Fifth Third Bank

Investor Relations

Fifth Third Announces Second Quarter 2019 Results

Reported diluted earnings per share of $0.57
Reported results included a negative $0.14 impact from certain items on page 2 of the 2Q19 earnings release including merger-related expenses
Quarterly comparisons are impacted by significant Worldpay gains from the prior quarter and year-ago quarter

Category:

Tuesday, July 23, 2019 6:30 am EDT

Dateline:

CINCINNATI

Public Company Information:

NASDAQ:
FITB
US3167731005

CINCINNATI--(BUSINESS WIRE)--Fifth Third Bancorp (FITB):

Key Highlights

  • Successful integration of MB Financial
  • Remain on-track to achieve MB expense savings by 1Q20 ($255 million pre-tax); expect to achieve ~80% of run-rate savings by year-end
  • Noninterest expense, noninterest income, and net interest income performance better than prior guidance
  • NIM(a) up 16 bps compared to 2Q18 (up 11 bps excl. purchase accounting accretion) and up 9 bps compared to 1Q19 (up 4 bps excl. purchase accounting accretion)
  • Period end loan to core deposit ratio decreased 2% while effectively managing interest bearing core deposit costs (up 4 bps vs. 1Q19)
  • ROTCE(a) of 12.3% (adjusted 15.1%, or 15.8% excl. accumulated other comprehensive income)
  • Named “Best Regional Bank” for second consecutive year by Kiplinger

 

Key Financial Data

 

 

 

 

 

 

 

$ millions for all balance sheet and income statement items

 

 

 

 

 

 

2Q19

1Q19

2Q18

 

Income Statement Data

 

 

 

 

 

 

 

Net income available to common shareholders

$427

 

$760

 

$579

 

 

Net interest income (U.S. GAAP)

1,245

 

1,082

 

1,020

 

 

Net interest income (FTE) (a)

1,250

 

1,086

 

1,024

 

 

Noninterest income

660

 

1,101

 

743

 

 

Noninterest expense

1,243

 

1,097

 

1,001

 

 

Per Share Data

 

 

 

 

 

 

 

Earnings per share, basic

$0.57

 

$1.14

 

$0.84

 

 

Earnings per share, diluted

0.57

 

1.12

 

0.82

 

 

Book value per share

26.17

 

24.77

 

21.75

 

 

Tangible book value per share (a)

20.03

 

18.64

 

18.08

 

 

Balance Sheet & Credit Quality

 

 

 

 

 

 

 

Average portfolio loans and leases

$110,095

 

$97,773

 

$92,557

 

 

Average deposits

124,345

 

109,591

 

103,945

 

 

Net charge-off ratio (b)

0.29

%

0.32

%

0.41

%

 

Nonperforming asset ratio (c)

0.51

 

0.45

 

0.52

 

 

Financial Ratios

 

 

 

 

 

 

 

Return on average assets

1.08

%

2.11

%

1.71

%

 

Return on average common equity

9.1

 

19.6

 

15.9

 

 

Return on average tangible common equity (a)

12.3

 

23.9

 

19.2

 

 

CET1 capital (d)(e)

9.58

 

9.60

 

10.91

 

 

Net interest margin (a)

3.37

 

3.28

 

3.21

 

 

Efficiency (a)

65.1

 

50.2

 

56.7

 

 

Other than the Quarterly Financial Review tables beginning on page 14 of the 2Q19 earnings release,
commentary is on a fully taxable-equivalent (FTE) basis unless otherwise noted. Consistent with SEC guidance
in Industry Guide 3 that contemplates the calculation of tax-exempt income on a taxable-equivalent basis, net
interest income, net interest margin, net interest rate spread, total revenue and the efficiency ratio are provided
on an FTE basis.

 

 

CEO Commentary

“Our second quarter performance reflected continued positive momentum throughout our businesses as well as the impact of integrating MB Financial. Excluding merger-related expenses, second quarter financial results exceeded our prior expectations, reflecting diligent expense management throughout the Company and strong net interest income growth. The net charge-off ratio also improved both sequentially and year-over-year, reflecting the generally stable macroeconomic environment during the quarter.

During the quarter, we completed the conversion of substantially all systems associated with our acquisition of MB Financial. We remain on track to achieve the previously stated financial synergies from the transaction, which will meaningfully improve our key profitability metrics.

With a clearly defined set of strategic priorities, we remain confident in our ability to generate revenue growth, achieve positive operating leverage, and create significant value for our shareholders.”

-Greg D. Carmichael, Chairman, President and CEO

 

Income Statement Highlights

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions, except per share data)

For the Three Months Ended

 

% Change

 

 

 

June

 

 

March

 

 

June

 

 

 

 

 

 

 

 

 

2019

 

 

2019

 

 

2018

 

 

Seq

 

 

Yr/Yr

 

 

Condensed Statements of Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income (NII) (a)

$1,250

 

$1,086

 

$1,024

 

15%

 

22%

 

 

Provision for credit losses

85

 

90

 

14

 

(6%)

 

507%

 

 

Noninterest income

660

 

1,101

 

743

 

(40%)

 

(11%)

 

 

Noninterest expense

1,243

 

1,097

 

1,001

 

13%

 

24%

 

 

Income before income taxes (a)

$582

 

$1,000

 

$752

 

(42%)

 

(23%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable equivalent adjustment

5

 

4

 

4

 

25%

 

25%

 

 

Applicable income tax expense

124

 

221

 

146

 

(44%)

 

(15%)

 

 

Net income

$453

 

$775

 

$602

 

(42%)

 

(25%)

 

 

Less: Net income attributable to noncontrolling interests

-

 

-

 

-

 

NM

 

NM

 

 

Net income attributable to Bancorp

$453

 

$775

 

$602

 

(42%)

 

(25%)

 

 

Dividends on preferred stock

26

 

15

 

23

 

73%

 

13%

 

 

Net income available to common shareholders

$427

 

$760

 

$579

 

(44%)

 

(26%)

 

 

Earnings per share, diluted

$0.57

 

$1.12

 

$0.82

 

(49%)

 

(30%)

 

Fifth Third Bancorp (Nasdaq: FITB) today reported second quarter 2019 net income of $453 million compared to net income of $602 million in the year-ago quarter. Net income available to common shareholders was $427 million, or $0.57 per diluted share, compared to $579 million, or $0.82 per diluted share in the year-ago quarter. Prior quarter net income was $775 million and net income available to common shareholders was $760 million, or $1.12 per diluted share.

Diluted earnings per share impact of certain items

 

(after-tax impacts (f) ; $ in millions, except per share data)

 

 

 

Merger-related expenses

($84)

Valuation of Visa total return swap

($17)

After-tax impact (f) of certain items

($101)

 

 

Average diluted common shares outstanding (thousands)

747,750

 

 

Diluted earnings per share impact

($0.14)

 

Net Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(FTE; $ in millions) (a)

For the Three Months Ended

 

 

% Change

 

 

 

June

 

March

 

June

 

 

 

 

 

 

 

2019

 

2019

 

2018

 

Seq

 

Yr/Yr

 

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

$1,641

 

 

$1,437

 

 

$1,273

 

 

14%

 

29%

 

 

Interest expense

391

 

 

351

 

 

249

 

 

11%

 

57%

 

 

Net interest income (NII)

$1,250

 

 

$1,086

 

 

$1,024

 

 

15%

 

22%

 

 

Adjusted NII (a)

$1,234

 

 

$1,085

 

 

$1,024

 

 

14%

 

21%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Yield/Rate Analysis

 

 

 

 

 

 

 

 

 

bps Change

 

 

Yield on interest-earning assets

4.42%

 

 

4.33%

 

 

3.98%

 

 

9

 

44

 

 

Rate paid on interest-bearing liabilities

1.47%

 

 

1.46%

 

 

1.12%

 

 

1

 

35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest rate spread

2.95%

 

 

2.87%

 

 

2.86%

 

 

8

 

9

 

 

Net interest margin (NIM)

3.37%

 

 

3.28%

 

 

3.21%

 

 

9

 

16

 

 

Adjusted NIM (a)

3.32%

 

 

3.28%

 

 

3.21%

 

 

4

 

11

 

Compared to the year-ago quarter, NII increased $226 million, or 22%. Purchase accounting accretion associated with the non-purchase credit impaired loan portfolio from the MB Financial acquisition was $16 million in the second quarter of 2019. Excluding the purchase accounting accretion, adjusted NII increased $210 million, or 21%, primarily driven by the impact of the earning assets from the MB Financial acquisition and higher short-term market rates. Compared to the year-ago quarter, NIM increased 16 bps, or 11 bps, excluding the purchase accounting accretion. Performance was driven by higher short-term market rates, partially offset by higher funding costs and a continued migration from demand deposits into interest-bearing deposits.

Compared to the prior quarter, NII increased $164 million, or 15%. Excluding the purchase accounting accretion, adjusted NII increased $149 million, or 14%, primarily reflecting the full-quarter impact of the acquired earning assets from the MB Financial acquisition and a higher day count, partially offset by lower short-term market rates and a slight increase in funding costs. Compared to the prior quarter, NIM increased 9 bps. Excluding the purchase accounting accretion, adjusted NIM increased 4 bps, primarily reflecting the full-quarter impact of the acquired earning assets from the MB Financial acquisition, partially offset by lower short-term market rates and a higher day count.

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

% Change

 

 

 

June

 

March

 

June

 

 

 

 

 

 

 

2019

 

2019

 

2018

 

Seq

 

Yr/Yr

 

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposits

$143

 

$131

 

$137

 

9%

 

4%

 

 

Corporate banking revenue

137

 

112

 

120

 

22%

 

14%

 

 

Mortgage banking net revenue

63

 

56

 

53

 

13%

 

19%

 

 

Wealth and asset management revenue

122

 

112

 

108

 

9%

 

13%

 

 

Card and processing revenue

92

 

79

 

84

 

16%

 

10%

 

 

Other noninterest income

93

 

592

 

250

 

(84%)

 

(63%)

 

 

Securities gains (losses), net

8

 

16

 

(5)

 

(50%)

 

NM

 

 

Securities gains (losses), net - non-qualifying

 

 

 

 

 

 

 

 

 

 

 

hedges on mortgage servicing rights

2

 

3

 

(4)

 

(33%)

 

NM

 

 

Total noninterest income

$660

 

$1,101

 

$743

 

(40%)

 

(11%)

 

Reported noninterest income decreased $83 million, or 11%, from the year-ago quarter, and decreased $441 million, or 40%, from the prior quarter. The reported results reflect the full-quarter impact of the MB Financial acquisition on March 22, 2019, and the impact of certain items in the table below including significant Worldpay gains in both the prior quarter and year-ago quarter.

 

Noninterest Income excluding certain items

 

($ in millions)

For the Three Months Ended

 

 

 

June

 

March

 

 

June

 

 

 

2019

 

2019

 

 

2018

 

 

Noninterest Income excluding certain items

 

 

 

 

 

 

 

 

 

Noninterest income (U.S. GAAP)

$660

 

 

$1,101

 

 

$743

 

 

Valuation of Visa total return swap

22

 

 

31

 

 

10

 

 

Merger-related branch network impairment charge

-

 

 

13

 

 

-

 

 

Gain on sale of Worldpay shares

-

 

 

(562)

 

 

(205)

 

 

Branch network impairment charge

-

 

 

-

 

 

30

 

 

Gain from GreenSky IPO

-

 

 

-

 

 

(16)

 

 

GreenSky equity securities (gains) / losses

-

 

 

(9)

 

 

-

 

 

Securities (gains) / losses, net (excluding GreenSky)

(8)

 

 

(7)

 

 

5

 

 

Noninterest income excluding certain items (a)

$674

 

 

$567

 

 

$567

 

Compared to the year-ago quarter, service charges on deposits increased $6 million, or 4%, primarily driven by higher commercial deposit fees, partially offset by lower consumer deposit fees. Corporate banking revenue increased $17 million, or 14%, primarily driven by business solutions revenue resulting from the MB Financial acquisition. Mortgage banking net revenue increased $10 million, or 19%, primarily driven by higher mortgage originations of $2.9 billion, an increase of 36%. Wealth and asset management revenue increased $14 million, or 13%, primarily driven by higher personal asset management revenue and institutional trust fees. Card and processing revenue increased $8 million, or 10%, reflecting increases in credit and debit transaction volumes, partially offset by higher rewards.

Compared to the prior quarter, service charges on deposits increased $12 million, or 9%, primarily driven by higher commercial deposit fees, partially offset by lower consumer deposit fees. Corporate banking revenue increased $25 million, or 22%, primarily driven by business solutions revenue resulting from the MB Financial acquisition. Mortgage banking net revenue increased $7 million, or 13%, primarily driven by a 76% increase in origination volumes. Wealth and asset management revenue increased $10 million, or 9%, primarily driven by higher personal asset management revenue and institutional trust fees, partially offset by seasonally strong tax-related private client service revenue in the prior quarter. Card and processing revenue increased $13 million, or 16%, reflecting increases in credit and debit transaction volumes, partially offset by higher rewards.

Compared to both the year-ago quarter and prior quarter, noninterest income excluding the items in the table above increased $107 million, or 19%, reflecting the full-quarter impact of the MB Financial acquisition.

Other noninterest income results on a reported basis in the current and previous quarters were impacted by the Visa total return swap valuation adjustments, branch network impairment charges, Worldpay-related gains, and GreenSky IPO gain. Excluding these items, other noninterest income of $115 million increased $46 million, or 67%, compared to the year-ago quarter, primarily driven by other noninterest income from MB Financial. Compared to the prior quarter, other noninterest income excluding these items increased $41 million, or 55%, primarily driven by other noninterest income from MB Financial.

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

 

% Change

 

 

 

June

 

March

 

 

June

 

 

 

 

 

 

 

 

2019

 

2019

 

 

2018

 

 

Seq

 

Yr/Yr

 

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

$641

 

 

$610

 

 

$549

 

 

5%

 

17%

 

 

Net occupancy expense

88

 

 

75

 

 

74

 

 

17%

 

19%

 

 

Technology and communications

136

 

 

83

 

 

67

 

 

64%

 

103%

 

 

Equipment expense

33

 

 

30

 

 

30

 

 

10%

 

10%

 

 

Card and processing expense

34

 

 

31

 

 

30

 

 

10%

 

13%

 

 

Intangible amortization expense

14

 

 

3

 

 

1

 

 

NM

 

NM

 

 

Other noninterest expense

297

 

 

265

 

 

250

 

 

12%

 

19%

 

 

Total noninterest expense

$1,243

 

 

$1,097

 

 

$1,001

 

 

13%

 

24%

 

 

Impacts of Merger-Related Expenses

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

 

 

June

 

March

 

 

June

 

 

 

 

2019

 

2019

 

 

2018

 

 

 

Merger-Related Expenses

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

$41

 

 

$35

 

 

$-

 

 

 

Net occupancy expense

6

 

 

-

 

 

-

 

 

 

Technology and communications

49

 

 

11

 

 

-

 

 

 

Equipment expense

1

 

 

-

 

 

-

 

 

 

Card and processing expense

1

 

 

-

 

 

-

 

 

 

Intangible amortization expense

-

 

 

-

 

 

-

 

 

 

Other noninterest expense

11

 

 

30

 

 

2

 

 

 

Total merger-related expenses

$109

 

 

$76

 

 

$2

 

 

 

Noninterest Expense excluding Merger-Related Expenses(a)

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

 

% Change

 

 

 

June

 

March

 

 

June

 

 

 

 

 

 

 

 

2019

 

2019

 

 

2018

 

 

Seq

 

Yr/Yr

 

 

Noninterest Expense excluding Merger-Related Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

$600

 

 

$575

 

 

$549

 

 

4%

 

9%

 

 

Net occupancy expense

82

 

 

75

 

 

74

 

 

9%

 

11%

 

 

Technology and communications

87

 

 

72

 

 

67

 

 

21%

 

30%

 

 

Equipment expense

32

 

 

30

 

 

30

 

 

7%

 

7%

 

 

Card and processing expense

33

 

 

31

 

 

30

 

 

6%

 

10%

 

 

Intangible amortization expense

14

 

 

3

 

 

1

 

 

NM

 

NM

 

 

Other noninterest expense

286

 

 

235

 

 

248

 

 

22%

 

15%

 

 

Total noninterest expense excluding merger-related expenses

$1,134

 

 

$1,021

 

 

$999

 

 

11%

 

14%

 

Compared to the year-ago quarter, reported noninterest expense increased $242 million, or 24%, impacted by merger-related expenses and the full quarter impact of ongoing expenses from the MB Financial acquisition. Excluding the merger-related expenses noted in the table above and intangible amortization expense, noninterest expense increased $122 million, or 12%, driven by higher other noninterest expense from the MB Financial acquisition (primarily operating lease expense), higher compensation and benefits as well as continued technology investments. The growth was partially offset by a decrease in incentive based payments and the elimination of the FDIC surcharge. Noninterest expense from the year-ago quarter included the impact of compensation expense primarily related to a staffing review as well as a contribution to the Fifth Third Foundation.

Compared to the prior quarter, reported noninterest expense increased $146 million, or 13%, and was impacted by merger-related expenses and elevated other noninterest expense. Excluding the merger-related expenses and the aforementioned intangible amortization expense, noninterest expense increased $102 million, or 10%, driven by higher other noninterest expense from the MB Financial acquisition (primarily operating lease expense), and an increase in technology and communications expense.

 

Average Interest-Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

 

% Change

 

 

 

June

 

March

 

June

 

 

 

 

 

 

 

2019

 

2019

 

2018

 

Seq

 

Yr/Yr

 

 

Average Portfolio Loans and Leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans

$52,078

 

 

$46,011

 

 

$42,292

 

 

13%

 

23%

 

 

Commercial mortgage loans

10,632

 

 

7,414

 

 

6,514

 

 

43%

 

63%

 

 

Commercial construction loans

5,248

 

 

4,838

 

 

4,743

 

 

8%

 

11%

 

 

Commercial leases

3,809

 

 

3,555

 

 

3,847

 

 

7%

 

(1%)

 

 

Total commercial loans and leases

$71,767

 

 

$61,818

 

 

$57,396

 

 

16%

 

25%

 

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

$16,804

 

 

$15,624

 

 

$15,581

 

 

8%

 

8%

 

 

Home equity

6,376

 

 

6,355

 

 

6,672

 

 

-

 

(4%)

 

 

Indirect secured consumer loans

10,190

 

 

9,176

 

 

8,968

 

 

11%

 

14%

 

 

Credit card

2,408

 

 

2,396

 

 

2,221

 

 

1%

 

8%

 

 

Other consumer loans

2,550

 

 

2,404

 

 

1,719

 

 

6%

 

48%

 

 

Total consumer loans

$38,328

 

 

$35,955

 

 

$35,161

 

 

7%

 

9%

 

 

 

Portfolio loans and leases

$110,095

 

 

$97,773

 

 

$92,557

 

 

13%

 

19%

 

 

Loans held for sale

898

 

 

589

 

 

675

 

 

52%

 

33%

 

 

Securities and other short-term investments

37,797

 

 

36,101

 

 

34,935

 

 

5%

 

8%

 

 

Total average interest-earning assets

$148,790

 

 

$134,463

 

 

$128,167

 

 

11%

 

16%

 

Compared to the year-ago quarter, average total portfolio loans and leases increased 19%, reflecting the impact of the MB Financial acquisition near the end of the first quarter of 2019. Average commercial portfolio loans and leases increased 25%, reflecting the impact of MB Financial as well as higher commercial and industrial (C&I) and commercial mortgage loans, partially offset by a decline in commercial leases. Average consumer portfolio loans increased 9%, reflecting the impact of MB Financial as well as growth in other consumer loans and indirect secured consumer loans.

Compared to the prior quarter, average total portfolio loans and leases increased 13%, reflecting the full-quarter impact of MB Financial. Average commercial portfolio loans and leases increased 16%, reflecting the full-quarter impact of MB Financial, partially offset by a decline in commercial leases. Average consumer portfolio loans increased 7%, reflecting the full-quarter impact of MB Financial as well as growth in indirect secured consumer loans and other consumer loans.

Period end commercial line utilization was 37%, compared to 35% in the year-ago quarter and 38% in the prior quarter.

Average securities and other short-term investments were $37.8 billion compared to $34.9 billion in the year-ago quarter and $36.1 billion in the prior quarter. Growth in the portfolio reflected both the impact from MB Financial and an increase in other short-term investments driven by strong deposit growth in excess of loan growth. Average available-for-sale debt and other securities of $34.7 billion increased 6% compared to the year-ago quarter increased 3% compared to the prior quarter.

Average Deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

 

% Change

 

 

 

June

 

 

March

 

 

June

 

 

 

 

 

 

 

 

 

2019

 

 

2019

 

 

2018

 

 

Seq

 

Yr/Yr

 

 

Average Deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand

$35,818

 

 

$30,557

 

 

$32,834

 

 

17%

 

9%

 

 

Interest checking

36,514

 

 

33,697

 

 

28,715

 

 

8%

 

27%

 

 

Savings

14,418

 

 

13,052

 

 

13,618

 

 

10%

 

6%

 

 

Money market

25,934

 

 

23,133

 

 

22,036

 

 

12%

 

18%

 

 

Foreign office (g)

163

 

 

208

 

 

371

 

 

(22%)

 

(56%)

 

 

Total transaction deposits

$112,847

 

 

$100,647

 

 

$97,574

 

 

12%

 

16%

 

 

Other time

5,678

 

 

4,860

 

 

4,018

 

 

17%

 

41%

 

 

Total core deposits

$118,525

 

 

$105,507

 

 

$101,592

 

 

12%

 

17%

 

 

Certificates - $100,000 and over

5,780

 

 

3,358

 

 

2,155

 

 

72%

 

168%

 

 

Other deposits

40

 

 

726

 

 

198

 

 

(94%)

 

(80%)

 

 

Total average deposits

$124,345

 

 

$109,591

 

 

$103,945

 

 

13%

 

20%

 

Compared to the year-ago quarter, average core deposits increased 17%, primarily driven by higher interest checking deposits, money market deposits, and demand deposits, reflecting the impact of MB Financial. The increases were partially offset by lower deposits in foreign offices. Compared to the prior quarter, average core deposits increased 12%, primarily driven by higher demand deposits, interest checking deposits, and money market deposits. Average demand deposits represented 30% of total core deposits in the second quarter of 2019, up from 29% in the prior quarter.

Average Wholesale Funding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

 

% Change

 

 

 

June

 

March

 

June

 

 

 

 

 

 

 

2019

 

2019

 

2018

 

Seq

 

Yr/Yr

 

 

Average Wholesale Funding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates - $100,000 and over

$5,780

 

 

$3,358

 

 

$2,155

 

 

72%

 

168%

 

 

Other deposits

40

 

 

726

 

 

198

 

 

(94%)

 

(80%)

 

 

Federal funds purchased

1,151

 

 

2,019

 

 

1,080

 

 

(43%)

 

7%

 

 

Other short-term borrowings

1,119

 

 

646

 

 

2,452

 

 

73%

 

(54%)

 

 

Long-term debt

15,543

 

 

15,438

 

 

14,579

 

 

1%

 

7%

 

 

Total average wholesale funding

$23,633

 

 

$22,187

 

 

$20,464

 

 

7%

 

15%

 

Compared to the year-ago quarter, average wholesale funding increased 15% driven by growth in jumbo CD balances and long-term debt, partially offset by a decrease in other short-term borrowings. Compared to the prior quarter, average wholesale funding increased 7% reflecting an increase in jumbo CD balances and other short-term borrowings, partially offset by a decrease in federal funds borrowings and other deposits.

 

Credit Quality Summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

For the Three Months Ended

 

 

June

 

March

 

December

 

September

 

June

 

 

2019

 

2019

 

2018

 

2018

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total nonaccrual portfolio loans and leases (NPLs)

$521

 

 

$450

 

 

$348

 

 

$403

 

 

$437

 

 

Repossessed property

8

 

 

11

 

 

10

 

 

8

 

 

7

 

 

OREO

31

 

 

37

 

 

37

 

 

37

 

 

36

 

 

Total nonperforming portfolio assets (NPAs)

$560

 

 

$498

 

 

$395

 

 

$448

 

 

$480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NPL ratio (h)

0.48%

 

 

0.41%

 

 

0.37%

 

 

0.43%

 

 

0.47%

 

 

NPA ratio (c)

0.51%

 

 

0.45%

 

 

0.41%

 

 

0.48%

 

 

0.52%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans and leases 30-89 days past due (accrual)

383

 

 

322

 

 

297

 

 

270

 

 

217

 

 

Total loans and leases 90 days past due (accrual)

128

 

 

132

 

 

93

 

 

87

 

 

89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses, beginning

$1,115

 

 

$1,103

 

 

$1,091

 

 

$1,077

 

 

$1,138

 

 

Total net losses charged-off

(78)

 

 

(77)

 

 

(83)

 

 

(72)

 

 

(94)

 

 

Provision for loan and lease losses

78

 

 

89

 

 

95

 

 

86

 

 

33

 

 

Allowance for loan and lease losses, ending

$1,115

 

 

$1,115

 

 

$1,103

 

 

$1,091

 

 

$1,077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve for unfunded commitments, beginning

$133

 

 

$131

 

 

$129

 

 

$131

 

 

$151

 

 

Reserve for acquired commitments

7

 

 

1

 

 

-

 

 

-

 

 

-

 

 

Provision for (benefit from) the reserve for unfunded commitments

7

 

 

1

 

 

2

 

 

(2)

 

 

(20)

 

 

Reserve for unfunded commitments, ending

$147

 

 

$133

 

 

$131

 

 

$129

 

 

$131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total allowance for credit losses

$1,262

 

 

$1,248

 

 

$1,234

 

 

$1,220

 

 

$1,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As a percent of portfolio loans and leases

1.02%

 

 

1.02%

 

 

1.16%

 

 

1.17%

 

 

1.17%

 

 

As a percent of nonperforming portfolio loans and leases

214%

 

 

248%

 

 

317%

 

 

270%

 

 

247%

 

 

As a percent of nonperforming portfolio assets

199%

 

 

224%

 

 

279%

 

 

243%

 

 

224%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total losses charged-off

$(119)

 

 

$(108)

 

 

$(116)

 

 

$(112)

 

 

$(118)

 

 

Total recoveries of losses previously charged-off

41

 

 

31

 

 

33

 

 

40

 

 

24

 

 

Total net losses charged-off

$(78)

 

 

$(77)

 

 

$(83)

 

 

$(72)

 

 

$(94)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-off ratio (NCO ratio) (b)

0.29%

 

 

0.32%

 

 

0.35%

 

 

0.30%

 

 

0.41%

 

 

Commercial NCO ratio

0.13%

 

 

0.11%

 

 

0.19%

 

 

0.19%

 

 

0.34%

 

 

Consumer NCO ratio

0.59%

 

 

0.68%

 

 

0.61%

 

 

0.50%

 

 

0.52%

 

Compared to the year-ago quarter, NPLs increased $84 million, or 19%, with the resulting NPL ratio of 0.48% increasing 1 bp. NPAs increased $80 million, or 17%, with the resulting NPA ratio of 0.51% decreasing 1 bp. Compared to the prior quarter, NPLs increased $71 million, or 16%, with the resulting NPL ratio increasing 7 bps. NPAs increased $62 million, or 12%, with the resulting NPA ratio increasing 6 bps.

The provision for loan and lease losses totaled $78 million in the current quarter compared to $33 million in the year-ago quarter and $89 million in the prior quarter. The resulting allowance for loan and lease losses ratio represented 1.02% of total portfolio loans and leases outstanding in the current quarter, compared with 1.17% in the year-ago quarter and 1.02% in the prior quarter. The allowance for loan and lease losses represented 214% of nonperforming portfolio loans and leases and 199% of nonperforming portfolio assets in the current quarter.

Net charge-offs totaled $78 million in the current quarter compared to $94 million in the year-ago quarter and $77 million in the prior quarter. The resulting NCO ratio of 0.29% in the current quarter decreased 12 bps compared to the year-ago quarter and decreased 3 bps compared to the prior quarter.

 

Capital and Liquidity Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

 

June

 

March

 

December

 

September

 

June

 

 

 

 

2019

 

2019

 

2018

 

2018

 

2018

 

Capital Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average total Bancorp shareholders' equity as a percent of average assets

 

12.02%

 

 

11.43%

 

 

10.95%

 

 

11.29%

 

11.28%

 

 

Tangible equity (a)

 

9.09%

 

 

9.03%

 

 

9.63%

 

 

9.97%

 

10.19%

 

 

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

 

8.27%

 

 

8.21%

 

 

8.71%

 

 

9.02%

 

9.23%

 

 

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

 

8.91%

 

 

8.44%

 

 

8.64%

 

 

8.53%

 

8.88%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regulatory Capital and Liquidity Ratios (e)

 

 

 

 

CET1 capital (d)

 

9.58%

 

 

9.60%

 

 

10.24%

 

 

10.67%

 

10.91%

 

 

Tier I risk-based capital (d)

 

10.64%

 

 

10.67%

 

 

11.32%

 

 

11.78%

 

12.02%

 

 

Total risk-based capital (d)

 

13.55%

 

 

13.57%

 

 

14.48%

 

 

14.94%

 

15.21%

 

 

Tier I leverage

 

9.24%

 

 

10.32%

 

 

9.72%

 

 

10.10%

 

10.24%

 

 

Modified liquidity coverage ratio (LCR)

 

119%

 

 

113%

 

 

128%

 

 

119%

 

116%

 

Capital ratios remained strong during the quarter. The CET1 capital ratio was 9.58%, the tangible common equity to tangible assets ratio was 8.27% excluding unrealized gains/losses, and 8.91% including unrealized gains/losses. The Tier I risk-based capital ratio was 10.64%, the Total risk-based capital ratio was 13.55%, and the Tier I leverage ratio was 9.24%.

Fifth Third entered into or completed multiple share repurchases during the quarter. Below is a summary of those share repurchases.

  • On April 29, 2019, Fifth Third initially settled a share repurchase agreement whereby Fifth Third would purchase $200 million of its outstanding stock in two $100 million tranches. The initial settlement reduced second quarter common shares outstanding by 6.0 million shares. On May 23, 2019, and May 24, 2019, Fifth Third settled both tranches from the forward contract. An additional 1.2 million shares were repurchased in connection with the completion of this agreement.
  • On June 28, 2019, Fifth Third settled the forward contract related to the March 2019 $913 million share repurchase agreement. An additional 2.0 million shares were repurchased in connection with the completion of this agreement.

Based on the transactions noted above, common shares outstanding decreased by approximately 9.2 million shares in the second quarter of 2019 from the first quarter.

On June 27, 2019, Fifth Third announced its capital distribution projections for July 1, 2019 through June 30, 2020 reflecting the ability to distribute approximately $2 billion in capital, which include common share repurchases as well as increased common stock dividends. Capital distribution projections include repurchases related to common share issuances under employee benefit plans (approximately $75 million) and excludes any potential additional repurchases of common shares related to after-tax gains from the previous sale of Worldpay, Inc. common stock.

Tax Rate

The effective tax rate was 21.5% compared with 19.6% in the year-ago quarter and 22.2% in the prior quarter.

Other

In April 2019, Fifth Third exchanged its remaining Class B units of GreenSky Holdings, LLC for Class A common stock of GreenSky, Inc., and subsequently sold all of the stock. Fifth Third recognized a minimal pre-tax gain as a result of this transaction.

On May 30, 2019, Fifth Third filed an application with the Office of the Comptroller of the Currency (“OCC”) to convert from an Ohio state-chartered bank to a national bank.

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 6, 2019 by dialing 800-585-8367 for domestic access or 404-537-3406 for international access (passcode 2784479#).

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of June 30, 2019, the Company had $169 billion in assets and operates 1,207 full-service Banking Centers, and 2,551 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 53,000 fee-free ATMs across the United States. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Wealth & Asset Management. Fifth Third is among the largest money managers in the Midwest and, as of June 30, 2019, had $399 billion in assets under care, of which it managed $46 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

  1. Non-GAAP measure; see discussion of non-GAAP and Reg. G reconciliation beginning on page 26 of the 2Q19 earnings release.
  2. Net losses charged-off as a percent of average portfolio loans and leases.
  3. Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO.
  4. Under the U.S. 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 values are added together resulting in the Bancorp’s total risk-weighted assets.
  5. Current period regulatory capital and liquidity ratios are estimated.
  6. Assumes a 23% tax rate, except for merger-related expenses which were impacted by certain non-deductible items.
  7. Includes commercial customer Eurodollar sweep balances for which the Bank pays rates comparable to other commercial deposit accounts.
  8. Nonperforming portfolio loans and leases as a percent of portfolio loans and leases and OREO.


FORWARD-LOOKING STATEMENTS

This 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,” “potential,” “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 as updated by our Quarterly Reports on Form 10-Q. 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. We undertake no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this document.

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) deteriorating credit quality; (2) loan concentration by location or industry of borrowers or collateral; (3) problems encountered by other financial institutions; (4) inadequate sources of funding or liquidity; (5) unfavorable actions of rating agencies; (6) inability to maintain or grow deposits; (7) limitations on the ability to receive dividends from subsidiaries; (8) cyber-security risks; (9) Fifth Third’s ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; (10) failures by third-party service providers; (11) inability to manage strategic initiatives and/or organizational changes; (12) inability to implement technology system enhancements; (13) failure of internal controls and other risk management systems; (14) losses related to fraud, theft or violence; (15) inability to attract and retain skilled personnel; (16) adverse impacts of government regulation; (17) governmental or regulatory changes or other actions; (18) failures to meet applicable capital requirements; (19) regulatory objections to Fifth Third’s capital plan; (20) regulation of Fifth Third’s derivatives activities; (21) deposit insurance premiums; (22) assessments for the orderly liquidation fund; (23) replacement of LIBOR; (24) weakness in the national or local economies; (25) global political and economic uncertainty or negative actions; (26) changes in interest rates; (27) changes and trends in capital markets; (28) fluctuation of Fifth Third’s stock price; (29) volatility in mortgage banking revenue; (30) litigation, investigations, and enforcement proceedings by governmental authorities; (31) breaches of contractual covenants, representations and warranties; (32) competition and changes in the financial services industry; (33) changing retail distribution strategies, customer preferences and behavior; (34) risks relating to the merger with MB Financial, Inc. and Fifth Third’s ability to realize anticipated benefits of the merger; (35) difficulties in identifying, acquiring or integrating suitable strategic partnerships, investments or acquisitions; (36) potential dilution from future acquisitions; (37) loss of income and/or difficulties encountered in the sale and separation of businesses, investments or other assets; (38) results of investments or acquired entities; (39) changes in accounting standards or interpretation or declines in the value of Fifth Third’s goodwill or other intangible assets; (40) inaccuracies or other failures from the use of models; (41) effects of critical accounting policies and judgments or the use of inaccurate estimates; (42) weather-related events or other natural disasters; and (43) the impact of reputational risk created by these or other 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.

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Contact:

Investors:
Chris Doll (513) 534–2345

Media:
Gary Rhodes (513) 534–4225