Fifth Third Bancorp (FITB):
Key Highlights
MB Financial acquisition
- Closed transaction on March 22, 2019
- Expect to convert majority of systems in May 2019
Strong financial and credit performance
- NIM(a) up 10 bps compared to 1Q18
- Adjusted PPNR(a) up 19% compared to 1Q18 (up 17% excluding the impact of MB)
- Average loans up 6% compared to 1Q18 (4% excluding impact of MB)
- Average core deposits up 5% compared to 1Q18 (3% excluding impact of MB)
- NCO ratio(c) of 0.32% (incl. Commercial of 0.11%)
Solid key financial metrics(a)
- ROTCE: 23.9% (adjusted 13.5%)
- ROA: 2.11% (adjusted 1.21%)
- Efficiency ratio: 50.2% (adjusted 61.3%)
Key Financial Data | |||||||||
| $ millions for all balance sheet and income statement items | |||||||||
| 1Q19 | 4Q18 | 1Q18 | |||||||
| Income Statement Data | |||||||||
| Net income available to common shareholders | $760 | $432 | $686 | ||||||
| Net interest income (U.S. GAAP) | 1,082 | 1,081 | 996 | ||||||
| Net interest income (FTE)(a) | 1,086 | 1,085 | 999 | ||||||
| Noninterest income | 1,101 | 575 | 909 | ||||||
| Noninterest expense(b) | 1,097 | 975 | 1,010 | ||||||
| Per Share Data | |||||||||
| Earnings per share, basic | $1.14 | $0.65 | $0.98 | ||||||
| Earnings per share, diluted | 1.12 | 0.64 | 0.96 | ||||||
| Book value per share | 24.77 | 23.07 | 21.44 | ||||||
| Tangible book value per share(a) | 18.64 | 19.17 | 17.80 | ||||||
| Balance Sheet & Credit Quality | |||||||||
| Average portfolio loans and leases | $97,773 | $94,757 | $92,334 | ||||||
| Average deposits | 109,591 | 107,495 | 103,537 | ||||||
| Net charge-off ratio(c) | 0.32 | % | 0.35 | % | 0.36 | % | |||
| Nonperforming asset ratio(d) | 0.45 | 0.41 | 0.55 | ||||||
| Financial Ratios | |||||||||
| Return on average assets | 2.11 | % | 1.25 | % | 2.01 | % | |||
| Return on average common equity | 19.6 | 11.8 | 18.8 | ||||||
| Return on average tangible common equity(a) | 23.9 | 14.3 | 22.6 | ||||||
| CET1 capital(e)(f) | 9.65 | 10.24 | 10.82 | ||||||
| Net interest margin(a) | 3.28 | 3.29 | 3.18 | ||||||
| Efficiency(a)(b) | 50.2 | 58.7 | 52.9 | ||||||
Other than the Quarterly Financial Review tables beginning on page 15 of the 1Q19 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 first quarter performance was strong. Loan growth exceeded our previous expectations, we continued to manage expenses diligently, and credit quality metrics were solid.
“Additionally, we achieved a significant milestone on March 22, 2019, with the closing of the MB Financial acquisition. We are pleased to welcome our new customers and team members. We look forward to converting substantially all systems and processes in May and providing our Chicago customers with expanded products and services.
“With a strong start to the year, we now look forward to leveraging the enhanced capabilities of our company and expect to achieve our 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, outperform peers through the cycle, and create significant value for our shareholders.”
-Greg D. Carmichael, Chairman, President and CEO
On March 22, 2019, Fifth Third Bancorp closed the previously announced acquisition of MB Financial, Inc. The acquisition added approximately $19.8 billion of total assets, $13.5 billion of total loans and leases, $14.5 billion of total deposits, and 91 locations (including 86 full-service banking centers). First quarter of 2019 results reflect the impact of MB Financial since March 22, 2019.
| Summary MB Financial Balance Sheet at Acquisition | |||||||
| ($ in millions) | |||||||
| Assets | Liabilities | ||||||
| Cash and due from banks | $1,686 | Transactional deposits | $12,170 | ||||
| Commercial loans and leases | 11,068 | Other time | 546 | ||||
| Consumer loans | 2,435 | Core deposits | 12,716 | ||||
| Total loans and leases | 13,503 | Certificates $100,000 and over | 1,776 | ||||
| Federal funds sold | 35 | Total deposits | 14,495 | ||||
| Securities and other short-term investments | 940 | Other short-term borrowings | 348 | ||||
| Goodwill | 1,843 | Long-term debt | 713 | ||||
| Other assets | 1,793 | Other liabilities | 439 | ||||
| Total assets | $19,800 | Total liabilities | $15,995 | ||||
| Income Statement Highlights | |||||||||||||||
| ($ in millions, except per share data) | For the Three Months Ended | % Change | |||||||||||||
| March | December | March | |||||||||||||
| 2019 | 2018 | 2018 | Seq | Yr/Yr | |||||||||||
| Condensed Statements of Income | |||||||||||||||
| Net interest income (NII)(a) | $1,086 | $1,085 | $999 | - | 9% | ||||||||||
| Provision for credit losses(b) | 90 | 97 | 13 | (7%) | 592% | ||||||||||
| Noninterest income | 1,101 | 575 | 909 | 91% | 21% | ||||||||||
| Noninterest expense(b) | 1,097 | 975 | 1,010 | 13% | 9% | ||||||||||
| Income before income taxes(a) | $1,000 | $588 | $885 | 70% | 13% | ||||||||||
| Taxable equivalent adjustment | 4 | 4 | 3 | - | 33% | ||||||||||
| Applicable income tax expense | 221 | 129 | 181 | 71% | 22% | ||||||||||
| Net income | $775 | $455 | $701 | 70% | 11% | ||||||||||
| Less: Net income attributable to noncontrolling interests | - | - | - | NM | NM | ||||||||||
| Net income attributable to Bancorp | $775 | $455 | $701 | 70% | 11% | ||||||||||
| Dividends on preferred stock | 15 | 23 | 15 | (35%) | - | ||||||||||
| Net income available to common shareholders | $760 | $432 | $686 | 76% | 11% | ||||||||||
| Earnings per share, diluted | $1.12 | $0.64 | $0.96 | 75% | 17% | ||||||||||
Fifth Third includes the provision for loan and lease losses and the provision for the reserve for unfunded commitments in a single measure called provision for credit losses. Fifth Third previously reported the provision for the reserve for unfunded commitments within other noninterest expense. All reporting periods have been adjusted to reflect this reclassification.
Fifth Third Bancorp (Nasdaq: FITB) today reported first quarter 2019 net income of $775 million compared to net income of $701 million in the year-ago quarter. Net income available to common shareholders was $760 million, or $1.12 per diluted share, compared to $686 million, or $0.96 per diluted share in the year-ago quarter. Prior quarter net income was $455 million and net income available to common shareholders was $432 million, or $0.64 per diluted share.
| Diluted earnings per share impact of certain items | ||
| (after-tax impacts(g); $ in millions, except per share data) | ||
| Gain on sale of Worldpay shares | $433 | |
| Merger-related items: | ||
| Expenses | ($65) | |
| Branch network impairment charge (noninterest income) | ($10) | |
| Acquisition impact on state deferred taxes | ($9) | |
| Valuation of Visa total return swap | ($24) | |
| GreenSky equity securities gains | $7 | |
| After-tax impact(g) of certain items | $332 | |
| Average diluted common shares outstanding (thousands) | 670,685 | |
| Diluted earnings per share impact | $0.49 | |
| Net Interest Income | ||||||||||||||||
| (FTE; $ in millions)(a) | For the Three Months Ended | % Change | ||||||||||||||
| March | December | March | ||||||||||||||
| 2019 | 2018 | 2018 | Seq | Yr/Yr | ||||||||||||
| Interest Income | ||||||||||||||||
| Interest income | $1,437 | $1,397 | $1,209 | 3% | 19% | |||||||||||
| Interest expense | 351 | 312 | 210 | 13% | 67% | |||||||||||
| Net interest income (NII) | $1,086 | $1,085 | $999 | - | 9% | |||||||||||
| Average Yield/Rate Analysis | bps Change | |||||||||||||||
| Yield on interest-earning assets | 4.33% | 4.23% | 3.85% | 10 | 48 | |||||||||||
| Rate paid on interest-bearing liabilities | 1.46% | 1.33% | 0.97% | 13 | 49 | |||||||||||
| Ratios | ||||||||||||||||
| Net interest rate spread | 2.87% | 2.90% | 2.88% | (3) | (1) | |||||||||||
| Net interest margin | 3.28% | 3.29% | 3.18% | (1) | 10 | |||||||||||
Compared to the year-ago quarter, NII increased $87 million, or 9 percent, driven by higher short-term market rates, as well as growth in both the commercial loan portfolio and the securities portfolio. NIM increased 10 bps, driven by higher short-term market rates and growth in higher-yielding consumer loans, partially offset by higher funding costs and a continued migration from demand deposits into interest-bearing deposits.
Compared to the prior quarter, NII increased $1 million, reflecting the impact of both the acquired earning assets of MB Financial and Fifth Third loan growth throughout the quarter, partially offset by a lower day count. NIM decreased 1 bp, primarily driven by seasonally lower commercial demand deposits and higher wholesale funding costs resulting from $1.8 billion in long-term funding issued during the quarter, partially offset by a lower day count and higher short-term market rates. Due to the timing of the close of the MB Financial acquisition, purchase accounting accretion was negligible in the first quarter of 2019. Including purchase accounting accretion, first quarter of 2019 NII performance included the impact from 6 business days of MB Financial, or approximately $16 million, and increased NIM 1 bp.
| Noninterest Income | ||||||||||||||||
| ($ in millions) | For the Three Months Ended | % Change | ||||||||||||||
| March | December | March | ||||||||||||||
| 2019 | 2018 | 2018 | Seq | Yr/Yr | ||||||||||||
| Noninterest Income | ||||||||||||||||
| Service charges on deposits | $131 | $135 | $137 | (3%) | (4%) | |||||||||||
| Corporate banking revenue | 112 | 130 | 88 | (14%) | 27% | |||||||||||
| Mortgage banking net revenue | 56 | 54 | 56 | 4% | - | |||||||||||
| Wealth and asset management revenue | 112 | 109 | 113 | 3% | (1%) | |||||||||||
| Card and processing revenue | 79 | 84 | 79 | (6%) | - | |||||||||||
| Other noninterest income | 592 | 93 | 460 | 537% | 29% | |||||||||||
| Securities gains (losses), net | 16 | (32) | (11) | NM | NM | |||||||||||
| Securities gains (losses), net - non-qualifying | ||||||||||||||||
| hedges on mortgage servicing rights | 3 | 2 | (13) | 50% | NM | |||||||||||
| Total noninterest income | $1,101 | $575 | $909 | 91% | 21% | |||||||||||
Reported noninterest income increased $192 million, or 21 percent, from the year-ago quarter, and increased $526 million, or 91 percent, from the prior quarter. The comparisons reflect the impact of certain significant items in the table on below.
Compared to the year-ago quarter, service charges on deposits decreased $6 million, or 4 percent, primarily driven by lower commercial deposit fees resulting from increased business earnings credits. Corporate banking revenue increased $24 million, or 27 percent, primarily driven by strong capital markets revenue as well as increased business lending fees. Mortgage banking net revenue was flat, and mortgage originations of $1.6 billion increased 4 percent. Wealth and asset management revenue decreased $1 million, or 1 percent, as higher personal asset management revenue was offset by lower institutional trust and brokerage fees. Card and processing revenue was flat, reflecting increases in credit and debit transaction volumes offset by higher rewards.
Compared to the prior quarter, service charges on deposits decreased $4 million, or 3 percent, primarily driven by seasonally lower consumer deposit fees. Corporate banking revenue decreased $18 million, or 14 percent, primarily driven by a decrease in M&A advisory and loan syndication revenues compared to the record revenues in the fourth quarter of 2018. Mortgage banking net revenue increased $2 million, or 4 percent, primarily driven by higher origination revenues as a result of a 5 percent increase in originations. Wealth and asset management revenue increased $3 million, or 3 percent, reflecting seasonally strong tax-related private client service revenue. Card and processing revenue decreased $5 million, or 6 percent, reflecting seasonal decreases in credit and debit transaction volumes, partially offset by lower rewards.
| Noninterest Income excluding certain items | |||||||||
| ($ in millions) | For the Three Months Ended | ||||||||
| March | December | March | |||||||
| 2019 | 2018 | 2018 | |||||||
| Noninterest Income excluding certain items | |||||||||
| Noninterest income (U.S. GAAP) | $1,101 | $575 | $909 | ||||||
| Valuation of Visa total return swap | 31 | (7) | 39 | ||||||
| Merger-related branch network impairment charge | 13 | - | - | ||||||
| Gain on sale of Worldpay shares | (562) | - | - | ||||||
| Branch network impairment charge | - | - | 8 | ||||||
| Worldpay step-up gain | - | - | (414) | ||||||
| GreenSky equity securities (gains) / losses | (9) | 21 | - | ||||||
| Securities (gains) / losses, net (excluding GreenSky) | (7) | 11 | 11 | ||||||
| Noninterest income excluding certain items(a) | $567 | $600 | $553 | ||||||
Compared to the year-ago quarter, noninterest income excluding the items in the table above increased $14 million, or 3 percent. Compared to the prior quarter, noninterest income excluding these items decreased $33 million, or 6 percent. First quarter of 2019 noninterest income performance included the impact from 6 business days of MB Financial, or approximately $12 million.
Other noninterest income on a reported basis in the current and previous quarters was impacted by the Visa total return swap valuation adjustments, branch network impairment charges, and Worldpay related gains. Excluding these items, other noninterest income of $74 million decreased $19 million, or 20 percent, compared to the year-ago quarter, primarily driven by lower private equity investment income. Compared to the prior quarter, other noninterest income excluding the items decreased $12 million, or 14 percent, impacted by the revenue recognized from Worldpay related to the tax receivable agreement in the fourth quarter of 2018.
| Noninterest Expense | |||||||||||||||
| ($ in millions) | For the Three Months Ended | % Change | |||||||||||||
| March | December | March | |||||||||||||
| 2019 | 2018 | 2018 | Seq | Yr/Yr | |||||||||||
| Noninterest Expense | |||||||||||||||
| Compensation and benefits | $610 | $506 | $557 | 21% | 10% | ||||||||||
| Net occupancy expense | 75 | 73 | 75 | 3% | - | ||||||||||
| Technology and communications | 83 | 79 | 68 | 5% | 22% | ||||||||||
| Equipment expense | 30 | 31 | 31 | (3%) | (3%) | ||||||||||
| Card and processing expense | 31 | 33 | 29 | (6%) | 7% | ||||||||||
| Other noninterest expense(b) | 268 | 253 | 250 | 6% | 7% | ||||||||||
| Total noninterest expense(b) | $1,097 | $975 | $1,010 | 13% | 9% | ||||||||||
| Impacts of Merger-Related Expenses | ||||||||||
| ($ in millions) | For the Three Months Ended | |||||||||
| March | December | March | ||||||||
| 2019 | 2018 | 2018 | ||||||||
| Merger-Related Expenses | ||||||||||
| Compensation and benefits | $35 | $1 | $- | |||||||
| Net occupancy expense | - | - | - | |||||||
| Technology and communications | 11 | 6 | - | |||||||
| Equipment expense | - | - | - | |||||||
| Card and processing expense | - | 1 | - | |||||||
| Other noninterest expense | 30 | 19 | - | |||||||
| Total merger-related expenses | $76 | $27 | $- | |||||||
| Noninterest Expense excluding Merger-Related Expenses(a) | |||||||||||||||
| ($ in millions) | For the Three Months Ended | % Change | |||||||||||||
| March | December | March | |||||||||||||
| 2019 | 2018 | 2018 | Seq | Yr/Yr | |||||||||||
| Noninterest Expense excluding Merger-Related Expenses | |||||||||||||||
| Compensation and benefits | $575 | $505 | $557 | 14% | 3% | ||||||||||
| Net occupancy expense | 75 | 73 | 75 | 3% | 0% | ||||||||||
| Technology and communications | 72 | 73 | 68 | (1%) | 6% | ||||||||||
| Equipment expense | 30 | 31 | 31 | (3%) | (3%) | ||||||||||
| Card and processing expense | 31 | 32 | 29 | (3%) | 7% | ||||||||||
| Other noninterest expense | 238 | 234 | 250 | 2% | (5%) | ||||||||||
| Total noninterest expense excluding Merger-Related Expenses | $1,021 | $948 | $1,010 | 8% | 1% | ||||||||||
Compared to the year-ago quarter, reported noninterest expense increased $87 million, or 9 percent, primarily due to merger-related expenses in the current quarter. Excluding the merger-related expenses, noninterest expense increased $11 million, or 1 percent, reflecting higher compensation and benefits driven by acquisitions over the past year (including the impact from 6 business days of MB Financial, or approximately $20 million) and increased deferred compensation, as well as continued technology investments. The growth was partially offset by the elimination of the FDIC surcharge.
Compared to the prior quarter, reported noninterest expense increased $122 million, or 13 percent, also impacted by merger-related expenses. Excluding the merger-related expenses in the current and prior quarter, noninterest expense increased $73 million, or 8 percent, reflecting seasonally higher compensation and benefits and increased deferred compensation, as well as elevated expenses due to the post-close impact of MB Financial. First quarter of 2019 noninterest expense performance included the impact from 6 business days of MB Financial, or approximately $20 million.
| Average Interest-Earning Assets | ||||||||||||
| ($ in millions) | For the Three Months Ended | % Change | ||||||||||
| March | December | March | ||||||||||
| 2019 | 2018 | 2018 | Seq | Yr/Yr | ||||||||
| Average Portfolio Loans and Leases | ||||||||||||
| Commercial loans and leases: | ||||||||||||
| Commercial and industrial loans | $46,011 | $43,829 | $41,782 | 5% | 10% | |||||||
| Commercial mortgage loans | 7,414 | 6,864 | 6,582 | 8% | 13% | |||||||
| Commercial construction loans | 4,838 | 4,885 | 4,671 | (1%) | 4% | |||||||
| Commercial leases | 3,555 | 3,632 | 3,960 | (2%) | (10%) | |||||||
| Total commercial loans and leases | $61,818 | $59,210 | $56,995 | 4% | 8% | |||||||
| Consumer loans: | ||||||||||||
| Residential mortgage loans | $15,624 | $15,520 | $15,575 | 1% | - | |||||||
| Home equity | 6,355 | 6,438 | 6,889 | (1%) | (8%) | |||||||
| Indirect secured consumer loans(h) | 9,176 | 8,970 | 9,064 | 2% | 1% | |||||||
| Credit card | 2,396 | 2,373 | 2,224 | 1% | 8% | |||||||
| Other consumer loans | 2,404 | 2,246 | 1,587 | 7% | 51% | |||||||
| Total consumer loans | $35,955 | $35,547 | $35,339 | 1% | 2% | |||||||
| Portfolio loans and leases | $97,773 | $94,757 | $92,334 | 3% | 6% | |||||||
| Loans held for sale | 589 | 641 | 535 | (8%) | 10% | |||||||
| Securities and other short-term investments | 36,101 | 35,674 | 34,677 | 1% | 4% | |||||||
| Total average interest-earning assets | $134,463 | $131,072 | $127,546 | 3% | 5% | |||||||
(The Bancorp acquired indirect motorcycle, powersports, recreational vehicles and marine loans in the acquisition of MB Financial. These loans are included in addition to automobile loans in the line item “indirect secured consumer loans”. Point-of-sale unsecured loans continue to be recorded in other consumer loans.) |
Compared to the year-ago quarter, average portfolio loans and leases increased 6 percent, primarily driven by higher commercial and industrial (C&I) and other consumer loans, partially offset by declines in home equity loans and commercial leases. Period end portfolio loans and leases increased 19 percent year-over-year, reflecting the impact of MB Financial. Compared to the prior quarter, average portfolio loans and leases increased 3 percent, primarily driven by higher C&I and commercial mortgage loans, partially offset by declines in home equity loans and commercial leases. Period end portfolio loans and leases increased 15 percent from the prior quarter, reflecting the impact of MB Financial.
Compared to the year-ago quarter, average commercial portfolio loans and leases increased 8 percent, primarily driven by higher C&I and commercial mortgage loans. Compared to the prior quarter, average commercial portfolio loans and leases increased 4 percent, primarily driven by growth in C&I and commercial mortgage loans. Period end commercial line utilization was 38 percent, compared to 35 percent in the year-ago quarter and 36 percent in the prior quarter. The increased utilization rate primarily reflects a greater percentage of middle market clients resulting from the MB Financial acquisition.
Compared to the year-ago quarter, average consumer portfolio loans increased 2 percent, primarily driven by higher other consumer loans and growth in credit card loans, partially offset by declines in home equity loans. Compared to the prior quarter, average consumer portfolio loans increased 1 percent, as higher indirect secured consumer loans and other consumer loans partially were offset by declines in home equity loans.
Average securities and other short-term investments were $36.1 billion compared to $34.7 billion in the year-ago quarter and $35.7 billion in the prior quarter. Average available-for-sale debt and other securities of $33.6 billion were up 4 percent compared to the year-ago quarter and up 1 percent compared to the prior quarter.
| Average Deposits | ||||||||||||
| ($ in millions) | For the Three Months Ended | % Change | ||||||||||
| March | December | March | ||||||||||
| 2019 | 2018 | 2018 | Seq | Yr/Yr | ||||||||
| Average Deposits | ||||||||||||
| Demand | $30,557 | $31,571 | $33,825 | (3%) | (10%) | |||||||
| Interest checking | 33,697 | 32,428 | 28,403 | 4% | 19% | |||||||
| Savings | 13,052 | 12,933 | 13,546 | 1% | (4%) | |||||||
| Money market | 23,133 | 22,517 | 20,750 | 3% | 11% | |||||||
| Foreign office(i) | 208 | 272 | 494 | (24%) | (58%) | |||||||
| Total transaction deposits | $100,647 | $99,721 | $97,018 | 1% | 4% | |||||||
| Other time | 4,860 | 4,366 | 3,856 | 11% | 26% | |||||||
| Total core deposits | $105,507 | $104,087 | $100,874 | 1% | 5% | |||||||
| Certificates - $100,000 and over | 3,358 | 2,662 | 2,284 | 26% | 47% | |||||||
| Other deposits | 726 | 746 | 379 | (3%) | 92% | |||||||
| Total average deposits | $109,591 | $107,495 | $103,537 | 2% | 6% | |||||||
Compared to the year-ago quarter, average core deposits increased 5 percent, primarily driven by higher commercial interest checking deposits, consumer money market deposits, and other time deposits. The increases were partially offset by lower commercial demand deposits reflecting continued migration from demand deposits to interest-bearing accounts. Average commercial transaction deposits increased 4 percent and average consumer transaction deposits increased 4 percent. Period end core deposits increased 14 percent, primarily reflecting the impact of MB Financial.
Compared to the prior quarter, average core deposits increased 1 percent, reflecting the continued migration from demand deposits to interest-bearing accounts, higher consumer transaction deposits, and higher other time deposits. Average commercial transaction deposits decreased 1 percent, and average consumer transaction deposits increased 3 percent. Period end core deposits increased 11 percent, primarily reflecting the impact of MB Financial.
| Average Wholesale Funding | |||||||||||||
| ($ in millions) | For the Three Months Ended | % Change | |||||||||||
| March | December | March | |||||||||||
| 2019 | 2018 | 2018 | Seq | Yr/Yr | |||||||||
| Average Wholesale Funding | |||||||||||||
| Certificates - $100,000 and over | $3,358 | $2,662 | $2,284 | 26% | 47% | ||||||||
| Other deposits | 726 | 746 | 379 | (3%) | 92% | ||||||||
| Federal funds purchased | 2,019 | 2,254 | 692 | (10%) | 192% | ||||||||
| Other short-term borrowings | 646 | 578 | 2,423 | 12% | (73%) | ||||||||
| Long-term debt | 15,438 | 14,420 | 14,780 | 7% | 4% | ||||||||
| Total average wholesale funding | $22,187 | $20,660 | $20,558 | 7% | 8% | ||||||||
Compared to the year-ago quarter, average wholesale funding increased 8 percent driven by increases in federal funds borrowings and jumbo CD balances, resulting from interest-earning asset growth over the past year, partially offset by a decrease in other short-term borrowings. Compared to the prior quarter, average wholesale funding increased 7 percent reflecting an increase in long-term debt balances resulting from debt issuances exceeding maturities during the quarter and higher jumbo CD balances, offset by a decline in federal funds borrowings.
| Credit Quality Summary | ||||||||||||||
| ($ in millions) | For the Three Months Ended | |||||||||||||
| March | December | September | June | March | ||||||||||
| 2019 | 2018 | 2018 | 2018 | 2018 | ||||||||||
| Total nonaccrual portfolio loans and leases (NPLs) | $449 | $348 | $403 | $437 | $452 | |||||||||
| Repossessed property | 11 | 10 | 8 | 7 | 9 | |||||||||
| OREO | 37 | 37 | 37 | 36 | 43 | |||||||||
| Total nonperforming portfolio assets (NPAs) | $497 | $395 | $448 | $480 | $504 | |||||||||
| NPL ratio(j) | 0.41% | 0.37% | 0.43% | 0.47% | 0.49% | |||||||||
| NPA ratio(d) | 0.45% | 0.41% | 0.48% | 0.52% | 0.55% | |||||||||
| Total loans and leases 30-89 days past due (accrual) | 324 | 297 | 270 | 217 | 299 | |||||||||
| Total loans and leases 90 days past due (accrual) | 136 | 93 | 87 | 89 | 107 | |||||||||
| Allowance for loan and lease losses, beginning | $1,103 | $1,091 | $1,077 | $1,138 | $1,196 | |||||||||
| Total net losses charged-off | (77) | (83) | (72) | (94) | (81) | |||||||||
| Provision for loan and lease losses | 89 | 95 | 86 | 33 | 23 | |||||||||
| Allowance for loan and lease losses, ending | $1,115 | $1,103 | $1,091 | $1,077 | $1,138 | |||||||||
| Reserve for unfunded commitments, beginning | $131 | $129 | $131 | $151 | $161 | |||||||||
| Reserve for acquired commitments | 1 | - | - | - | - | |||||||||
| Provision for (benefit from) the reserve for unfunded commitments | 1 | 2 | (2) | (20) | (10) | |||||||||
| Reserve for unfunded commitments, ending | $133 | $131 | $129 | $131 | $151 | |||||||||
| Total allowance for credit losses | $1,248 | $1,234 | $1,220 | $1,208 | $1,289 | |||||||||
| Allowance for loan and lease losses ratios | ||||||||||||||
| As a percent of portfolio loans and leases | 1.02% | 1.16% | 1.17% | 1.17% | 1.24% | |||||||||
| As a percent of nonperforming portfolio loans and leases | 249% | 317% | 270% | 247% | 252% | |||||||||
| As a percent of nonperforming portfolio assets | 225% | 279% | 243% | 224% | 226% | |||||||||
| Total losses charged-off | $(108) | $(116) | $(112) | $(118) | $(103) | |||||||||
| Total recoveries of losses previously charged-off | 31 | 33 | 40 | 24 | 22 | |||||||||
| Total net losses charged-off | $(77) | $(83) | $(72) | $(94) | $(81) | |||||||||
| Net charge-off ratio (NCO ratio)(c) | 0.32% | 0.35% | 0.30% | 0.41% | 0.36% | |||||||||
| Commercial NCO ratio | 0.11% | 0.19% | 0.19% | 0.34% | 0.21% | |||||||||
| Consumer NCO ratio | 0.68% | 0.61% | 0.50% | 0.52% | 0.60% | |||||||||
Compared to the year-ago quarter, NPLs decreased $3 million, or 1 percent, with the resulting NPL ratio of 0.41 percent decreasing 8 bps. NPAs decreased $7 million, or 1 percent, with the resulting NPA ratio of 0.45 percent decreasing 10 bps. Compared to the prior quarter, NPLs increased $101 million, or 29 percent, with the resulting NPL ratio increasing 4 bps. NPAs increased $102 million, or 26 percent, with the resulting NPA ratio increasing 4 bps.
The provision for loan and lease losses totaled $89 million in the current quarter compared to $23 million in the year-ago quarter and $95 million in the prior quarter. The resulting allowance for loan and lease losses ratio represented 1.02 percent of total portfolio loans and leases outstanding in the current quarter, compared with 1.24 percent in the year-ago quarter and 1.16 in the prior quarter. Excluding the impact of MB Financial, the current quarter allowance for loan and lease losses ratio was flat from the prior quarter. The allowance for loan and lease losses represented 249 percent of nonperforming portfolio loans and leases and 225 percent of nonperforming portfolio assets in the current quarter.
Net charge-offs totaled $77 million in the current quarter compared to $81 million in the year-ago quarter and $83 million in the prior quarter. The resulting NCO ratio of 0.32 percent in the current quarter decreased 4 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 | ||||||||||||||
| March | December | September | June | March | ||||||||||
| 2019 | 2018 | 2018 | 2018 | 2018 | ||||||||||
| Capital Position | ||||||||||||||
| Average total Bancorp shareholders' equity as a percent of average assets | 11.43% | 10.95% | 11.29% | 11.28% | 11.41% | |||||||||
| Tangible equity(a) | 9.03% | 9.63% | 9.97% | 10.19% | 9.98% | |||||||||
| Tangible common equity (excluding unrealized gains/losses)(a) | 8.21% | 8.71% | 9.02% | 9.23% | 9.03% | |||||||||
| Tangible common equity (including unrealized gains/losses)(a) | 8.44% | 8.64% | 8.53% | 8.88% | 8.78% | |||||||||
| Regulatory Capital and Liquidity Ratios(f) | ||||||||||||||
| CET1 capital(e) | 9.65% | 10.24% | 10.67% | 10.91% | 10.82% | |||||||||
| Tier I risk-based capital(e) | 10.72% | 11.32% | 11.78% | 12.02% | 11.95% | |||||||||
| Total risk-based capital(e) | 13.72% | 14.48% | 14.94% | 15.21% | 15.25% | |||||||||
| Tier I leverage | 9.94% | 9.72% | 10.10% | 10.24% | 10.11% | |||||||||
| Modified liquidity coverage ratio (LCR) | 113% | 128% | 119% | 116% | 113% | |||||||||
Capital ratios remained strong during the quarter. The CET1 capital ratio was 9.65 percent, the tangible common equity to tangible assets ratio was 8.21 percent (excluding unrealized gains/losses), and 8.44 percent (including unrealized gains/losses). The Tier I risk-based capital ratio was 10.72 percent, the Total risk-based capital ratio was 13.72 percent, and the Tier I leverage ratio was 9.94 percent.
On March 27, 2019, Fifth Third initially settled a repurchase agreement whereby Fifth Third would purchase $913 million of its outstanding stock. The initial settlement reduced first quarter common shares outstanding by 31.8 million shares. Settlement of the forward contract related to this agreement is expected to occur on or before June 28, 2019. Fifth Third has now executed share repurchases totaling $1.81 billion under the 2018 CCAR capital plan, and continues to have the option to repurchase common shares in any amount up to the $433 million after-tax gain generated from the final Worldpay equity sale.
Tax Rate
The effective tax rate was 22.2 percent compared with 20.5 percent in the year-ago quarter and 22.4 percent in the prior quarter.
Other
Fifth Third has exited its entire stake in all publicly traded companies. On March 14, 2019, Fifth Third exchanged its remaining shares of Worldpay Holdings, LLC for shares of Worldpay, Inc., and subsequently sold its shares, recognizing a gain of $562 million. During March and April 2019, Fifth Third exchanged its Class B units of GreenSky Holdings, LLC for Class A common stock of GreenSky, Inc., and subsequently sold all of the stock. Fifth Third expects to recognize a minimal pre-tax gain in the second quarter of 2019, resulting from the portion of shares sold in April 2019.
The Bancorp adopted ASU 2016-02, Leases, on January 1, 2019. The amended guidance requires lessees to record lease liabilities on the lessees’ balance sheets along with corresponding right-of-use assets for all leases with terms longer than twelve months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the lessee’s statements of income. From a lessor perspective, the accounting model is largely unchanged. Upon adoption, the Bancorp recognized right-of-use assets and lease liabilities of $509 million related to its operating lease commitments based on the present value of unpaid lease payments as of the date of adoption and also recorded a cumulative-effect adjustment to retained earnings of $10 million for the remaining deferred gains on sale-leaseback transactions that occurred prior to January 1, 2019.
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 May 7, 2019 by dialing 800-585-8367 for domestic access or 404-537-3406 for international access (passcode 6679198#).
Corporate Profile
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of March 31, 2019, the Company had $168 billion in assets and operates 1,207 full-service Banking Centers, and 2,559 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 52,000 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 March 31, 2019, had $394 billion in assets under care, of which it managed $44 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) | Non-GAAP measure; see discussion of non-GAAP and Reg. G reconciliation beginning on page 27 of the 1Q19 earnings release. | ||
(b) | Fifth Third includes the provision for loan and lease losses and the provision for the reserve for unfunded commitments in a single measure called provision for credit losses. Fifth Third previously reported the provision for the reserve for unfunded commitments within other noninterest expense. All reporting periods have been adjusted to reflect this reclassification. | ||
(c) | Net losses charged-off as a percent of average portfolio loans and leases. | ||
(d) | Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO. | ||
(e) | 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. | ||
(f) | Current period regulatory capital and liquidity ratios are estimated. | ||
(g) | Assumes a 23% tax rate, except for merger-related expenses which were impacted by certain non-deductible items. | ||
(h) | The Bancorp acquired indirect motorcycle, powersports, recreational vehicles and marine loans in the acquisition of MB Financial. These loans are included in addition to automobile loans in the line item “indirect secured consumer loans”. Point-of-sale unsecured loans continue to be recorded in other consumer loans. | ||
(i) | Includes commercial customer Eurodollar sweep balances for which the Bank pays rates comparable to other commercial deposit accounts. | ||
(j) | 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. 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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Contacts:
Chris Doll (513) 534–2345
