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Section 1: 425 (FORM 425)

Form 425
Table of Contents
  

Filed by Fifth Third Bancorp

pursuant to Rule 425 under the Securities Act of 1933

and deemed filed pursuant to Rule 14a-12

under the Securities Exchange Act of 1934

Subject Company: MB Financial, Inc.

SEC File No.: 001-36599

Filer’s SEC File No.: 001-33653

Date: July 19, 2018

 

LOGO

 

CONTACTS:    Sameer Gokhale (Investors)    News Release
   (513) 534-2219   
  

Larry Magnesen (Media)

(513) 534-8055

  

FOR IMMEDIATE RELEASE

July 19, 2018

FIFTH THIRD ANNOUNCES SECOND QUARTER 2018 NET INCOME TO COMMON SHAREHOLDERS OF

$563 MILLION, OR $0.80 PER DILUTED SHARE

 

    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


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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
2018
    March
2018
    December
2017
    September
2017
    June
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.”

 

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“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
2018
     March
2018
     December
2017
    September
2017
     June
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
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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Net Interest Income

 

(Taxable equivalent basis; $ in millions)(b)    For the Three Months Ended     % Change  
     June
2018
    March
2018
    December
2017
    September
2017
    June
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.

 

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Loans

 

($ in millions)    For the Three Months Ended      % Change  
     June
2018
     March
2018
     December
2017
     September
2017
     June
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.

 

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Deposits

 

($ in millions)    For the Three Months Ended      % Change  
     June
2018
     March
2018
     December
2017
     September
2017
     June
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.

 

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Wholesale Funding

 

($ in millions)    For the Three Months Ended      % Change  
     June
2018
     March
2018
     December
2017
     September
2017
     June
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
2018
    March
2018
    December
2017
    September
2017
     June
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-qualifying hedges on mortgage servicing rights

     (4     (13     (2     2        2        69     NM  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total noninterest income

   $ 743     $ 909     $ 577     $ 1,561      $ 564        (18 %)      32
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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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
2018
    March
2018
    June
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
2018
    March
2018
    December
2017
    September
2017
    June
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 and free-standing derivatives purchased to economically 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.

 

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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
2018
     March
2018
     December
2017
     September
2017
     June
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.

 

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Summary of Credit Loss Experience

 

($ in millions)    For the Three Months Ended  
     June
2018
    March
2018
    December
2017
    September
2017
    June
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 and leases

     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.

 

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($ in millions)    For the Three Months Ended  
   June
2018
    March
2018
    December
2017
    September
2017
    June
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 nonperforming loans.

 

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($ in millions)    As of  
     June     March     December     September     June  
     2018     2018     2017     2017     2017  

Nonperforming Assets and Delinquent Loans

          

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.

 

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Capital and Liquidity Position

 

     For the Three Months Ended  
     June
2018
    March
2018
    December
2017
    September
2017
    June
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

 

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    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#).

 

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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.
(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.

 

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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.

# # #

 

16


Table of Contents

LOGO

Quarterly Financial Review for June 30, 2018

Table of Contents

 

 

 

Financial Highlights

     18-19  

Consolidated Statements of Income

     20  

Consolidated Balance Sheets

     21-22  

Consolidated Statements of Changes in Equity

     23  

Average Balance Sheet and Yield Analysis

     24-26  

Summary of Loans and Leases

     27  

Regulatory Capital

     28  

Summary of Credit Loss Experience

     29  

Asset Quality

     30  

Regulation G Non-GAAP Reconciliation

     32  

Segment Presentation

     33  

 

 

 

17


Table of Contents

Fifth Third Bancorp and Subsidiaries

Financial Highlights

$ in millions, except per share data

(unaudited)

 

     For the Three Months Ended     % / bps
Change
    Year to Date     % / bps
Change
 
     June
2018
    March
2018
    June
2017
    Seq     Yr/Yr     June
2018
    June
2017
    Yr/Yr  

Income Statement Data

                

Taxable equivalent net interest income(c)

   $ 1,024     $ 999     $ 945       3     8   $ 2,023     $ 1,884       7

Noninterest income

     743       909       564       (18 %)      32     1,652       1,087       52

Taxable equivalent total revenue

     1,767       1,908       1,509       (7 %)      17     3,675       2,971       24

Provision for loan and lease losses

     33       23       52       43     (37 %)      56       126       (56 %) 

Noninterest expense

     1,037       1,046       957       (1 %)      8     2,083       1,943       7

Net income attributable to Bancorp

     586       704       367       (17 %)      60     1,290       672       92

Net income available to common shareholders

     563       689       344       (18 %)      64     1,252       634       97

Earnings Per Share Data

                

Net income allocated to common shareholders

   $ 557     $ 681     $ 340       (18 %)      64   $ 1,238     $ 627       97

Average common shares outstanding (in thousands):

                

Basic

     683,345       689,820       741,401       (1 %)      (8 %)      686,565       744,517       (8 %) 

Diluted

     696,210       704,101       752,328       (1 %)      (7 %)      700,134       756,545       (7 %) 

Earnings per share, basic

   $ 0.81     $ 0.99     $ 0.46       (18 %)      76   $ 1.80     $ 0.84       114

Earnings per share, diluted

     0.80       0.97       0.45       (18 %)      78     1.77       0.83       113

Common Share Data

                

Cash dividends per common share

   $ 0.18     $ 0.16     $ 0.14       13     29   $ 0.34     $ 0.28       21

Book value per share

     21.97       21.68       20.42       1     8     21.97       20.42       8

Market price per share

     28.70       31.75       25.96       (10 %)      11     28.70       25.96       11

Common shares outstanding (in thousands)

     678,162       684,942       738,873       (1 %)      (8 %)      678,162       738,873       (8 %) 

Market capitalization

   $ 19,463     $ 21,747     $ 19,181       (11 %)      1   $ 19,463     $ 19,181       1

Financial Ratios

                

Return on average assets

     1.66     2.02     1.05     (36     61       1.84     0.97     87  

Return on average common equity

     15.3     18.6     9.0     (330     630       17.0     8.4     860  

Return on average tangible common equity(a)(c)

     18.4     22.4     10.7     (400     770       20.4     10.0     1,040  

Noninterest income as a percent of total revenue

     42     48     37     (600     500       45     37     800  

Dividend payout ratio

     22.2     16.2     30.4     600       (820     18.9     33.3     (1,440

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

     11.38     11.52     11.84     (14     (46     11.45     11.78     (33

Tangible common equity(b)(c)

     9.33     9.14     9.02     19       31       9.33     9.02     31  

Taxable equivalent net interest margin(c)

     3.21     3.18     3.01     3       20       3.19     3.01     18  

Taxable equivalent efficiency(c)

     58.7     54.8     63.4     390       (470     56.7     65.4     (870

Effective tax rate

     15.5     15.8     25.9     (30     (1,040     15.7     24.5     (880

Credit Quality

                

Net losses charged-off

   $ 94     $ 81     $ 64       16     47   $ 175     $ 153       14

Net losses charged-off as a percent of average portfolio loans and leases

     0.41     0.36     0.28     5       13       0.38     0.34     4  

ALLL as a percent of portfolio loans and leases

     1.17     1.24     1.34     (7     (17     1.17     1.34     (17

Allowance for credit losses as a percent of portfolio loans and leases(j)

     1.31     1.40     1.52     (9     (21     1.31     1.52     (21

Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO(d)

     0.52     0.55     0.72     (3     (20     0.52     0.72     (20

Average Balances

                

Loans and leases, including held for sale

   $ 93,232     $ 92,869     $ 92,653       —         1   $ 93,051     $ 92,721       —    

Total securities and other short-term investments

     34,935       34,677       33,481       1     4     34,806       33,329       4

Total assets

     141,529       141,565       140,344       —         1     141,547       140,243       1

Transaction deposits(e)

     97,574       97,018       95,825       1     2     97,298       96,419       1

Core deposits(f)

     101,592       100,874       99,570       1     2     101,235       100,205       1

Wholesale funding(g)

     20,464       20,558       20,665       —         (1 %)      20,511       19,900       3

Bancorp shareholders’ equity

     16,108       16,313       16,615       (1 %)      (3 %)      16,209       16,522       (2 %) 

Regulatory Capital and Liquidity Ratios(h)

                

CET1 capital(i)

     10.91     10.82     10.63     9       28       10.91     10.63     28  

Tier I risk-based capital(i)

     12.02     11.95     11.76     7       26       12.02     11.76     26  

Total risk-based capital(i)

     15.21     15.25     15.22     (4     (1     15.21     15.22     (1

Tier I leverage

     10.24     10.11     10.07     13       17       10.24     10.07     17  

Modified liquidity coverage ratio (LCR)

     116     113     115     3     1     116     115     1

Operations

                

Banking centers

     1,158       1,153       1,157       —         —         1,158       1,157       —    

ATMs

     2,458       2,459       2,461       —         —         2,458       2,461       —    

Full-time equivalent employees

     18,163       18,344       17,744       (1 %)      2     18,163       17,744       2

 

(a) The return on average tangible common equity is calculated as tangible net income available to common shareholders (excluding tax effected amortization of intangibles) divided by average tangible common equity (average common equity less goodwill and intangible assets).
(b) The tangible common equity ratio is calculated as tangible common equity [shareholders’ equity less preferred stock, goodwill, intangible assets and accumulated other comprehensive income divided by tangible assets (total assets less goodwill, intangible assets and AOCI)].
(c) Non-GAAP measure; see discussion of non-GAAP and Reg. G reconciliation beginning on page 31.
(d) Excludes nonaccrual loans held for sale.
(e) Includes demand, interest checking, savings, money market and foreign office deposits of commercial customers.
(f) Includes transaction deposits plus other time deposits.
(g) Includes certificates $100,000 and over, other deposits, federal funds purchased, other short-term borrowings and long-term debt.
(h) Current period regulatory capital and liquidity ratios are estimates.
(i) Under the banking agencies’ Basel III Final Rule, assets and credit equivalent amounts of off-balance sheet exposures are calculated based upon the standardized approach for risk-weighted assets. The resulting values are added together resulting in the Bancorp’s total risk-weighted assets.
(j) The allowance for credit losses is the sum of the ALLL and the reserve for unfunded commitments.

 

18


Table of Contents

Fifth Third Bancorp and Subsidiaries

Financial Highlights

$ in millions, except per share data

(unaudited)

 

     For the Three Months Ended  
     June
2018
    March
2018
    December
2017
    September
2017
    June
2017
 

Income Statement Data

          

Taxable equivalent net interest income(c)

   $ 1,024     $ 999     $ 963     $ 977     $ 945  

Noninterest income

     743       909       577       1,561       564  

Taxable equivalent total revenue

     1,767       1,908       1,540       2,538       1,509  

Provision for loan and lease losses

     33       23       67       67       52  

Noninterest expense

     1,037       1,046       1,073       975       957  

Net income attributable to Bancorp

     586       704       509       1,014       367  

Net income available to common shareholders

     563       689       486       999       344  

Earnings Per Share Data

          

Net income allocated to common shareholders

   $ 557     $ 681     $ 482     $ 989     $ 340  

Average common shares outstanding (in thousands):

          

Basic

     683,345       689,820       703,372       721,280       741,401  

Diluted

     696,210       704,101       716,908       733,285       752,328  

Earnings per share, basic

   $ 0.81     $ 0.99     $ 0.68     $ 1.37       0.46  

Earnings per share, diluted

     0.80       0.97       0.67       1.35       0.45  

Common Share Data

          

Cash dividends per common share

   $ 0.18     $ 0.16     $ 0.16     $ 0.16     $ 0.14  

Book value per share

     21.97       21.68       21.67       21.30       20.42  

Market value per share

     28.70       31.75       30.34       27.98       25.96  

Common shares outstanding (in thousands)

     678,162       684,942       693,805       705,474       738,873  

Market capitalization

   $ 19,463     $ 21,747     $ 21,050     $ 19,739     $ 19,181  

Financial Ratios

          

Return on average assets

     1.66     2.02     1.43     2.85     1.05

Return on average common equity

     15.3     18.6     12.7     25.6     9.0

Return on average tangible common equity(a)(c)

     18.4     22.4     15.2     30.4     10.7

Noninterest income as a percent of total revenue

     42     48     37     62     37

Dividend payout ratio

     22.2     16.2     23.5     11.7     30.4

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

     11.38     11.52     11.69     11.93     11.84

Tangible common equity(b)(c)

     9.33     9.14     8.94     8.89     9.02

Taxable equivalent net interest margin(c)

     3.21     3.18     3.02     3.07     3.01

Taxable equivalent efficiency ratio(c)

     58.7     54.8     69.7     38.4     63.4

Effective tax rate

     15.5     15.8     (29.8 %)      31.9     25.9

Credit Quality

          

Net losses charged-off

   $ 94     $ 81     $ 76     $ 68     $ 64  

Net losses charged-off as a percent of average portfolio loans and leases

     0.41     0.36     0.33     0.29     0.28

ALLL as a percent of portfolio loans and leases

     1.17     1.24     1.30     1.31     1.34

Allowance for credit losses as a percent of portfolio loans and leases(j)

     1.31     1.40     1.48     1.48     1.52

Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO(d)

     0.52     0.55     0.53     0.60     0.72

Average Balances

          

Loans and leases, including held for sale

   $ 93,232     $ 92,869     $ 92,865     $ 92,617     $ 92,653  

Total securities and other short-term investments

     34,935       34,677       33,756       33,826       33,481  

Total assets

     141,529       141,565       141,055       140,992       140,344  

Transaction deposits(e)

     97,574       97,018       96,450       94,927       95,825  

Core deposits(f)

     101,592       100,874       100,242       98,649       99,570  

Wholesale funding(g)

     20,464       20,558       20,097       21,529       20,665  

Bancorp shareholders’ equity

     16,108       16,313       16,493       16,820       16,615  

Regulatory Capital and Liquidity Ratios(h)

          

CET1 capital(i)

     10.91     10.82     10.61     10.59     10.63

Tier I risk-based capital(i)

     12.02     11.95     11.74     11.72     11.76

Total risk-based capital(i)

     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

Operations

          

Banking centers

     1,158       1,153       1,154       1,155       1,157  

ATMs

     2,458       2,459       2,469       2,465       2,461  

Full-time equivalent employees

     18,163       18,344       18,125       17,797       17,744  

 

(a) The return on average tangible common equity is calculated as tangible net income available to common shareholders (excluding tax effected amortization of intangibles) divided by average tangible common equity (average common equity less goodwill and intangible assets).
(b) The tangible common equity ratio is calculated as tangible common equity [shareholders’ equity less preferred stock, goodwill, intangible assets and accumulated other comprehensive income divided by tangible assets (total assets less goodwill, intangible assets and AOCI)].
(c) Non-GAAP measure; see discussion of non-GAAP and Reg. G reconciliation beginning on page 31.
(d) Excludes nonaccrual loans held for sale.
(e) Includes demand, interest checking, savings, money market and foreign office deposits of commercial customers.
(f) Includes transaction deposits plus other time deposits.
(g) Includes certificates $100,000 and over, other deposits, federal funds purchased, other short-term borrowings and long-term debt.
(h) Current period regulatory capital and liquidity ratios are estimates.
(i) Under the banking agencies’ Basel III Final Rule, assets and credit equivalent amounts of off-balance sheet exposures are calculated based upon the standardized approach for risk-weighted assets. The resulting values are added together resulting in the Bancorp’s total risk-weighted assets.
(j) The allowance for credit losses is the sum of the ALLL and the reserve for unfunded commitments.

 

19


Table of Contents

Fifth Third Bancorp and Subsidiaries

Consolidated Statements of Income

$ in millions

(unaudited)

 

     For the Three Months Ended      % Change     Year to Date      % Change  
     June     March     June                  June     June         
     2018     2018     2017      Seq     Yr/Yr     2018     2017      Yr/Yr  

Interest Income

                  

Interest and fees on loans and leases

   $ 996     $ 938     $ 858        6     16   $ 1,933     $ 1,696        14

Interest on securities

     267       263       245        2     9     530       490        8

Interest on other short-term investments

     6       5       3        20     100     11       6        83
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total interest income

     1,269       1,206       1,106        5     15     2,474       2,192        13

Interest Expense

                  

Interest on deposits

     119       95       65        25     83     215       124        73

Interest on federal funds purchased

     5       2       1        150     400     7       2        250

Interest on other short-term borrowings

     11       8       10        38     10     19       12        58

Interest on long-term debt

     114       105       91        9     25     217       182        19
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total interest expense

     249       210       167        19     49     458       320        43
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net Interest Income

     1,020       996       939        2     9     2,016       1,872        8

Provision for loan and lease losses

     33       23       52        43     (37 %)      56       126        (56 %) 
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net Interest Income After Provision for Loan and Lease Losses

     987       973       887        1     11     1,960       1,746        12

Noninterest Income

                  

Service charges on deposits

     137       137       139        —         (1 %)      275       277        (1 %) 

Corporate banking revenue

     120       88       101        36     19     208       175        19

Mortgage banking net revenue

     53       56       55        (5 %)      (4 %)      109       108        1

Wealth and asset management revenue

     108       113       103        (4 %)      5     221       211        5

Card and processing revenue

     84       79       79        6     6     163       153        7

Other noninterest income

     250       460       85        (46 %)      194     708       160        343

Securities (losses) gains, net

     (5     (11     —          55     NM       (15     1        NM  

Securities (losses) gains, net - non-qualifying hedges on mortgage servicing rights

     (4     (13     2        69     NM       (17     2        NM  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total noninterest income

     743       909       564        (18 %)      32     1,652       1,087        52

Noninterest Expense

                  

Salaries, wages and incentives

     471       447       397        5     19     918       808        14

Employee benefits

     78       110       86        (29 %)      (9 %)      188       196        (4 %) 

Net occupancy expense

     74       75       70        (1 %)      6     149       148        1

Technology and communications

     67       68       57        (1 %)      18     135       116        16

Equipment expense

     30       31       29        (3 %)      3     61       57        7

Card and processing expense

     30       29       33        3     (9 %)      60       63        (5 %) 

Other noninterest expense

     287       286       285        —         1     572       555        3
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total noninterest expense

     1,037       1,046       957        (1 %)      8     2,083       1,943        7
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income Before Income Taxes

     693       836       494        (17 %)      40     1,529       890        72

Applicable income tax expense

     107       132       127        (19 %)      (16 %)      239       218        10
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net Income

     586       704       367        (17 %)      60     1,290       672        92

Less: Net income attributable to noncontrolling interests

     —         —         —          NM       NM       —         —          —    
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net Income Attributable to Bancorp

     586       704       367        (17 %)      60     1,290       672        92

Dividends on preferred stock

     23       15       23        53     —         38       38        —    
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net Income Available to Common Shareholders

   $ 563     $ 689     $ 344        (18 %)      64   $ 1,252     $ 634        97
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

20


Table of Contents

Fifth Third Bancorp and Subsidiaries

Consolidated Balance Sheets

$ in millions, except per share data

(unaudited)

 

     As of     % Change  
     June
2018
    March
2018
    June
2017
    Seq     Yr/Yr  

Assets

          

Cash and due from banks

   $ 2,052     $ 2,038     $ 2,203       1     (7 %) 

Other short-term investments

     1,636       1,747       2,163       (6 %)      (24 %) 

Available-for-sale debt and other securities(a)

     31,961       31,819       31,733       —         1

Held-to-maturity securities(b)

     19       23       26       (17 %)      (27 %) 

Trading debt securities

     280       571       490       (51 %)      (43 %) 

Equity securities

     475       418       442       14     7

Loans and leases held for sale

     783       717       766       9     2

Portfolio loans and leases:

          

Commercial and industrial loans

     41,403       41,635       40,914       (1 %)      1

Commercial mortgage loans

     6,625       6,509       6,868       2     (4 %) 

Commercial construction loans

     4,687       4,766       4,366       (2 %)      7

Commercial leases

     3,788       3,919       4,157       (3 %)      (9 %) 

Residential mortgage loans

     15,640       15,563       15,460       —         1

Home equity

     6,599       6,757       7,301       (2 %)      (10 %) 

Automobile loans

     8,938       9,018       9,318       (1 %)      (4 %) 

Credit card

     2,270       2,188       2,117       4     7

Other consumer loans

     1,982       1,615       945       23     110
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans and leases

     91,932       91,970       91,446       —         1

Allowance for loan and lease losses

     (1,077     (1,138     (1,226     (5 %)      (12 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans and leases, net

     90,855       90,832       90,220       —         1

Bank premises and equipment

     1,915       1,966       2,041       (3 %)      (6 %) 

Operating lease equipment

     606       625       719       (3 %)      (16 %) 

Goodwill

     2,462       2,462       2,423       —         2

Intangible assets

     30       30       18       —         67

Servicing rights

     959       926       849       4     13

Other assets

     6,662       7,326       6,974       (9 %)      (4 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 140,695     $ 141,500     $ 141,067       (1 %)      —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

          

Deposits:

          

Demand

   $ 32,680     $ 34,066     $ 34,965       (4 %)      (7 %) 

Interest checking

     29,452       29,627       25,436       (1 %)      16

Savings

     13,455       13,751       14,068       (2 %)      (4 %) 

Money market

     21,593       21,540       20,191       —         7

Foreign office

     336       374       395       (10 %)      (15 %) 

Other time

     4,058       3,945       3,692       3     10

Certificates $100,000 and over

     2,557       2,042       2,633       25     (3 %) 

Other

     —         116       500       NM       NM  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total deposits

     104,131       105,461       101,880       (1 %)      2

Federal funds purchased

     597       178       117       235     410

Other short-term borrowings

     1,763       1,335       5,389       32     (67 %) 

Accrued taxes, interest and expenses

     1,206       1,104       1,617       9     (25 %) 

Other liabilities

     2,425       2,418       2,162       —         12

Long-term debt

     14,321       14,800       13,456       (3 %)      6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

     124,443       125,296       124,621       (1 %)      —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity

          

Common stock(c)

     2,051       2,051       2,051       —         —    

Preferred stock

     1,331       1,331       1,331       —         —    

Capital surplus

     2,833       2,828       2,751       —         3

Retained earnings

     16,143       15,707       13,862       3     16

Accumulated other comprehensive (loss) income

     (552     (389     163       (42 %)      NM  

Treasury stock

     (5,574     (5,344     (3,739     4     49
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Bancorp shareholders’ equity

     16,232       16,184       16,419       —         (1 %) 

Noncontrolling interests

     20       20       27       —         (26 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

     16,252       16,204       16,446       —         (1 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 140,695     $ 141,500     $ 141,067       (1 %)      —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(a) Amortized cost

   $ 32,589     $ 32,230     $ 31,402       1     4

(b) Market values

     19       23       26       (17 %)      (27 %) 

(c) Common shares, stated value $2.22 per share (in thousands):

          

Authorized

     2,000,000       2,000,000       2,000,000       —         —    

Outstanding, excluding treasury

     678,162       684,942       738,873       (1 %)      (8 %) 

Treasury

     245,731       238,951       185,020       3     33

 

21


Table of Contents

Fifth Third Bancorp and Subsidiaries

Consolidated Balance Sheets

$ in millions, except per share data

(unaudited)

 

     As of  
     June
2018
    March
2018
    December
2017
    September
2017
    June
2017
 

Assets

          

Cash and due from banks

   $ 2,052     $ 2,038     $ 2,514     $ 2,205     $ 2,203  

Other short-term investments

     1,636       1,747       2,753       3,298       2,163  

Available-for-sale debt and other securities(a)

     31,961       31,819       31,751       31,391       31,733  

Held-to-maturity securities(b)

     19       23       24       25       26  

Trading debt securities

     280       571       492       511       490  

Equity securities

     475       418       439       428       442  

Loans and leases held for sale

     783       717       492       711       766  

Portfolio loans and leases:

          

Commercial and industrial loans

     41,403       41,635       41,170       41,011       40,914  

Commercial mortgage loans

     6,625       6,509       6,604       6,863       6,868  

Commercial construction loans

     4,687       4,766       4,553       4,652       4,366  

Commercial leases

     3,788       3,919       4,068       4,043       4,157  

Residential mortgage loans

     15,640       15,563       15,591       15,588       15,460  

Home equity

     6,599       6,757       7,014       7,143       7,301  

Automobile loans

     8,938       9,018       9,112       9,236       9,318  

Credit card

     2,270       2,188       2,299       2,168       2,117  

Other consumer loans

     1,982       1,615       1,559       1,179       945  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans and leases

     91,932       91,970       91,970       91,883       91,446  

Allowance for loan and lease losses

     (1,077     (1,138     (1,196     (1,205     (1,226
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans and leases, net

     90,855       90,832       90,774       90,678       90,220  

Bank premises and equipment

     1,915       1,966       2,003       2,018       2,041  

Operating lease equipment

     606       625       646       663       719  

Goodwill

     2,462       2,462       2,445       2,423       2,423  

Intangible assets

     30       30       27       18       18  

Servicing rights

     959       926       858       848       849  

Other assets

     6,662       7,326       6,975       7,047       6,974  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 140,695     $ 141,500     $ 142,193     $ 142,264     $ 141,067  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

          

Deposits:

          

Demand

   $ 32,680     $ 34,066     $ 35,276     $ 35,246     $ 34,965  

Interest checking

     29,452       29,627       27,703       26,091       25,436  

Savings

     13,455       13,751       13,425       13,693       14,068  

Money market

     21,593       21,540       20,097       19,646       20,191  

Foreign office

     336       374       484       609       395  

Other time

     4,058       3,945       3,775       3,756       3,692  

Certificates $100,000 and over

     2,557       2,042       2,402       2,411       2,633  

Other

     —         116       —         —         500  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total deposits

     104,131       105,461       103,162       101,452       101,880  

Federal funds purchased

     597       178       174       118       117  

Other short-term borrowings

     1,763       1,335       4,012       5,688       5,389  

Accrued taxes, interest and expenses

     1,206       1,104       1,412       2,071       1,617  

Other liabilities

     2,425       2,418       2,144       2,516       2,162  

Long-term debt

     14,321       14,800       14,904       14,039       13,456  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

     124,443       125,296       125,808       125,884       124,621  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity

          

Common stock(c)

     2,051       2,051       2,051       2,051       2,051  

Preferred stock

     1,331       1,331       1,331       1,331       1,331  

Capital surplus

     2,833       2,828       2,790       2,682       2,751  

Retained earnings

     16,143       15,707       15,122       14,748       13,862  

Accumulated other comprehensive (loss) income

     (552     (389     73       185       163  

Treasury stock

     (5,574     (5,344     (5,002     (4,637     (3,739
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Bancorp shareholders’ equity

     16,232       16,184       16,365       16,360       16,419  

Noncontrolling interests

     20       20       20       20       27  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

     16,252       16,204       16,385       16,380       16,446  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 140,695     $ 141,500     $ 142,193     $ 142,264     $ 141,067  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(a) Amortized cost

   $ 32,589     $ 32,230     $ 31,577     $ 31,026     $ 31,402  

(b) Market values

     19       23       24       25       26  

(c) Common shares, stated value $2.22 per share (in thousands):

          

Authorized

     2,000,000       2,000,000       2,000,000       2,000,000       2,000,000  

Outstanding, excluding treasury

     678,162       684,942       693,805       705,474       738,873  

Treasury

     245,731       238,951       230,088       218,419       185,020  

 

22


Table of Contents

Fifth Third Bancorp and Subsidiaries

Consolidated Statements of Changes in Equity

$ in millions

(unaudited)

 

     For the Three Months Ended     Year to Date  
     June     June     June     June  
     2018     2017     2018     2017  

Total Equity, Beginning

   $ 16,204     $ 16,457     $ 16,385     $ 16,232  

Net income attributable to Bancorp

     586       367       1,290       672  

Other comprehensive income, net of tax:

        

Change in unrealized (losses) gains:

        

Available-for-sale securities

     (167     93       (620     109  

Qualifying cash flow hedges

     3       1       (5     (7

Change in accumulated other comprehensive income related to employee benefit plans

     1       1       2       2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     423       462       667       776  

Cash dividends declared:

        

Common stock

     (124     (104     (235     (210

Preferred stock

     (23     (23     (38     (38

Impact of stock transactions under stock compensation plans, net

     7       (3     22       29  

Shares acquired for treasury

     (235     (342     (553     (342

Other

     —         (1     —         (1

Impact of cumulative effect of change in account principles

     —         —         4       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity, Ending

   $ 16,252     $ 16,446     $ 16,252     $ 16,446  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

Fifth Third Bancorp and Subsidiaries

Average Balance Sheet and Yield Analysis

$ in millions, except share data

(unaudited)

 

     For the Three Months Ended     % Change  
     June     March     June              
     2018     2018     2017     Seq     Yr/Yr  

Assets

          

Interest-earning assets:

          

Commercial and industrial loans

   $ 42,327     $ 41,799     $ 41,656       1     2

Commercial mortgage loans

     6,521       6,588       6,861       (1 %)      (5 %) 

Commercial construction loans

     4,743       4,671       4,306       2     10

Commercial leases

     3,847       3,960       4,039       (3 %)      (5 %) 

Residential mortgage loans

     16,213       16,086       16,024       1     1

Home equity

     6,672       6,889       7,385       (3 %)      (10 %) 

Automobile loans

     8,968       9,064       9,410       (1 %)      (5 %) 

Credit card

     2,221       2,224       2,080       —         7

Other consumer loans

     1,720       1,588       892       8     93

Taxable securities

     33,380       33,133       32,092       1     4

Tax exempt securities

     81       73       68       11     19

Other short-term investments

     1,474       1,471       1,321       —         12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-earning assets

     128,167       127,546       126,134                2

Cash and due from banks

     2,179       2,175       2,175       —         —    

Other assets

     12,320       13,039       13,272       (6 %)      (7 %) 

Allowance for loan and lease losses

     (1,137     (1,195     (1,237     (5 %)      (8 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 141,529     $ 141,565     $ 140,344       —         1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

          

Interest-bearing liabilities:

          

Interest checking deposits

   $ 28,715     $ 28,403     $ 26,014       1     10

Savings deposits

     13,618       13,546       14,238       1     (4 %) 

Money market deposits

     22,036       20,750       20,278       6     9

Foreign office deposits

     371       494       380       (25 %)      (2 %) 

Other time deposits

     4,018       3,856       3,745       4     7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing core deposits

     68,758       67,049       64,655       3     6

Certificates $100,000 and over

     2,155       2,284       2,623       (6 %)      (18 %) 

Other deposits

     198       379       264       (48 %)      (25 %) 

Federal funds purchased

     1,080       692       311       56     247

Other short-term borrowings

     2,452       2,423       4,194       1     (42 %) 

Long-term debt

     14,579       14,780       13,273       (1 %)      10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

     89,222       87,607       85,320       2     5

Demand deposits

     32,834       33,825       34,915       (3 %)      (6 %) 

Other liabilities

     3,345       3,800       3,467       (12 %)      (4 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

     125,401       125,232       123,702       —         1

Total Equity

     16,128       16,333       16,642       (1 %)      (3 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 141,529     $ 141,565     $ 140,344       —         1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     For the Three Months Ended     bps Change  
     June     March     June              
     2018     2018     2017     Seq     Yr/Yr  

Yield Analysis

          

Interest-earning assets:

          

Commercial and industrial loans(a)

     4.26     3.96     3.60     30       66  

Commercial mortgage loans(a)

     4.43     4.20     3.65     23       78  

Commercial construction loans(a)

     4.94     4.59     4.01     35       93  

Commercial leases(a)

     2.82     2.78     2.73     4       9  

Residential mortgage loans

     3.56     3.60     3.54     (4     2  

Home equity

     4.85     4.62     4.20     23       65  

Automobile loans

     3.26     3.12     2.87     14       39  

Credit card

     11.96     12.36     10.95     (40     101  

Other consumer loans

     6.75     6.58     6.63     17       12  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans and leases

     4.30     4.11     3.74     19       56  

Taxable securities

     3.20     3.21     3.05     (1     15  

Tax exempt securities(a)

     4.03     1.40     5.10     263       (107

Other short-term investments

     1.62     1.37     0.99     25       63  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-earning assets

     3.98     3.85     3.54     13       44  

Interest-bearing liabilities:

          

Interest checking deposits

     0.76     0.63     0.38     13       38  

Savings deposits

     0.10     0.07     0.06     3       4  

Money market deposits

     0.71     0.53     0.34     18       37  

Foreign office deposits

     0.45     0.13     0.18     32       27  

Other time deposits

     1.34     1.25     1.23     9       11  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing core deposits

     0.65     0.52     0.34     13       31  

Certificates $100,000 and over

     1.35     1.49     1.36     (14     (1

Other deposits

     1.80     1.44     0.98     36       82  

Federal funds purchased

     1.76     1.43     0.94     33       82  

Other short-term borrowings

     1.84     1.34     0.93     50       91  

Long-term debt

     3.11     2.86     2.76     25       35  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

     1.12     0.97     0.79     15       33  

Ratios:

          

Taxable equivalent net interest margin(b)

     3.21     3.18     3.01     3       20  

Taxable equivalent net interest rate spread(b)

     2.86     2.88     2.75     (2     11  

Interest-bearing liabilities to interest-earning assets

     69.61     68.69     67.64     92       197  

 

(a) Presented on a fully taxable equivalent basis.
(b) Non-GAAP measure; see discussion of non-GAAP and Reg. G reconciliation beginning on page 31.

 

24


Table of Contents

Fifth Third Bancorp and Subsidiaries

Average Balance Sheet and Yield Analysis

$ in millions, except share data

(unaudited)    

 

     For the Three Months Ended  
     June     March     December     September     June  
     2018     2018     2017     2017     2017  

Assets

          

Interest-earning assets:

          

Commercial and industrial loans

   $ 42,327     $ 41,799     $ 41,455     $ 41,314     $ 41,656  

Commercial mortgage loans

     6,521       6,588       6,757       6,814       6,861  

Commercial construction loans

     4,743       4,671       4,660       4,533       4,306  

Commercial leases

     3,847       3,960       4,018       4,079       4,039  

Residential mortgage loans

     16,213       16,086       16,178       16,206       16,024  

Home equity

     6,672       6,889       7,066       7,207       7,385  

Automobile loans

     8,968       9,064       9,175       9,267       9,410  

Credit card

     2,221       2,224       2,202       2,140       2,080  

Other consumer loans

     1,720       1,588       1,354       1,057       892  

Taxable securities

     33,380       33,133       32,222       32,289       32,092  

Tax exempt securities

     81       73       75       65       68  

Other short-term investments

     1,474       1,471       1,459       1,472       1,321  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-earning assets

     128,167       127,546       126,621       126,443       126,134  

Cash and due from banks

     2,179       2,175       2,288       2,227       2,175  

Other assets

     12,320       13,039       13,351       13,532       13,272  

Allowance for loan and lease losses

     (1,137     (1,195     (1,205     (1,210     (1,237
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 141,529     $ 141,565     $ 141,055     $ 140,992     $ 140,344  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

          

Interest-bearing liabilities:

          

Interest checking deposits

   $ 28,715     $ 28,403     $ 26,992     $ 25,765     $ 26,014  

Savings deposits

     13,618       13,546       13,593       13,889       14,238  

Money market deposits

     22,036       20,750       20,023       20,028       20,278  

Foreign office deposits

     371       494       323       395       380  

Other time deposits

     4,018       3,856       3,792       3,722       3,745  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing core deposits

     68,758       67,049       64,723       63,799       64,655  

Certificates $100,000 and over

     2,155       2,284       2,429       2,625       2,623  

Other deposits

     198       379       119       560       264  

Federal funds purchased

     1,080       692       602       675       311  

Other short-term borrowings

     2,452       2,423       2,316       4,212       4,194  

Long-term debt

     14,579       14,780       14,631       13,457       13,273  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

     89,222       87,607       84,820       85,328       85,320  

Demand deposits

     32,834       33,825       35,519       34,850       34,915  

Other liabilities

     3,345       3,800       4,203       3,973       3,467  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

     125,401       125,232       124,542       124,151       123,702  

Total Equity

     16,128       16,333       16,513       16,841       16,642  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 141,529     $ 141,565     $ 141,055     $ 140,992     $ 140,344  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Yield Analysis

          

Interest-earning assets:

          

Commercial and industrial loans(a)

     4.26     3.96     3.75     3.75     3.60

Commercial mortgage loans(a)

     4.43     4.20     3.92     3.85     3.65

Commercial construction loans(a)

     4.94     4.59     4.28     4.23     4.01

Commercial leases(a)

     2.82     2.78     0.06     2.70     2.73

Residential mortgage loans

     3.56     3.60     3.52     3.48     3.54

Home equity

     4.85     4.62     4.38     4.39     4.20

Automobile loans

     3.26     3.12     3.06     2.96     2.87

Credit card

     11.96     12.36     11.83     11.63     10.95

Other consumer loans

     6.75     6.58     6.64     6.89     6.63