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Fifth Third Announces Second Quarter 2018 Net Income to Common Shareholders of $563 Million, or $0.80 Per Diluted Share

CINCINNATI--(BUSINESS WIRE)--

  • 2Q18 net income available to common shareholders of $563 million, or $0.80 per diluted common share
  • Results included a net positive $0.17 impact on reported 2Q18 EPS:
    • $205 million pre-tax (~$162 million after-tax)(a) gain related to the sale of Worldpay, Inc. (“Worldpay”) shares
    • $30 million pre-tax (~$24 million after-tax)(a) charge to other noninterest income related to our branch optimization efforts, including the decision to close 29 branches and sell 21 parcels of land
    • $19 million pre-tax (~$15 million after-tax)(a) in compensation expense primarily related to the previously announced staffing review
    • $11 million pre-tax (~$9 million after-tax)(a) gain related to our ownership stake in GreenSky (including a $16 million pre-tax gain from the IPO recorded in other noninterest income, partially offset by a negative $5 million pre-tax securities mark)
    • $10 million pre-tax (~$8 million after-tax)(a) charge to other noninterest income related to the valuation of the Visa total return swap
    • $10 million pre-tax (~$8 million after-tax)(a) contribution to the Fifth Third Foundation
  • Reported net interest income (NII) of $1.020 billion; taxable equivalent NII of $1.024 billion(b), up 3% from 1Q18 and up 8% from 2Q17
  • Taxable equivalent net interest margin (NIM) of 3.21%(b), up 3 bps from 1Q18 and up 20 bps from 2Q17
  • Average portfolio loans and leases of $92.6 billion, flat from 1Q18 and up 1% from 2Q17
  • Noninterest income of $743 million, compared with $909 million in 1Q18 and $564 million in 2Q17; 2Q18 performance includes the aforementioned gain from the sale of Worldpay shares; 1Q18 results included a $414 million pre-tax Worldpay step-up gain
  • Noninterest expense of $1.037 billion, down 1% from 1Q18 and up 8% from 2Q17; excluding the 2Q18 expenses noted above and an $8 million pre-tax litigation charge in 1Q18, noninterest expense was down 3% from 1Q18
  • Net charge-offs (NCOs) of $94 million, up $13 million from 1Q18 and up $30 million from 2Q17; NCO ratio of 0.41% compared to 0.36% in 1Q18 and 0.28% in 2Q17; criticized assets as a percentage of commercial loans of 3.87% compared to 4.83% in 1Q18 and 5.50% in 2Q17
  • Portfolio nonperforming asset (NPA) ratio of 0.52%, down 3 bps from 1Q18 and down 20 bps from 2Q17
  • 2Q18 provision expense of $33 million compared to $23 million in 1Q18 and $52 million in 2Q17
  • Common equity Tier 1 (CET1) ratio of 10.91%(c); tangible common equity ratio of 8.98%(b), or 9.33% excluding unrealized gains/losses(b)
  • Book value per share of $21.97, up 1% from 1Q18 and up 8% from 2Q17; tangible book value per share(b) of $18.30 up 1% from 1Q18 and up 7% from 2Q17

Fifth Third Bancorp (FITB) today reported second quarter 2018 net income of $586 million versus net income of $704 million in the first quarter of 2018 and $367 million in the second quarter of 2017. After preferred dividends, net income available to common shareholders was $563 million, or $0.80 per diluted share, in the second quarter of 2018, compared with $689 million, or $0.97 per diluted share, in the first quarter of 2018, and $344 million, or $0.45 per diluted share, in the second quarter of 2017.

                           
Earnings Highlights
                                                     
For the Three Months Ended       % Change  
June March December September June
2018   2018   2017   2017   2017   Seq       Yr/Yr
Income Statement Data ($ in millions)
Net income attributable to Bancorp $ 586 $ 704 $ 509 $ 1,014 $ 367 (17 %) 60 %
Net income available to common shareholders $ 563 $ 689 $ 486 $ 999 $ 344 (18 %) 64 %
 
Earnings Per Share Data
Average common shares outstanding
(in thousands):
Basic 683,345 689,820 703,372 721,280 741,401 (1 %) (8 %)
Diluted 696,210 704,101 716,908 733,285 752,328 (1 %) (7 %)
Earnings per share, basic $ 0.81 $ 0.99 $ 0.68 $ 1.37 $ 0.46 (18 %) 76 %
Earnings per share, diluted 0.80 0.97 0.67 1.35 0.45 (18 %) 78 %
 
Common Share Data
Cash dividends per common share $ 0.18 $ 0.16 $ 0.16 $ 0.16 $ 0.14 13 % 29 %
Book value per share 21.97 21.68 21.67 21.30 20.42 1 % 8 %
Tangible book value per share(b) 18.30 18.05 18.10 17.86 17.11 1 % 7 %
Common shares outstanding (in thousands) 678,162 684,942 693,805 705,474 738,873 (1 %) (8 %)
 
Financial Ratios bps Change
Return on average assets 1.66 % 2.02 % 1.43 % 2.85 % 1.05 % (36 ) 61
Return on average common equity 15.3 18.6 12.7 25.6 9.0 (330 ) 630
Return on average tangible common equity(b) 18.4 22.4 15.2 30.4 10.7 (400 ) 770
CET1 capital(c) 10.91 10.82 10.61 10.59 10.63 9 28
Tier I risk-based capital(c) 12.02 11.95 11.74 11.72 11.76 7 26
Taxable equivalent net interest margin (b) 3.21 3.18 3.02 3.07 3.01 3 20
Taxable equivalent efficiency(b)     58.7         54.8         69.7         38.4         63.4       390         (470 )
 

“We had a very productive second quarter and remained focused on achieving our long-term objectives. Our quarterly results were very strong, as evidenced by the continued expansion in our net interest margin, lower operating expenses, record capital markets revenue and another very significant decline in the level of criticized assets. Our commercial middle market loan originations were also very strong and we expect this trend to continue over the remainder of the year,” said Greg D. Carmichael, Chairman, President and CEO of Fifth Third Bancorp.

“During the quarter, we continued to execute on expense initiatives and also took further actions to optimize our branch network. We are very excited about reallocating our resources to grow branches in high-growth markets which should significantly boost household growth. I am confident that these decisions are in the best long-term interests of our shareholders. We remain focused on achieving our enhanced profitability targets.”

“Also during the second quarter we announced the acquisition of MB Financial, which will create a leading retail and commercial franchise in the attractive Chicago market. We are purchasing a well-respected and successful bank, and combining forces will allow us to build scale in the strategically important Chicago market. Since the announcement in May, we have made significant progress in finalizing the composition of the management team in Chicago. We are very confident that the talent we have in place will help us achieve the financial outcomes that we discussed during the announcement. We are looking forward to completing the merger as soon as possible so that we can begin realizing the substantial cost and revenue synergies we have identified.”

“Lastly, the recently announced CCAR results provide further proof of our commitment to our shareholders. Over the next four quarters, we expect to return a significant amount of capital through a 33% increase in our quarterly common dividend and a 42% increase in share repurchases compared to last year’s capital plan. We are also pleased that a resubmission of our capital plan, given the pending acquisition of MB Financial, will not delay our capital distribution plans.”

               
Income Statement Highlights
                                   
($ in millions, except per-share data) For the Three Months Ended       % Change  
June March December September June
2018   2018   2017   2017   2017   Seq   Yr/Yr
Condensed Statements of Income
Taxable equivalent net interest income(b) $ 1,024 $ 999 $ 963 $ 977 $945 3 % 8 %
Provision for loan and lease losses 33 23 67 67 52 43 % (37 %)
Total noninterest income 743 909 577 1,561 564 (18 %) 32 %
Total noninterest expense     1,037     1,046     1,073       975   957   (1 %)   8 %
Taxable equivalent income before income taxes (b)   $ 697   $ 839   $ 400     $ 1,496   $500   (17 %)   39 %
 
Taxable equivalent adjustment 4 3 7 7 6 33 % (33 %)
Applicable income tax expense (benefit)     107     132     (116 )     475   127   (19 %)   (16 %)
Net income $ 586 $ 704 $ 509 $ 1,014 $367 (17 %) 60 %
Less: Net income attributable to noncontrolling interests     -     -     -       -   -   NM     NM  
Net income attributable to Bancorp $ 586 $ 704 $ 509 $ 1,014 $367 (17 %) 60 %
Dividends on preferred stock     23     15     23       15   23   53 %   -  
Net income available to common shareholders   $ 563   $ 689   $ 486     $ 999   $344   (18 %)   64 %
Earnings per share, diluted   $ 0.80   $ 0.97   $ 0.67     $ 1.35   $0.45   (18 %)   78 %
 
 
Net Interest Income
 
(Taxable equivalent basis; $ in millions)(b)   For the Three Months Ended   % Change
June   March   December   September   June    
2018   2018   2017   2017   2017   Seq   Yr/Yr
Interest Income
Total interest income $ 1,273 $ 1,209 $ 1,151 $ 1,159 $ 1,112 5% 14%
Total interest expense     249       210       188       182       167     19%   49%
Taxable equivalent net interest income (NII)   $ 1,024     $ 999     $ 963     $ 977     $ 945     3%   8%
 
Average Yield bps Change
Yield on interest-earning assets 3.98 % 3.85 % 3.61 % 3.64 % 3.54 % 13 44
Adjusted yield on interest-earning assets 3.98 % 3.85 % 3.69 % 3.64 % 3.54 % 13 44
Rate paid on interest-bearing liabilities 1.12 % 0.97 % 0.88 % 0.85 % 0.79 % 15 33
 
Ratios
Taxable equivalent net interest rate spread 2.86 % 2.88 % 2.73 % 2.79 % 2.75 % (2) 11
Taxable equivalent net interest margin (NIM) 3.21 % 3.18 % 3.02 % 3.07 % 3.01 % 3 20
Adjusted taxable equivalent NIM 3.21 % 3.18 % 3.10 % 3.07 % 3.01 % 3 20
 
Average Balances % Change
Loans and leases, including held for sale $ 93,232 $ 92,869 $ 92,865 $ 92,617 $ 92,653 - 1%
Total securities and other short-term investments 34,935 34,677 33,756 33,826 33,481 1% 4%
Total interest-earning assets 128,167 127,546 126,621 126,443 126,134 - 2%
Total interest-bearing liabilities 89,222 87,607 84,820 85,328 85,320 2% 5%
Bancorp shareholders' equity     16,108       16,313       16,493       16,820       16,615     (1%)   (3%)
 

Taxable equivalent NII of $1.024 billion in the second quarter of 2018 increased $25 million, or 3 percent, from the prior quarter. Performance reflected higher short-term market rates, a higher day count and growth in middle market commercial and industrial (C&I) loans. Taxable equivalent NIM of 3.21 percent in the second quarter of 2018 increased 3 bps from the prior quarter, primarily driven by higher short-term market rates, partially offset by a higher day count.

Compared to the second quarter of 2017, taxable equivalent NII increased $79 million, or 8 percent. Performance reflected higher short-term rates and an increase in investment portfolio balances. Taxable equivalent NIM increased 20 bps from the second quarter of 2017, primarily driven by higher short-term market rates.

Securities

Average securities and other short-term investments were $34.9 billion in the second quarter of 2018 compared to $34.7 billion in the previous quarter and $33.5 billion in the second quarter of 2017. Average available-for-sale debt and other securities of $32.6 billion in the second quarter of 2018 were up $395 million, or 1 percent, sequentially and up $1.3 billion, or 4 percent, from the second quarter of 2017.

         
Loans
                     
($ in millions)   For the Three Months Ended       % Change
June March December September June
2018 2018   2017   2017   2017   Seq   Yr/Yr
Average Portfolio Loans and Leases
Commercial loans and leases:
Commercial and industrial loans $ 42,292 $ 41,782 $ 41,438 $ 41,302 $ 41,601 1 % 2 %
Commercial mortgage loans 6,514 6,582 6,751 6,807 6,845 (1 %) (5 %)
Commercial construction loans 4,743 4,671 4,660 4,533 4,306 2 % 10 %
Commercial leases     3,847     3,960     4,016     4,072     4,036   (3 %)   (5 %)
Total commercial loans and leases   $ 57,396   $ 56,995   $ 56,865   $ 56,714   $ 56,788   1 %   1 %
Consumer loans:
Residential mortgage loans $ 15,581 $ 15,575 $ 15,590 $ 15,523 $ 15,417 - 1 %
Home equity 6,672 6,889 7,066 7,207 7,385 (3 %) (10 %)
Automobile loans 8,968 9,064 9,175 9,267 9,410 (1 %) (5 %)
Credit card 2,221 2,224 2,202 2,140 2,080 - 7 %
Other consumer loans     1,719     1,587     1,352     1,055     892   8 %   93 %
Total consumer loans   $ 35,161   $ 35,339   $ 35,385   $ 35,192   $ 35,184   (1 %)   -  
Total average portfolio loans and leases $ 92,557 $ 92,334 $ 92,250 $ 91,906 $ 91,972 - 1 %
 
Average loans held for sale   $ 675   $ 535   $ 615   $ 711   $ 681   26 %   (1 %)
 

Average portfolio loan and lease balances were flat sequentially and up 1 percent year-over-year. Sequential performance was primarily driven by increases in C&I and other consumer loans, offset by decreases in home equity loans and commercial leases. Year-over-year performance was primarily driven by increases in other consumer and C&I loans, partially offset by decreases in home equity and automobile loans. Period end portfolio loans and leases of $92.0 billion were flat sequentially and up 1 percent year-over-year.

Average commercial portfolio loan and lease balances were up 1 percent both sequentially and from the second quarter of 2017. Sequential performance was primarily driven by an increase in C&I loans reflecting solid growth in middle market lending, partially offset by a decrease in commercial leases consistent with the planned reduction in indirect non-relationship based lease originations. Within commercial real estate, commercial mortgage balances decreased 1 percent and commercial construction balances were up 2 percent sequentially. Year-over-year overall commercial performance was primarily driven by an increase in C&I and commercial construction loans, partially offset by a decrease in commercial mortgage. Period end commercial line utilization was 35 percent in both the first and second quarter of 2018, compared to 34 percent in the second quarter of 2017.

Average consumer portfolio loan and lease balances were down 1 percent sequentially and were flat year-over-year. Sequential performance was primarily driven by a decline in home equity and automobile loan balances, partially offset by an increase in other consumer loans. Year-over-year performance was primarily driven by an increase in other consumer and residential mortgage loans, offset by lower home equity and automobile loan balances.

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

Average Deposits

         
Demand $ 32,834 $ 33,825 $ 35,519 $ 34,850 $ 34,915 (3 %) (6 %)
Interest checking 28,715 28,403 26,992 25,765 26,014 1 % 10 %
Savings 13,618 13,546 13,593 13,889 14,238 1 % (4 %)
Money market 22,036 20,750 20,023 20,028 20,278 6 % 9 %
Foreign office(d)         371         494         323         395         380       (25 %)   (2 %)
Total transaction deposits $ 97,574 $ 97,018 $ 96,450 $ 94,927 $ 95,825 1 % 2 %
Other time         4,018         3,856         3,792         3,722         3,745       4 %   7 %
Total core deposits $ 101,592 $ 100,874 $ 100,242 $ 98,649 $ 99,570 1 % 2 %
Certificates - $100,000 and over 2,155 2,284 2,429 2,625 2,623 (6 %) (18 %)
Other         198         379         119         560         264       (48 %)   (25 %)
Total average deposits       $ 103,945       $ 103,537       $ 102,790       $ 101,834       $ 102,457       -     1 %

Average core deposits increased 1 percent sequentially and were up 2 percent year-over-year. Average transaction deposits increased 1 percent sequentially and were up 2 percent compared with the second quarter of 2017. The sequential performance continued to reflect deposit migration from demand deposits to interest-bearing accounts. Sequential and year-over-year growth was primarily driven by increases in consumer money market account balances and commercial interest checking deposits, partially offset by lower commercial demand deposit account balances. Other time deposits increased by 4 percent sequentially and 7 percent year-over-year.

Average total commercial transaction deposits of $42 billion decreased 1 percent sequentially and were flat from the second quarter of 2017. Average total consumer transaction deposits of $55 billion increased 2 percent sequentially and increased 3 percent from the second quarter of 2017.

 
Wholesale Funding
                                                 
($ in millions)   For the Three Months Ended   % Change
June   March   December   September   June    
2018   2018   2017   2017   2017   Seq   Yr/Yr
Average Wholesale Funding          
Certificates - $100,000 and over $ 2,155 $ 2,284 $ 2,429 $ 2,625 $ 2,623 (6 %) (18 %)
Other deposits 198 379 119 560 264 (48 %) (25 %)
Federal funds purchased 1,080 692 602 675 311 56 % 247 %
Other short-term borrowings 2,452 2,423 2,316 4,212 4,194 1 % (42 %)
Long-term debt     14,579         14,780         14,631         13,457         13,273       (1 %)   10 %
Total average wholesale funding   $ 20,464       $ 20,558       $ 20,097       $ 21,529       $ 20,665       -     (1 %)
 

Average wholesale funding of $20.5 billion decreased $94 million sequentially and decreased $201 million, or 1 percent, from the second quarter of 2017. The sequential decrease in average wholesale funding reflected lower long-term debt balances resulting from maturities in the first and second quarter of 2018 exceeding a debt issuance in the second quarter of 2018 as well as lower other deposits and jumbo CD balances, partially offset by an increase in Federal funds borrowings. The year-over-year decrease primarily resulted from the ability to fund interest-earning asset growth with core deposits.

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Noninterest Income
 
($ in millions)   For the Three Months Ended   % Change
June   March   December   September   June    
2018   2018   2017   2017   2017   Seq   Yr/Yr
Noninterest Income
Service charges on deposits $ 137 $ 137 $ 138 $ 138 $ 139 - (1%)
Corporate banking revenue 120 88 77 101