
which it managed $37 billion for individuals, corporations and
not-for-profit organizations through its Trust and Registered
Investment Advisory businesses. 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.”
Earnings Release End Notes
(a) Assumes a 21% tax rate.
(b) Non-GAAP measure; see discussion of non-GAAP and Reg. G
reconciliation beginning on page 31 in Exhibit 99.1 of 8-K filing
dated 7/19/2018.
(c) Under the banking agencies' Basel III Final Rule, assets and
credit equivalent amounts of off-balance sheet exposures are
calculated according to the standardized approach for risk-weighted
assets. The resulting weighted values are added together resulting
in the total risk-weighted assets. Current period regulatory
capital ratios are estimated.
(d) Includes commercial customer Eurodollar sweep balances for
which the Bank pays rates comparable to other commercial deposit
accounts.
(e) Excludes nonaccrual loans held for sale.
(f) As of June 30, 2017 excludes $7 million of restructured
accruing loans and $19 million of restructured nonaccrual loans
associated with a consolidated VIE in which the Bancorp has no
continuing credit risk due to the risk being assumed by a third
party.
IMPORTANT ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed merger, Fifth Third Bancorp has
filed with the SEC a Registration Statement on Form S-4 that
includes the Proxy Statement of MB Financial, Inc. and a Prospectus
of Fifth Third Bancorp, as well as other relevant documents
concerning the proposed transaction. This communication does not
constitute an offer to sell or the solicitation of an offer to buy
any securities or a solicitation of any vote or approval. INVESTORS
AND STOCKHOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT AND
THE PROXY STATEMENT/PROSPECTUS REGARDING THE MERGER AND ANY OTHER
RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR
SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION.
A free copy of the Proxy Statement/Prospectus, as well as other
filings containing information about Fifth Third Bancorp and MB
Financial, Inc., may be obtained at the SEC’s Internet site
(http://www.sec.gov). You will also be able to obtain these
documents, free of charge, from Fifth Third Bancorp at ir.53.com or
from MB Financial, Inc. by accessing MB Financial, Inc.’s website
at investor.mbfinancial.com.
Copies of the Proxy Statement/Prospectus can also be obtained,
free of charge, by directing a request to Fifth Third Investor
Relations at Fifth Third Investor Relations, MD 1090QC, 38 Fountain
Square Plaza, Cincinnati, OH 45263, by calling (866) 670-0468, or
by sending an e-mail to ir@53.com or to MB Financial, Attention:
Corporate Secretary, at 6111 North River Road, Rosemont, Illinois
60018, by calling (847) 653-1992 or by sending an e-mail to
dkoros@mbfinancial.com.
Fifth Third Bancorp and MB financial, Inc. and certain of their
respective directors and executive officers may be deemed to be
participants in the solicitation of proxies from the stockholders
of MB Financial, Inc. in respect of the transaction described in
the Proxy Statement/Prospectus. Information regarding Fifth Third
Bancorp’s directors and executive officers is contained in Fifth
Third Bancorp’s Annual Report on Form 10-K for the year ended
December 31, 2017 and its Proxy Statement on Schedule 14A,
dated March 6, 2018, which are filed with the SEC. Information
regarding MB Financial, Inc.’s directors and executive officers is
contained in its Proxy Statement on Schedule 14A filed with the SEC
on April 3, 2018. Additional information regarding the
interests of those participants and other persons who may be deemed
participants in the transaction may be obtained by reading the
Proxy Statement/Prospectus regarding the proposed merger. Free
copies of this document may be obtained as described in the
preceding paragraph.
FORWARD-LOOKING STATEMENTS
This communication contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
including, but not limited to, Fifth Third Bancorp’s expectations
or predictions of future financial or business performance or
conditions. Forward-looking statements are typically identified by
words such as “believe,” “expect,” “anticipate,” “intend,”
“target,” “estimate,” “continue,” “positions,” “plan,” “predict,”
“project,” “forecast,” “guidance,” “goal,” “objective,”
“prospects,” “possible” or “potential,” by future conditional verbs
such as “assume,” “will,” “would,” “should,” “could” or “may”, or
by variations of such words or by similar expressions. These
forward-looking statements are subject to numerous assumptions,
risks and uncertainties, which change over time. Forward-looking
statements speak only as of the date they are made and we assume no
duty to update forward-looking statements. Actual results may
differ materially from current projections.
In addition to factors previously disclosed in Fifth Third
Bancorp’s and MB Financial, Inc.’s reports filed with or furnished
to the SEC and those identified elsewhere in this communication,
the following factors, among others, could cause actual results to
differ materially from forward-looking statements or historical
performance: the ability to obtain regulatory approvals and meet
other closing conditions to the merger, including approval of the
merger by MB Financial, Inc.’s stockholders on the expected terms
and schedule, including the risk that regulatory approvals required
for the merger are not obtained or are obtained subject to
conditions that are not anticipated; delay in closing the merger;
difficulties and delays in integrating the businesses of MB
Financial, Inc. or fully realizing cost savings and other benefits;
business disruption following the merger; changes in asset quality
and credit risk; the inability to sustain revenue and earnings
growth; changes in interest rates and capital markets; inflation;
customer acceptance of Fifth Third Bancorp’s products and services;
customer borrowing, repayment, investment and deposit practices;
customer disintermediation; the introduction, withdrawal, success
and timing of business initiatives; competitive conditions; the
inability to realize cost savings or revenues or to implement
integration plans and other consequences associated with mergers,
acquisitions and divestitures; economic conditions; and the impact,
extent and timing of technological changes, capital management
activities, and other actions of the Federal Reserve Board and
legislative and regulatory actions and reforms.
Annualized, pro forma, projected and estimated numbers are used
for illustrative purpose only, are not forecasts and may not
reflect actual results.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180719005225/en/
Fifth Third BancorpInvestorsSameer Gokhale,
513-534-2219orMediaLarry Magnesen,
513-534-8055
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