Toggle SGML Header (+)


Section 1: 425 (425)

425

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: January 22, 2019

 

LOGO

Fifth Third Announces Fourth Quarter 2018 Results

Diluted earnings per share of $0.64, including a negative $0.05 impact from certain items on page 2

 

 

Key Financial Data

                             

 

Key Highlights(a)

  $ millions for all balance sheet and income statement items

 

     
    4Q18     3Q18     4Q17          
         

Income Statement Data(a)

       

   

 

Strong financial performance and momentum

 

  NIM(b) up 19 bps compared to adjusted 4Q17

 

  Expenses flat compared to 4Q17

 

  Adjusted PPNR(b) up 14% compared to 4Q17

 

  Average loans up 3% compared to 4Q17

 

  Average core deposits up 4% compared to 4Q17

 

Remain on-track to achieve NorthStar targets(b)

 

  ROTCE – 14.3% (adjusted 15.4%)

 

  ROA – 1.25% (adjusted 1.34%)

 

  Efficiency ratio – 58.8% (adjusted 56.8%)

 

Record 4Q18 business and credit results

 

  Record corporate banking revenue

 

  Record middle market & corporate loan originations

 

  ~20 year low commercial criticized ratio (3.34%)

 

  ~20 year low NPA ratio (0.41%)

 

Net income available to common shareholders

    $432            $421            $504         

 

Net interest income (U.S. GAAP)

    1,081            1,043            956         

 

Net interest income (FTE)(b)

    1,085            1,047            963         

 

Noninterest income

    575            563            577         

 

Noninterest expense

 

   

 

977     

 

 

 

   

 

970     

 

 

 

   

 

975     

 

 

 

 

Per Share Data(a)

       

 

Earnings per share, basic

    $0.65            $0.62            $0.71         

 

Earnings per share, diluted

    0.64            0.61            0.70         

 

Book value per share

    23.07            21.70            21.43         

 

Tangible book value per share(b)

 

   

 

19.17     

 

 

 

   

 

17.94     

 

 

 

   

 

17.86     

 

 

 

 

Balance Sheet & Credit Quality

       

 

Average portfolio loans and leases

    $94,757            $93,192            $92,250         

 

Average deposits

    107,495            104,666            102,790         

 

Net charge-off ratio(c)

    0.35  %       0.30  %       0.33  %    

 

Nonperforming asset ratio(d)

 

   

 

0.41     

 

 

 

   

 

0.48     

 

 

 

   

 

0.53     

 

 

 

 

Financial Ratios(a)

       

 

Return on average assets

    1.25  %       1.22  %       1.48  %    

 

Return on average common equity

    11.8            11.4            13.3         

 

Return on average tangible common equity(b)

    14.3            13.8            16.0         

 

CET1 capital(e)(f)(g)

    10.24            10.67            10.61         

 

Net interest margin(b)

    3.29            3.23            3.02         

 

Efficiency(b)

    58.8            60.2            63.3         

 

Other than the Quarterly Financial Review tables beginning on page 14, commentary is on a fully taxable-equivalent (FTE) basis unless otherwise noted. Consistent with SEC guidance in Industry Guide 3 that contemplates the calculation of tax-exempt income on a taxable-equivalent basis, net interest income, net interest margin, net interest rate spread, total revenue and the efficiency ratio are provided on an FTE basis. Effective in the fourth quarter of 2018, Fifth Third retrospectively applied a change in its accounting policy for investments in affordable housing projects that qualify for low-income housing tax credits (LIHTC) to all prior period amounts presented. As a result, prior period financial results may differ compared to previous disclosures. A summary reconciliation of the change is provided on page 30.

 

 
         

CEO Commentary

 

 

“Our fourth quarter and full year results were very strong. In 2018, we produced record results, generated profitable relationship growth, benefited from our improved balance sheet resiliency, and diligently managed our expenses while continuing to invest for future growth. We returned $2 billion to our shareholders through repurchases and dividends, including a nearly 40% increase in the dividend by the end of the year, while maintaining very strong capital ratios.”

“We recently received the regulatory non-objection related to our re-submitted capital plan, including the pro forma impact of MB Financial. We remain confident in our ability to achieve the expected financial synergies from the pending acquisition, and we continue to expect the transaction to close in the first quarter of 2019.”

“With the conclusion of Project NorthStar at the end of 2019, the ongoing MB Financial integration efforts, and a clearly-defined set of strategic priorities for the future, we remain very confident in our ability to achieve our long-term financial targets and outperform through the cycle.”

-Greg D. Carmichael, Chairman, President and CEO

 

Investor contact: Chris Doll (513) 534–2345 | Media contact: Larry Magnesen (513) 534–8055    January 22, 2019


Effective in the fourth quarter of 2018, Fifth Third retrospectively applied a change in its accounting policy for investments in affordable housing projects that qualify for low-income housing tax credits (LIHTC) to all prior period amounts presented. As a result, prior period financial results may differ compared to previous disclosures. A summary reconciliation of the change is provided on page 30.

 

  Income Statement Highlights

 

                                      
  ($ in millions, except per share data)    For the Three Months Ended     % Change  
     December          September          December                   
     2018          2018          2017         Seq          Yr/Yr      

Condensed Statements of Income(a)

             

Net interest income (NII)(b)

     $1,085        $1,047        $963       4%        13%  

Provision for loan and lease losses

     95        86        67       10%        42%  

Noninterest income

     575        563        577       2%        -  

Noninterest expense

     977        970        975       1%        -  

Income before income taxes(b)

     $588        $554        $498       6%        18%  

Taxable equivalent adjustment

     4        4        7       -        (43%)  

Applicable income tax expense (benefit)

     129        114        (36     13%        NM  

Net income

     $455        $436        $527       4%        (14%)  

Less: Net income attributable to noncontrolling interests

     -        -        -       NM        NM  

Net income attributable to Bancorp

     $455        $436        $527       4%        (14%)  

Dividends on preferred stock

     23        15        23       53%        -  

Net income available to common shareholders

     $432        $421        $504       3%        (14%)  

Earnings per share, diluted

     $0.64        $0.61        $0.70       5%        (9%)  

Fifth Third Bancorp (Nasdaq: FITB) today reported fourth quarter 2018 net income of $455 million compared to net income of $527 million in the year-ago quarter. Net income available to common shareholders was $432 million, or $0.64 per diluted share, compared to $504 million, or $0.70 per diluted share in the year-ago quarter. Prior quarter net income was $436 million and net income available to common shareholders was $421 million, or $0.61 per diluted share.

Reported full year 2018 net income was $2.2 billion, compared to full year 2017 net income of $2.2 billion. Full year 2018 net income available to common shareholders was $2.1 billion, or $3.06 per diluted share, compared to full year 2017 net income available to common shareholders of $2.1 billion, or $2.81 per diluted share.

 

 

Diluted earnings per share impact of certain items

 

       
($ in millions, except per share data)       
         

Merger-related expenses, after-tax(h)

     $21    

GreenSky equity securities losses, after-tax(h)

     $17    

Valuation of Visa total return swap, after-tax(h)

     ($6)   

After-tax impact(h)

     $32    
      

Average diluted common shares outstanding (thousands)

     662,966    
      

Diluted earnings per share impact

     $0.05    
          

 

2


  Net Interest Income

 

                                       
  (FTE; $ in millions)(b)    For the Three Months Ended      % Change  
     December        September        December                  
     2018        2018        2017        Seq        Yr/Yr    

Interest Income

              

Interest income

     $1,397        $1,319        $1,151        6%        21%  

Interest expense

     312        272        188        15%        66%  

Net interest income (NII)

     $1,085        $1,047        $963        4%        13%  

Average Yield/Rate Analysis

              bps Change      

Yield on interest-earning assets

     4.23%        4.07%        3.61%        16        62  

Rate paid on interest-bearing liabilities

     1.33%        1.20%        0.88%        13        45  

Ratios

              

Net interest rate spread

     2.90%        2.87%        2.73%        3        17  

Net interest margin

     3.29%        3.23%        3.02%        6        27  

Compared to the year-ago quarter, NII increased $122 million, or 13 percent, which was impacted by a $27 million remeasurement related to the tax treatment of leveraged leases in the year-ago quarter. Excluding the remeasurement, NII increased $95 million, or 10 percent, reflecting higher short-term market rates and growth in interest-earning assets, partially offset by an increase in funding costs. NIM increased 27 bps, which included an 8 bps impact from the remeasurement in the year-ago quarter. Excluding the remeasurement, NIM increased 19 bps, reflecting higher short-term market rates and growth in interest-earning assets.

Compared to the prior quarter, NII increased $38 million, or 4 percent, reflecting growth in commercial and industrial (C&I) loans, securities portfolio balance growth, and higher short-term market rates. NIM increased 6 bps, primarily driven by higher short-term market rates and growth in C&I loans.

 

  Noninterest Income

 

                                    
  ($ in millions)    For the Three Months Ended     % Change  
     December       September       December                 
     2018       2018       2017       Seq        Yr/Yr    

Noninterest Income

           

Service charges on deposits

     $135       $139       $138       (3%)        (2%)  

Corporate banking revenue

     130       100       77       30%        69%  

Mortgage banking net revenue

     54       49       54       10%        -  

Wealth and asset management revenue

     109       114       106       (4%)        3%  

Card and processing revenue

     84       82       80       2%        5%  

Other noninterest income

     93       86       123       8%        (24%)  

Securities (losses) gains, net

     (32     (6     1       433%        NM  

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

     2       (1     (2     NM        NM  

Total noninterest income

     $575       $563       $577       2%        -  

Reported noninterest income was flat from the year-ago quarter, and increased $12 million, or 2 percent, from the prior quarter. The comparisons reflect the impact of certain significant items in the table on page 4.

 

3


Compared to the year-ago quarter, service charges on deposits decreased $3 million, or 2 percent. Corporate banking revenue increased $53 million, or 69 percent, which was impacted by a $25 million lease remarketing impairment in the year-ago quarter. Excluding this impact, corporate banking revenue increased $28 million, or 27 percent, primarily driven by strong capital markets revenue led by record M&A advisory fees as well as increased syndication revenues. Mortgage banking net revenue was flat primarily driven by lower negative net valuation adjustments and higher gross mortgage servicing fees, partially offset by lower origination fees and gains on loan sales. Mortgage originations of $1.6 billion decreased 18 percent. Wealth and asset management revenue increased $3 million, or 3 percent, primarily driven by higher personal asset management revenue reflecting positive net inflows. Card and processing revenue increased $4 million, or 5 percent, reflecting increases in credit card spend and debit transaction volumes, partially offset by higher rewards.

Compared to the prior quarter, service charges on deposits decreased $4 million, or 3 percent. Corporate banking revenue increased $30 million, or 30 percent, primarily driven by increases in M&A advisory and syndication revenues. Mortgage banking net revenue increased $5 million, or 10 percent, primarily driven by lower negative net valuation adjustments partially offset by lower origination fees and gains on loan sales. Mortgage originations decreased 16 percent. Wealth and asset management revenue decreased $5 million, or 4 percent, primarily driven by lower institutional trust and brokerage fees. Card and processing revenue increased $2 million, or 2 percent, reflecting increases in credit card spend volumes, partially offset by higher rewards.

 

  Noninterest Income excluding certain items

 

 
  ($ in millions)    For the Three Months Ended     % Change  
         December         September         December               
         2018         2018         2017         Seq              Yr/Yr      

Noninterest Income excluding certain items

           

Noninterest income (U.S. GAAP)

     $575       $563       $577       

Valuation of Visa total return swap

     (7     17       11       

GreenSky equity securities losses

     21       8       -       

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

     11       (2     (1                 

Noninterest income excluding certain items(b)

     $600       $586       $587       2%        2%  

Compared to the year-ago quarter, noninterest income excluding the items in the table above increased $13 million, or 2 percent. Compared to the prior quarter, noninterest income excluding these items increased $14 million, or 2 percent.

Other noninterest income on a reported basis in the current and previous quarters was impacted by the Visa total return swap valuation adjustments. Excluding this item, other noninterest income of $86 million decreased $48 million, or 36 percent compared to the year-ago quarter, primarily driven by a decrease in the revenue recognized from Worldpay related to the tax receivable agreement and a decline in equity method earnings from the ownership interest in Worldpay. Compared to the prior quarter, other noninterest income excluding the Visa total return swap valuation adjustments decreased $17 million, or 17 percent, primarily driven by lower private equity investment income, partially offset by the revenue recognized from Worldpay related to the tax receivable agreement.

 

4


  Noninterest Expense

 

                                       
  ($ in millions)    For the Three Months Ended      % Change  
     December        September        December                  
     2018        2018        2017            Seq              Yr/Yr      

Noninterest Expense(a)

              

Compensation and benefits

     $506        $503        $500        1%        1%  

Net occupancy expense

     73        70        74        4%        (1%)  

Technology and communications

     79        71        68        11%        16%  

Equipment expense

     31        31        29        -        7%  

Card and processing expense

     33        31        34        6%        (3%)  

Other noninterest expense

     255        264        270        (3%)        (6%)  

Total noninterest expense

     $977        $970        $975        1%        -  

Compared to the year-ago quarter, noninterest expense was flat, including merger-related expenses in the current quarter. The merger-related expenses primarily impacted other noninterest expense, with a lesser impact on technology and communication expense. Excluding these expenses in the current quarter, as well as one-time employee bonuses following the recently-enacted tax reform and a Fifth Third Foundation contribution in the year-ago quarter, noninterest expense increased $5 million. Results reflected an increase in compensation and benefits resulting from an increase in incentive based payments from record commercial loan originations and capital markets activities, and continued technology investments, offset by the elimination of the FDIC surcharge.

Compared to the prior quarter, noninterest expense increased $7 million, or 1 percent, reflecting merger-related expenses. Excluding the merger-related expenses in the current quarter, noninterest expense decreased $20 million, or 2 percent, despite elevated incentive based payments reflecting record commercial loan originations and capital markets activities. Results also reflect the elimination of the FDIC surcharge and continued technology investments.

 

5


  Average Interest-Earning Assets

 

                        

 

  ($ in millions)    For the Three Months Ended      % Change
     December        September        December       

    Seq    

 

    

    Yr/Yr    

 

     2018        2018        2017    

Average Portfolio Loans and Leases

              

 

Commercial loans and leases:

              

 

Commercial and industrial loans

     $43,829        $42,494        $41,438        3%      6%

 

Commercial mortgage loans

     6,864        6,635        6,751        3%      2%

 

Commercial construction loans

     4,885        4,870        4,660        -      5%

 

Commercial leases

     3,632        3,738        4,016        (3%)      (10%)

Total commercial loans and leases

     $59,210        $57,737        $56,865        3%      4%

 

Consumer loans:

              

 

Residential mortgage loans

     $15,520        $15,598        $15,590        (1%)      -

 

Home equity

     6,438        6,529        7,066        (1%)      (9%)

 

Automobile loans

     8,970        8,969        9,175        -      (2%)

 

Credit card

     2,373        2,299        2,202        3%      8%

 

Other consumer loans

     2,246        2,060        1,352        9%      66%

Total consumer loans

     $35,547        $35,455        $35,385        -      -

Portfolio loans and leases

     $94,757        $93,192        $92,250        2%      3%

 

Loans held for sale

     641        785        615        (18%)      4%

 

Securities and other short-term investments

     35,674        34,822        33,756        2%      6%

Total average interest-earning assets

     $131,072        $128,799        $126,621        2%      4%

Compared to the year-ago quarter, average portfolio loans and leases increased 3 percent, primarily driven by higher C&I and other consumer loans, partially offset by declines in home equity loans and commercial leases. Period end portfolio loans and leases increased 4 percent year-over-year. Compared to the prior quarter, average portfolio loans and leases increased 2 percent, primarily driven by higher C&I and commercial mortgage loans, partially offset by a decline in commercial leases. Period end portfolio loans and leases increased 2 percent from the prior quarter.

Compared to the year-ago quarter, average commercial portfolio loans and leases increased 4 percent, primarily driven by higher C&I loans. Compared to the prior quarter, average commercial portfolio loans and leases increased 3 percent, primarily driven by growth in C&I and commercial mortgage loans. Period end commercial line utilization was 36 percent, compared to 34 percent in the year-ago quarter and 35 percent in the prior quarter.

Compared to the year-ago quarter, average consumer portfolio loans were flat, primarily driven by higher other consumer loans resulting from an increase in unsecured personal loans and growth in credit card loans, offset by declines in home equity and automobile loans. Compared to the prior quarter, average consumer portfolio loans were flat, as higher other consumer loans resulting from an increase in unsecured personal loans and growth in credit card loans were offset by declines in home equity and residential mortgage loans.

Average securities and other short-term investments were $35.7 billion compared to $33.8 billion in the year-ago quarter and $34.8 billion in the prior quarter. Average available-for-sale debt and other securities of $33.4 billion were up 7 percent compared to the year-ago quarter and up 2 percent compared to the prior quarter.

 

6


Average Deposits

 

                        

 

  ($ in millions)    For the Three Months Ended      % Change
     December        September        December                
     2018        2018        2017            Seq             Yr/Yr    

Average Deposits

              

 

Demand

     $31,571        $32,333        $35,519        (2%)      (11%)

 

Interest checking

     32,428        29,681        26,992        9%      20%

 

Savings

     12,933        13,231        13,593        (2%)      (5%)

 

Money market

     22,517        21,753        20,023        4%      12%

 

Foreign office(i)

     272        317        323        (14%)      (16%)

Total transaction deposits

     $99,721        $97,315        $96,450        2%      3%

 

Other time

     4,366        4,177        3,792        5%      15%

Total core deposits

     $104,087        $101,492        $100,242        3%      4%

 

Certificates - $100,000 and over

     2,662        2,596        2,429        3%      10%

 

Other deposits

     746        578        119        29%      527%

Total average deposits

     $107,495        $104,666        $102,790        3%      5%

Compared to the year-ago quarter, average transaction deposits increased 3 percent and core deposits increased 4 percent. Performance was primarily driven by higher commercial interest checking deposits and consumer money market deposits, partially offset by lower commercial demand deposits reflecting continued migration from demand deposits to interest-bearing accounts. Average commercial transaction deposits increased 4 percent and average consumer transaction deposits increased 3 percent.

Compared to the prior quarter, average transaction deposits increased 2 percent and core deposits increased 3 percent. Performance continued to partially reflect migration from demand deposits to interest-bearing accounts. Average commercial transaction deposits increased 5 percent, and average consumer transaction deposits were flat.

 

Average Wholesale Funding

 

                        

 

  ($ in millions)    For the Three Months Ended      % Change  
     December        September        December                  
     2018        2018        2017            Seq            Yr/Yr    

Average Wholesale Funding

              

 

Certificates - $100,000 and over

     $2,662        $2,596        $2,429        3%        10%  

 

Other deposits

     746        578        119        29%        527%  

 

Federal funds purchased

     2,254        1,987        602        13%        274%  

 

Other short-term borrowings

     578        1,018        2,316        (43%)        (75%)  

 

Long-term debt

     14,420        14,434        14,631        -        (1%)  

Total average wholesale funding

     $20,660        $20,613        $20,097        -        3%  

Compared to the year-ago quarter, average wholesale funding increased 3 percent reflecting interest-earning asset growth over the past year. Compared to the prior quarter, average wholesale funding was flat reflecting higher federal funds borrowings, offset by a decline in other short-term borrowings.

 

7


  Credit Quality Summary

 

                        

 

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

Total nonaccrual portfolio loans and leases (NPLs)

     $348       $403       $437       $452       $437  

 

Repossessed property

     10       8       7       9       9  

 

OREO

     37       37       36       43       43  

Total nonperforming portfolio assets (NPAs)

     $395       $448       $480       $504       $489  

NPL ratio(j)

     0.37%       0.43%       0.47%       0.49%       0.48%  

NPA ratio(d)

     0.41%       0.48%       0.52%       0.55%       0.53%  

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

     297       270       217       299       280  

Total loans and leases 90 days past due (accrual)

     93       87       89       107       97  

Allowance for loan and lease losses, beginning

     $1,091       $1,077       $1,138       $1,196       $1,205  

 

Total net losses charged-off

     (83     (72     (94     (81     (76

 

Provision for loan and lease losses

     95       86       33       23       67  

Allowance for loan and lease losses, ending

     $1,103       $1,091       $1,077       $1,138       $1,196  

Reserve for unfunded commitments, beginning

     $129       $131       $151       $161       $157  

 

Provision for (benefit from) unfunded commitments

     2       (2     (20     (10     4  

Reserve for unfunded commitments, ending

     $131       $129       $131       $151       $161  
                                          

Total allowance for credit losses

     $1,234       $1,220       $1,208       $1,289       $1,357  

Allowance for loan and lease losses ratios

          

As a percent of portfolio loans and leases

     1.16%       1.17%       1.17%       1.24%       1.30%  

As a percent of nonperforming portfolio loans and leases

     317%       270%       247%       252%       274%  

As a percent of nonperforming portfolio assets

     279%       243%       224%       226%       245%  

Total losses charged-off

     $(116)       $(112)       $(118)       $(103)       $(94)  

 

Total recoveries of losses previously charged-off

     33        40        24        22        18   

Total net losses charged-off

     $(83)       $(72)       $(94)       $(81)       $(76)  

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

     0.35%       0.30%       0.41%       0.36%       0.33%  

 

Commercial NCO ratio

     0.19%       0.19%       0.34%       0.21%       0.22%  

 

Consumer NCO ratio

     0.61%       0.50%       0.52%       0.60%       0.51%  

Compared to the year-ago quarter, NPLs decreased $89 million, or 20 percent, with the resulting NPL ratio of 0.37 percent decreasing 11 bps. NPAs decreased $94 million, or 19 percent, with the resulting NPA ratio of 0.41 percent decreasing 12 bps. Compared to the prior quarter, NPLs decreased $55 million, or 14 percent, with the resulting NPL ratio decreasing 6 bps. NPAs decreased $53 million, or 12 percent, with the resulting NPA ratio decreasing 7 bps.

 

8


The provision for loan and lease losses totaled $95 million in the current quarter compared to $67 million in the year-ago quarter and $86 million in the prior quarter. The resulting allowance for loan and lease loss ratio represented 1.16 percent of total portfolio loans and leases outstanding in the current quarter, compared with 1.30 percent in the year-ago quarter and 1.17 in the prior quarter. The allowance for loan and lease losses represented 317 percent of nonperforming loans and leases and 279 percent of nonperforming assets in the current quarter.

Net charge-offs totaled $83 million in the current quarter compared to $76 million in the year-ago quarter and $72 million in the prior quarter. The resulting NCO ratio of 0.35 percent in the current quarter increased 2 bps compared to the year-ago quarter and increased 5 bps compared to the prior quarter.

 

  Capital and Liquidity Position

 

 

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

Capital Position(a)

              

 

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

     10.95%        11.29%        11.28%        11.41%        11.58%  

 

Tangible equity(b)

     9.63%        9.97%        10.19%        9.98%        9.79%  

 

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

     8.71%        9.02%        9.23%        9.03%        8.83%  

 

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

     8.64%        8.53%        8.88%        8.78%        8.88%  

Regulatory Capital and Liquidity Ratios(g)

  

 

CET1 capital(e)(f)

     10.24%        10.67%        10.91%        10.82%        10.61%  

 

Tier I risk-based capital(e)(f)

     11.32%        11.78%        12.02%        11.95%        11.74%  

 

Total risk-based capital(e)(f)

     14.48%        14.94%        15.21%        15.25%        15.16%  

 

Tier I leverage(f)

     9.72%        10.10%        10.24%        10.11%        10.01%  

 

Modified liquidity coverage ratio (LCR)

     128%        119%        116%        113%        129%  

Capital ratios remained strong during the quarter. The CET1 capital ratio was 10.24 percent, the tangible common equity to tangible assets ratio was 8.71 percent (excluding unrealized gains/losses), and 8.64 percent (including unrealized gains/losses). The Tier I risk-based capital ratio was 11.32 percent, the Total risk-based capital ratio was 14.48 percent, and the Tier I leverage ratio was 9.72 percent. Current period capital ratios were impacted by the accounting policy change related to investments in affordable housing projects that qualify for the LIHTC. The change in accounting policy reduced the current CET1 capital ratio by approximately 11 basis points.

During the fourth quarter of 2018, Fifth Third entered into open market repurchase transactions of 14.9 million shares, or approximately $400 million, of its outstanding common stock, which settled between October 26, 2018, and November 14, 2018.

Tax Rate

The effective tax rate was 22.4 percent compared with negative 7.5 percent in the year-ago quarter and 20.7 percent in the prior quarter. The effective tax rates in all periods were impacted by the decision to retrospectively apply a change in accounting policy for investments in affordable housing projects that qualify for the LIHTC.

 

9


Other

Fifth Third announced on December 28, 2018, that the Board of Governors of the Federal Reserve System (“the Federal Reserve”) did not object to Fifth Third’s Resubmitted Capital Plan for potential capital actions through June 30, 2019.

The capital actions in Fifth Third’s Resubmitted Capital Plan through June 30, 2019 remain unchanged compared to the originally submitted 2018 CCAR plan. The timing and amount of this activity is subject to market conditions and applicable securities laws. Through December 2018, Fifth Third has executed approximately $900 million of $1.81 billion in share repurchases authorized under the 2018 CCAR process. Additionally, Fifth Third continues to have the authorization to increase the common dividend to $0.24 beginning the second quarter of 2019.

The pending acquisition of MB Financial, Inc. is expected to close in the first quarter of 2019, subject to regulatory approvals and other customary closing conditions.

As of December 31, 2018, Fifth Third Bank owned approximately 10.3 million units representing a 3.3 percent interest in Worldpay Holding, LLC, convertible into shares of Worldpay, Inc., a publicly traded firm. Based upon Worldpay’s closing price of $76.43 on December 31, 2018, Fifth Third’s interest in Worldpay was valued at approximately $780 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 February 5, 2019 by dialing 800-585-8367 for domestic access or 404-537-3406 for international access (passcode 4692779#).

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of December 31, 2018, the Company had $146 billion in assets and operates 1,121 full-service Banking Centers, and 2,419 Fifth Third branded ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia and North Carolina. In total, Fifth Third provides its customers with access to approximately 52,000 fee-free ATMs across the United States. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Wealth & Asset Management. As of December 31, 2018, Fifth Third also had a 3.3% interest in Worldpay Holding, LLC, a subsidiary of Worldpay, Inc. Fifth Third is among the largest money managers in the Midwest and, as of December 31, 2018, had $356 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.”

 

10


Earnings Release End Notes

 

(a)

Effective in the fourth quarter of 2018, Fifth Third retrospectively applied a change in its accounting policy for investments in affordable housing projects that qualify for low-income housing tax credits (LIHTC) to all prior period amounts presented. As a result, prior period financial results may differ compared to previous disclosures. A summary reconciliation of the change is provided on page 30.

 

(b)

Non-GAAP measure; see discussion of non-GAAP and Reg. G reconciliation beginning on page 26.

 

(c)

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

 

(d)

Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO.

 

(e)

Under the U.S. banking agencies’ Basel III Final Rule, assets and credit equivalent amounts of off-balance sheet exposures are calculated according to the standardized approach for risk-weighted assets. The resulting values are added together resulting in the Bancorp’s total risk-weighted assets.

 

(f)

Effective in the fourth quarter of 2018, Fifth Third retrospectively applied a change in its accounting policy for investments in affordable housing projects that qualify for low-income housing tax credits (LIHTC). Prior period regulatory capital ratios reflect amounts filed on the Bancorp’s FR Y-9C filings and were not required to be restated as a result.

 

(g)

Current period regulatory capital and liquidity ratios are estimated.

 

(h)

Assumes a 21% tax rate.

 

(i)

Includes commercial customer Eurodollar sweep balances for which the Bank pays rates comparable to other commercial deposit accounts.

 

(j)

Nonperforming portfolio loans and leases as a percent of portfolio loans and leases and OREO.

 

11


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 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 and MB Financial, Inc.’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 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.

# # #

 

12


LOGO

Quarterly Financial Review for December 31, 2018

Table of Contents

 

 

     

Financial Highlights

     14-15             

Consolidated Statements of Income

     16    

Consolidated Balance Sheets

     17-18    

Consolidated Statements of Changes in Equity

     19    

Average Balance Sheet and Yield/Rate Analysis

     20-21    

Summary of Loans and Leases

     22    

Regulatory Capital

     23    

Summary of Credit Loss Experience

     24    

Asset Quality

     25    

Regulation G Non-GAAP Reconciliation

     26-28    

Segment Presentation

     29    

Restatement of Prior Periods for LIHTC

 

    

 

30

 

 

 

       

 

13


Fifth Third Bancorp and Subsidiaries                                                        
Financial Highlights                         % / bps                    % / bps        
$ in millions, except per share data    For the Three Months Ended      Change      Year to Date      Change        
(unaudited)      December          September          December                        December          December           
      2018      2018      2017        Seq             Yr/Yr            2018      2017      Yr/Yr        

Income Statement Data(a)

                       

Net interest income

     $1,081        $1,043        $956        4%        13%        $4,140        $3,798        9%  

Net interest income (FTE)(b)

     1,085        1,047        963        4%        13%        4,156        3,824        9%  

Noninterest income

     575        563        577        2%        -        2,790        3,224        (13%)  

Total revenue (FTE)

     1,660        1,610        1,540        3%        8%        6,946        7,048        (1%)  

Provision for loan and lease losses

     95        86        67        10%        42%        237        261        (9%)  

Noninterest expense

     977        970        975        1%        -        3,928        3,782        4%  

Net income attributable to Bancorp

     455        436        527        4%        (14%)        2,193        2,180        1%  

Net income available to common shareholders

     432        421        504        3%        (14%)        2,118        2,105        1%  

Earnings Per Share Data(a)

                       

Net income allocated to common shareholders

     $427        $417        $499        2%        (14%)        $2,094        $2,082        1%  

Average common shares outstanding (in thousands):

                       

Basic

     653,062        667,624        703,372        (2%)        (7%)        673,346        728,289        (8%)  

Diluted

     662,966        679,199        716,908        (2%)        (8%)        685,488        740,691        (7%)  

Earnings per share, basic

     $0.65        $0.62        $0.71        5%        (8%)        $3.11        $2.86        9%  

Earnings per share, diluted

     0.64        0.61        0.70        5%        (9%)        3.06        2.81        9%  

Common Share Data(a)

                       

Cash dividends per common share

     $0.22        $0.18        $0.16        22%        38%        $0.74        $0.60        23%  

Book value per share

     23.07        21.70        21.43        6%        8%        23.07        21.43        8%  

Market price per share

     23.53        27.92        30.34        (16%)        (22%)        23.53        30.34        (22%)  

Common shares outstanding (in thousands)

     646,631        661,373        693,805        (2%)        (7%)        646,631        693,805        (7%)  

Market capitalization

     $15,215        $18,466        $21,050        (18%)        (28%)        $15,215        $21,050        (28%)  

Financial Ratios(a)

                    

Return on average assets

     1.25%        1.22%        1.48%               (23)        1.54%        1.55%        (1

Return on average common equity

     11.8%        11.4%        13.3%        40         (150)        14.5%        13.9%        60  

Return on average tangible common equity(b)

     14.3%        13.8%        16.0%        50         (170)        17.5%        16.6%        90  

Noninterest income as a percent of total revenue(b)

     35%        35%        37%               (200)        40%        46%        (600

Dividend payout

     33.8%        29.0%        22.5%        480         1,130         23.8%        21.0%        280  

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

     10.95%        11.29%        11.58%        (34)        (63)        11.23%        11.69%        (46

Tangible common equity(b)

     8.71%        9.02%        8.83%        (31)        (13)        8.71%        8.83%        (13

Net interest margin (FTE)(b)

     3.29%        3.23%        3.02%               27         3.22%        3.03%        19  

Efficiency (FTE)(b)

     58.8%        60.2%        63.3%        (140)        (450)        56.5%        53.7%        280  

Effective tax rate

     22.4%        20.7%        (7.5%)        170         NM        20.7%        26.8%        (610

Credit Quality

                    

Net losses charged-off

     $83        $72        $76        15%        9%        $329        $298        10%  

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

     0.35%        0.30%        0.33%                      0.35%        0.32%        3  

ALLL as a percent of portfolio loans and leases

     1.16%        1.17%        1.30%        (1)        (14)        1.16%        1.30%        (14

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

     1.30%        1.31%        1.48%        (1)        (18)        1.30%        1.48%        (18

Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO

     0.41%        0.48%        0.53%        (7)        (12)        0.41%        0.53%        (12

Average Balances(a)

                       

Loans and leases, including held for sale

     $95,398        $93,977        $92,865        2%        3%        $93,876        $92,731        1%  

Securities and other short-term investments

     35,674        34,822        33,756        2%        6%        35,029        33,562        4%  

Assets

     144,185        141,654        140,943        2%        2%        142,183        140,527        1%  

Transaction deposits(c)

     99,721        97,315        96,450        2%        3%        97,914        96,052        2%  

Core deposits(d)

     104,087        101,492        100,242        3%        4%        102,020        99,823        2%  

Wholesale funding(e)

     20,660        20,613        20,097               3%        20,573        20,360        1%  

Bancorp shareholders’ equity

     15,794        15,994        16,328        (1%)        (3%)        15,970        16,424        (3%)  

Regulatory Capital and Liquidity Ratios(f)

                    

CET1 capital(g) (h)

     10.24%        10.67%        10.61%        (43)        (37)        10.24%        10.61%        (37)  

Tier I risk-based capital(g) (h)

     11.32%        11.78%        11.74%        (46)        (42)        11.32%        11.74%        (42)  

Total risk-based capital(g) (h)

     14.48%        14.94%        15.16%        (46)        (68)        14.48%        15.16%        (68)  

Tier I leverage(h)

     9.72%        10.10%        10.01%        (38)        (29)        9.72%        10.01%        (29)  

Modified liquidity coverage ratio (LCR)

     128%        119%        129%        8%        (1%)        128%        129%        (1%)  

Operations

                    

Banking centers

     1,121        1,152        1,154        (3%)        (3%)        1,121        1,154        (3%)  

ATMs

     2,419        2,443        2,469        (1%)        (2%)        2,419        2,469        (2%)  

Full-time equivalent employees

     17,437        17,512        18,125               (4%)        17,437        18,125        (4%)  
(a)

Effective in the fourth quarter of 2018, Fifth Third retrospectively applied a change in its accounting policy for investments in affordable housing projects that qualify for low-income housing tax credits (LIHTC) to all prior period amounts presented. As a result, prior period financial results may differ compared to previous disclosures. A summary reconciliation of the change is provided on page 30.

(b)

Non-GAAP measure; see discussion of non-GAAP and Reg. G reconciliation beginning on page 26.

(c)

Includes demand, interest checking, savings, money market and foreign office deposits of commercial customers.

(d)

Includes transaction deposits plus other time deposits.

(e)

Includes certificates $100,000 and over, other deposits, federal funds purchased, other short-term borrowings and long-term debt.

(f)

Current period regulatory capital and liquidity ratios are estimates.

(g)

Under the U.S. banking agencies’ Basel III Final Rule, assets and credit equivalent amounts of off-balance sheet exposures are calculated according to the standardized approach for risk-weighted assets. The resulting values are added together resulting in the Bancorp’s total risk-weighted assets.

(h)

Prior period regulatory capital ratios reflect amounts filed on the Bancorp’s FR Y-9C filings and were not required to be restated as a result of the Bancorp’s change in accounting for low-income housing tax credits (LIHTC).

(i)

The allowance for credit losses is the sum of the ALLL and the reserve for unfunded commitments.

 

14


Fifth Third Bancorp and Subsidiaries                                   
Financial Highlights                                   
$ in millions, except per share data    For the Three Months Ended  
(unaudited)    December        September        June        March        December      
      2018        2018        2018        2018        2017      

Income Statement Data(a)

              

Net interest income

     $1,081        $1,043        $1,020        $996        $956  

Net interest income (FTE)(b)

     1,085        1,047        1,024        999        963  

Noninterest income

     575        563        743        909        577  

Total revenue (FTE)

     1,660        1,610        1,767        1,908        1,540  

Provision for loan and lease losses

     95        86        33        23        67  

Noninterest expense

     977        970        982        1,000        975  

Net income attributable to Bancorp

     455        436        602        701        527  

Net income available to common shareholders

     432        421        579        686        504  

Earnings Per Share Data(a)

              

Net income allocated to common shareholders

     $427        $417        $573        $678        $499  

Average common shares outstanding (in thousands):

              

Basic

     653,062        667,624        683,345        689,820        703,372  

Diluted

     662,966        679,199        696,210        704,101        716,908  

Earnings per share, basic

     $0.65        $0.62        $0.84        $0.98        0.71  

Earnings per share, diluted

     0.64        0.61        0.82        0.96        0.70  

Common Share Data(a)

              

Cash dividends per common share

     $0.22        $0.18        $0.18        $0.16        $0.16  

Book value per share

     23.07        21.70        21.75        21.44        21.43  

Market value per share

     23.53        27.92        28.70        31.75        30.34  

Common shares outstanding (in thousands)

     646,631        661,373        678,162        684,942        693,805  

Market capitalization

     $15,215        $18,466        $19,463        $21,747        $21,050  

Financial Ratios(a)

     

Return on average assets

     1.25%        1.22%        1.71%        2.01%        1.48%  

Return on average common equity

     11.8%        11.4%        15.9%        18.8%        13.3%  

Return on average tangible common equity(b)

     14.3%        13.8%        19.2%        22.6%        16.0%  

Noninterest income as a percent of total revenue(b)

     35%        35%        42%        48%        37%  

Dividend payout

     33.8%        29.0%        21.4%        16.3%        22.5%  

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

     10.95%        11.29%        11.28%        11.41%        11.58%  

Tangible common equity(b)

     8.71%        9.02%        9.23%        9.03%        8.83%  

Net interest margin (FTE)(b)

     3.29%        3.23%        3.21%        3.18%        3.02%  

Efficiency (FTE)(b)

     58.8%        60.2%        55.5%        52.4%        63.3%  

Effective tax rate

     22.4%        20.7%        19.6%        20.5%        (7.5%)  

Credit Quality

              

Net losses charged-off

     $83        $72        $94        $81        $76  

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

     0.35%        0.30%        0.41%        0.36%        0.33%  

ALLL as a percent of portfolio loans and leases

     1.16%        1.17%        1.17%        1.24%        1.30%  

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

     1.30%        1.31%        1.31%        1.40%        1.48%  

Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO

     0.41%        0.48%        0.52%        0.55%        0.53%  

Average Balances(a)

              

Loans and leases, including held for sale

     $95,398        $93,977        $93,232        $92,869        $92,865  

Securities and other short-term investments

     35,674        34,822        34,935        34,677        33,756  

Assets

     144,185        141,654        141,420        141,450        140,943  

Transaction deposits(c)

     99,721        97,315        97,574        97,018        96,450  

Core deposits(d)

     104,087        101,492        101,592        100,874        100,242  

Wholesale funding(e)

     20,660        20,613        20,464        20,558        20,097  

Bancorp shareholders’ equity

     15,794        15,994        15,947        16,146        16,328  

Regulatory Capital and Liquidity Ratios(f)

  

CET1 capital(g) (h)

     10.24%        10.67%        10.91%        10.82%        10.61%  

Tier I risk-based capital(g) (h)

     11.32%        11.78%        12.02%        11.95%        11.74%  

Total risk-based capital(g) (h)

     14.48%        14.94%        15.21%        15.25%        15.16%  

Tier I leverage(h)

     9.72%        10.10%        10.24%        10.11%        10.01%  

Modified liquidity coverage ratio (LCR)

     128%        119%        116%        113%        129%  

Operations

              

Banking centers

     1,121        1,152        1,158        1,153        1,154  

ATMs

     2,419        2,443        2,458        2,459        2,469  

Full-time equivalent employees

     17,437        17,512        18,163        18,344        18,125  
(a)

Effective in the fourth quarter of 2018, Fifth Third retrospectively applied a change in its accounting policy for investments in affordable housing projects that qualify for low-income housing tax credits (LIHTC) to all prior period amounts presented. As a result, prior period financial results may differ compared to previous disclosures. A summary reconciliation of the change is provided on page 30.

(b)

Non-GAAP measure; see discussion of non-GAAP and Reg. G reconciliation beginning on page 26.

(c)

Includes demand, interest checking, savings, money market and foreign office deposits of commercial customers.

(d)

Includes transaction deposits plus other time deposits.

(e)

Includes certificates $100,000 and over, other deposits, federal funds purchased, other short-term borrowings and long-term debt.

(f)

Current period regulatory capital and liquidity ratios are estimates.

(g)

Under the U.S. banking agencies’ Basel III Final Rule, assets and credit equivalent amounts of off-balance sheet exposures are calculated according to the standardized approach for risk-weighted assets. The resulting values are added together resulting in the Bancorp’s total risk-weighted assets.

(h)

Prior period regulatory capital ratios reflect amounts filed on the Bancorp’s FR Y-9C filings and were not required to be restated as a result of the Bancorp’s change in accounting for low-income housing tax credits (LIHTC).

(i)

The allowance for credit losses is the sum of the ALLL and the reserve for unfunded commitments.

 

15


Fifth Third Bancorp and Subsidiaries                                                    
Consolidated Statements of Income(a)                                                    
$ in millions    For the Three Months Ended     % Change      Year to Date      % Change  
(unaudited)    December     September     December                   December     December         
      2018     2018     2017     Seq      Yr/Yr      2018     2017      Yr/Yr  

Interest Income

                   

Interest and fees on loans and leases

     $1,104       $1,040       $883       6%        25%        $4,078       $3,478        17%  

Interest on securities

     282       269       256       5%        10%        1,080       996        8%  

Interest on other short-term investments

     7       6       5       17%        40%        25       15        67%  

Total interest income

     1,393       1,315       1,144       6%        22%        5,183       4,489        15%  

Interest Expense

                   

Interest on deposits

     179       144       80       24%        124%        538       277        94%  

Interest on federal funds purchased

     13       10       2       30%        550%        30       6        400%  

Interest on other short-term borrowings

     4       6       6       (33%)        (33%)        29       30        (3%)  

Interest on long-term debt

     116       112       100       4%        16%        446       378        18%  

Total interest expense

     312       272       188       15%        66%        1,043       691        51%  

Net Interest Income

     1,081       1,043       956       4%        13%        4,140       3,798        9%  

Provision for loan and lease losses

     95       86       67       10%        42%        237       261        (9%)  

Net Interest Income After Provision for Loan and Lease Losses

     986       957       889       3%        11%        3,903       3,537        10%  

Noninterest Income

                   

Service charges on deposits

     135       139       138       (3%)        (2%)        549       554        (1%)  

Corporate banking revenue

     130       100       77       30%        69%        438       353        24%  

Mortgage banking net revenue

     54       49       54       10%            -        212       224        (5%)  

Wealth and asset management revenue

     109       114       106       (4%)        3%        444       419        6%  

Card and processing revenue

     84       82       80       2%        5%        329       313        5%  

Other noninterest income

     93       86       123       8%        (24%)        887       1,357        (35%)  

Securities (losses) gains, net

     (32     (6     1       433%        NM        (54     2        NM  

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

     2       (1     (2     NM        NM        (15     2        NM  

Total noninterest income

     575       563       577       2%             -        2,790       3,224        (13%)  

Noninterest Expense

                   

Compensation and benefits

     506       503       500       1%        1%        2,115       1,989        6%  

Net occupancy expense

     73       70       74       4%        (1%)        292       295        (1%)  

Technology and communications

     79       71       68       11%        16%        285       245        16%  

Equipment expense

     31       31       29         -        7%        123       117        5%  

Card and processing expense

     33       31       34       6%        (3%)        123       129        (5%)  

Other noninterest expense

     255       264       270       (3%)        (6%)        990       1,007        (2%)  

Total noninterest expense

     977       970       975       1%            -        3,928       3,782        4%  

Income Before Income Taxes

     584       550       491       6%        19%        2,765       2,979        (7%)  

Applicable income tax expense (benefit)

     129       114       (36     13%        NM        572       799        (28%)  

Net Income

     455       436       527       4%        (14%)        2,193       2,180        1%  

Less: Net income attributable to noncontrolling interests

     -       -       -       NM        NM        -       -        NM  

Net Income Attributable to Bancorp

     455       436       527       4%        (14%)        2,193       2,180        1%  

Dividends on preferred stock

     23       15       23       53%            -        75       75        -  

Net Income Available to Common Shareholders

     $432       $421       $504       3%        (14%)        $2,118       $2,105        1%  
(a)

Effective in the fourth quarter of 2018, Fifth Third retrospectively applied a change in its accounting policy for investments in affordable housing projects that qualify for low-income housing tax credits (LIHTC) to all prior period amounts presented. As a result, prior period financial results may differ compared to previous disclosures. A summary reconciliation of the change is provided on page 30.

 

16


Fifth Third Bancorp and Subsidiaries                                
Consolidated Balance Sheets(a)                                
$ in millions, except per share data    As of     % Change  
(unaudited)         December               September               December                    
      2018     2018     2017            Seq                   Yr/Yr        

Assets

           

Cash and due from banks

     $2,681       $2,100       $2,514       28%        7%  

Other short-term investments

     1,825       1,429       2,753       28%        (34%)  

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

     32,830       31,808       31,751       3%        3%  

Held-to-maturity securities(c)

     18       18       24            -        (25%)  

Trading debt securities

     287       269       492       7%        (42%)  

Equity securities

     452       500       439       (10%)        3%  

Loans and leases held for sale

     607       663       492       (8%)        23%  

Portfolio loans and leases:

           

Commercial and industrial loans

     44,340       42,631       41,170       4%        8%  

Commercial mortgage loans

     6,974       6,695       6,604       4%        6%  

Commercial construction loans

     4,657       4,892       4,553       (5%)        2%  

Commercial leases

     3,600       3,697       4,068       (3%)        (12%)  

Residential mortgage loans

     15,504       15,585       15,591       (1%)        (1%)  

Home equity

     6,402       6,485       7,014       (1%)        (9%)  

Automobile loans

     8,976       9,002       9,112            -        (1%)  

Credit card

     2,470       2,325       2,299       6%        7%  

Other consumer loans

     2,342       2,131       1,559       10%        50%  

Portfolio loans and leases

     95,265       93,443       91,970       2%        4%  

Allowance for loan and lease losses

     (1,103     (1,091     (1,196     1%        (8%)  

Portfolio loans and leases, net

     94,162       92,352       90,774       2%        4%  

Bank premises and equipment

     1,861       1,896       2,003       (2%)        (7%)  

Operating lease equipment

     518       546       646       (5%)        (20%)  

Goodwill

     2,478       2,462       2,445       1%        1%  

Intangible assets

     40       28       27       43%        48%  

Servicing rights

     938       1,010       858       (7%)        9%  

Other assets

     7,372       6,509       6,863       13%        7%  

Total Assets

     $146,069       $141,590       $142,081       3%        3%  

Liabilities

           

Deposits:

           

Demand

     $32,116       $31,803       $35,276       1%        (9%)  

Interest checking

     34,058       30,288       27,703       12%        23%  

Savings

     12,907       13,027       13,425       (1%)        (4%)  

Money market

     22,597       21,977       20,097       3%        12%  

Foreign office

     240       298       484       (19%)        (50%)  

Other time

     4,490       4,249       3,775       6%        19%  

Certificates $100,000 and over

     2,427       2,700       2,402       (10%)        1%  

Other deposits

     -       -       -       NM        NM  

Total deposits

     108,835       104,342       103,162       4%        5%  

Federal funds purchased

     1,925       2,316       174       (17%)        NM  

Other short-term borrowings

     573       1,114       4,012       (49%)        (86%)  

Accrued taxes, interest and expenses

     1,562       1,209       1,465       29%        7%  

Other liabilities

     2,498       2,448       2,144       2%        17%  

Long-term debt

     14,426       14,460       14,904            -        (3%)  

Total Liabilities

     129,819       125,889       125,861       3%        3%  

Equity

           

Common stock(d)

     2,051       2,051       2,051            -             -  

Preferred stock

     1,331       1,331       1,331            -             -  

Capital surplus

     2,873       2,856       2,790       1%        3%  

Retained earnings

     16,578       16,291       14,957       2%        11%  

Accumulated other comprehensive (loss) income

     (112     (775     73       (86%)        NM  

Treasury stock

     (6,471     (6,073     (5,002     7%        29%  

Total Bancorp shareholders’ equity

     16,250       15,681       16,200       4%             -  

Noncontrolling interests

     -       20       20       (100%)        (100%)  

Total Equity

     16,250       15,701       16,220       3%             -  

Total Liabilities and Equity

     $146,069       $141,590       $142,081       3%        3%  
(a)

Effective in the fourth quarter of 2018, Fifth Third retrospectively applied a change in its accounting policy for investments in affordable housing projects that qualify for low-income housing tax credits (LIHTC) to all prior period amounts presented. As a result, prior period financial results may differ compared to previous disclosures. A summary reconciliation of the change is provided on page 30.

(b)  Amortized cost

     $33,128        $32,707        $31,577        1%        5%  

(c)   Market values

     18        18        24        -        (25%)  

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

              
 

Authorized

     2,000,000        2,000,000        2,000,000        -        -  
 

Outstanding, excluding treasury

     646,631        661,373        693,805        (2%)        (7%)  
 

Treasury

     277,262        262,520        230,088        6%        21%  

 

17


Fifth Third Bancorp and Subsidiaries                               
Consolidated Balance Sheets(a)                               
$ in millions, except per share data    As of  
(unaudited)    December         September             June                     March             December      
      2018         2018             2018                     2018             2017      

Assets

          

Cash and due from banks

     $2,681       $2,100       $2,052       $2,038       $2,514  

Other short-term investments

     1,825       1,429       1,636       1,747       2,753  

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

     32,830       31,808       31,961       31,819       31,751  

Held-to-maturity securities(c)

     18       18       19       23       24  

Trading debt securities

     287       269       280       571       492  

Equity securities

     452       500       475       418       439  

Loans and leases held for sale

     607       663       783       717       492  

Portfolio loans and leases:

          

Commercial and industrial loans

     44,340       42,631       41,403       41,635       41,170  

Commercial mortgage loans

     6,974       6,695       6,625       6,509       6,604  

Commercial construction loans

     4,657       4,892       4,687       4,766       4,553  

Commercial leases

     3,600       3,697       3,788       3,919       4,068  

Residential mortgage loans

     15,504       15,585       15,640       15,563       15,591  

Home equity

     6,402       6,485       6,599       6,757       7,014  

Automobile loans

     8,976       9,002       8,938       9,018       9,112  

Credit card

     2,470       2,325       2,270       2,188       2,299  

Other consumer loans

     2,342       2,131       1,982       1,615       1,559  

Portfolio loans and leases

     95,265       93,443       91,932       91,970       91,970  

Allowance for loan and lease losses

     (1,103     (1,091     (1,077     (1,138     (1,196

Portfolio loans and leases, net

     94,162       92,352       90,855       90,832       90,774  

Bank premises and equipment

     1,861       1,896       1,915       1,966       2,003  

Operating lease equipment

     518       546       606       625       646  

Goodwill

     2,478       2,462       2,462       2,462       2,445  

Intangible assets

     40       28       30       30       27  

Servicing rights

     938       1,010       959       926       858  

Other assets

     7,372       6,509       6,562       7,209       6,863  

Total Assets

     $146,069       $141,590       $140,595       $141,383       $142,081  

Liabilities

          

Deposits:

          

Demand

     $32,116       $31,803       $32,680       $34,066       $35,276  

Interest checking

     34,058       30,288       29,452       29,627       27,703  

Savings

     12,907       13,027       13,455       13,751       13,425  

Money market

     22,597       21,977       21,593       21,540       20,097  

Foreign office

     240       298       336       374       484  

Other time

     4,490       4,249       4,058       3,945       3,775  

Certificates $100,000 and over

     2,427       2,700       2,557       2,042       2,402  

Other deposits

     -       -       -       116       -  

Total deposits

     108,835       104,342       104,131       105,461       103,162  

Federal funds purchased

     1,925       2,316       597       178       174  

Other short-term borrowings

     573       1,114       1,763       1,335       4,012  

Accrued taxes, interest and expenses

     1,562       1,209       1,258       1,155       1,465  

Other liabilities

     2,498       2,448       2,425       2,418       2,144  

Long-term debt

     14,426       14,460       14,321       14,800       14,904  

Total Liabilities

     129,819       125,889       124,495       125,347       125,861  

Equity

          

Common stock(d)

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

Preferred stock

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

Capital surplus

     2,873       2,856       2,833       2,828       2,790  

Retained earnings

     16,578       16,291       15,991       15,539       14,957  

Accumulated other comprehensive (loss) income

     (112     (775     (552     (389     73  

Treasury stock

     (6,471     (6,073     (5,574     (5,344     (5,002

Total Bancorp shareholders’ equity

     16,250       15,681       16,080       16,016       16,200  

Noncontrolling interests

     -       20       20       20       20  

Total Equity

     16,250       15,701       16,100       16,036       16,220  

Total Liabilities and Equity

     $146,069       $141,590       $140,595       $141,383       $142,081  
(a)

Effective in the fourth quarter of 2018, Fifth Third retrospectively applied a change in its accounting policy for investments in affordable housing projects that qualify for low-income housing tax credits (LIHTC) to all prior period amounts presented. As a result, prior period financial results may differ compared to previous disclosures. A summary reconciliation of the change is provided on page 30.

(b)  Amortized cost

   $ 33,128      $ 32,707      $ 32,589      $ 32,230      $ 31,577  

(c)   Market values

     18        18        19        23        24  

(d)  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

     646,631        661,373        678,162        684,942        693,805  

Treasury

     277,262        262,520        245,731        238,951        230,088  

 

18


Fifth Third Bancorp and Subsidiaries                         
Consolidated Statements of Changes in Equity(a)                         
$ in millions    For the Three Months Ended     Year to Date  
(unaudited)    December         December         December         December      
      2018         2017         2018         2017      

Total Equity, Beginning

     $15,701       $16,197       $16,220       $16,081  

Net income attributable to Bancorp

     455       527       2,193       2,180  

Other comprehensive income, net of tax:

        

Change in unrealized (losses) gains:

        

Available-for-sale securities

     465       (107     (362     25  

Qualifying cash flow hedges

     193       (10     171       (19

Change in accumulated other comprehensive income related to employee benefit plans

     5       5       8       8  

Comprehensive income

     1,118       415       2,010       2,194  

Cash dividends declared:

        

Common stock

     (144     (112     (499     (436

Preferred stock

     (23     (23     (75     (75

Impact of stock transactions under stock compensation plans, net

     20       16       65       67  

Shares acquired for treasury

     (400     (273     (1,453     (1,605

Noncontrolling interest

     (20     -       (20     (7

Other

     (2     -       (2     1  

Impact of cumulative effect of change in account principles

     -       -       4       -  

Total Equity, Ending

     $16,250       $16,220       $16,250       $16,220  
(a)

Effective in the fourth quarter of 2018, Fifth Third retrospectively applied a change in its accounting policy for investments in affordable housing projects that qualify for low-income housing tax credits (LIHTC) to all prior period amounts presented. As a result, prior period financial results may differ compared to previous disclosures. A summary reconciliation of the change is provided on page 30.

 

19


Fifth Third Bancorp and Subsidiaries                                                 
Average Balance Sheet and Yield/Rate Analysis(a)                                            
$ in millions    For the Three Months Ended     % Change     Year to Date     % Change  
(unaudited)    December         September         December                     December         December            
      2018         2018         2017         Seq         Yr/Yr         2018         2017         Yr/Yr  

Assets

                

Interest-earning assets:

                

Commercial and industrial loans

     $43,911       $42,614       $41,455       3%       6%       $42,668       $41,577       3%  

Commercial mortgage loans

     6,868       6,664       6,757       3%       2%       6,661       6,844       (3%)  

Commercial construction loans

     4,885       4,870       4,660       -       5%       4,793       4,374       10%  

Commercial leases

     3,633       3,746       4,018       (3%)       (10%)       3,795       4,011       (5%)  

Residential mortgage loans

     16,074       16,226       16,178       (1%)       (1%)       16,150       16,053       1%  

Home equity

     6,438       6,529       7,066       (1%)       (9%)       6,631       7,308       (9%)  

Automobile loans

     8,970       8,969       9,175       -       (2%)       8,993       9,407       (4%)  

Credit card

     2,373       2,299       2,202       3%       8%       2,280       2,141       6%  

Other consumer loans

     2,246       2,060       1,354       9%       66%       1,905       1,016       88%  

Taxable securities

     34,126       33,301       32,222       2%       6%       33,487       32,106       4%  

Tax exempt securities

     40       69       75       (42%)       (47%)       66       66       -  

Other short-term investments

     1,508       1,452       1,459       4%       3%       1,476       1,390       6%  

Total interest-earning assets

     131,072       128,799       126,621       2%       4%       128,905       126,293       2%  

Cash and due from banks

     2,253       2,193       2,288       3%       (2%)       2,200       2,224       (1%)  

Other assets

     11,952       11,739       13,239       2%       (10%)       12,203       13,236       (8%)  

Allowance for loan and lease losses

     (1,092     (1,077     (1,205     1%       (9%)       (1,125     (1,226     (8%)  

Total Assets

     $144,185       $141,654       $140,943       2%       2%       $142,183       $140,527       1%  

Liabilities

                

Interest-bearing liabilities:

                

Interest checking deposits

     $32,428       $29,681       $26,992       9%       20%       $29,818       $26,382       13%  

Savings deposits

     12,933       13,231       13,593       (2%)       (5%)       13,330       13,958       (4%)  

Money market deposits

     22,517       21,753       20,023       4%       12%       21,769       20,231       8%  

Foreign office deposits

     272       317       323       (14%)       (16%)       363       388       (6%)  

Other time deposits

     4,366       4,177       3,792       5%       15%       4,106       3,771       9%  

Total interest-bearing core deposits

     72,516       69,159       64,723       5%       12%       69,386       64,730       7%  

Certificates $100,000 and over

     2,662       2,596       2,429       3%       10%       2,426       2,564       (5%)  

Other deposits

     746       578       119       29%       527%       476       277       72%  

Federal funds purchased

     2,254       1,987       602       13%       274%       1,509       557       171%  

Other short-term borrowings

     578       1,018       2,316       (43%)       (75%)       1,611