DBRS: Fifth Third’s 2Q Net Income Dwn Due to Non-Core Items; Adjusted IBPT Improved: B/S Solid

Summary:
• Reflective of several non-core items, Fifth Third reported net income available to common shareholders of $292 million, down 15.6% from 1Q15.
• The Company’s adjusted IBPT (income before provisions and taxes, excluding non-core items; DBRS’ core income metric) improved quarter-on quarter (QoQ), reflecting higher levels of spread income, mortgage banking net revenue and corporate banking revenue.
• DBRS, Inc. (DBRS) rates Fifth Third’s Issuer & Senior debt at A (low) with a Stable trend.

DBRS, Inc. (DBRS) considers Fifth Third Bancorp’s (Fifth Third or the Company) 2Q15 results as solid, despite the noisy quarter. Overall, earnings were down 15.6%, QoQ, reflecting a number of non-core items, including a 2Q15 $97 million non-cash impairment charge related to the Company’s recently announced plan to consolidate or sell approximately 105 branches and roughly 30 other properties. Excluding non-core items, Fifth Third’s adjusted quarterly IBPT improved sequentially, reflecting higher levels of spread income, mortgage banking net revenue, and corporate banking revenues. Importantly, Fifth Third continues to maintain solid balance sheet fundamentals, including sound and improving asset quality, and solid capital and funding profiles.

Spread income improved sequentially, reflecting higher average earning assets, lower deposit costs and the benefit of an additional day in the quarter. Higher average earning assets were driven by increases in both loans and securities. Supported by deposit growth, the increase in average loans mostly reflected higher levels of commercial & industrial loans, commercial construction exposures, and residential mortgage loans. Meanwhile, fee income on an adjusted basis, was up significantly, led by higher mortgage banking net revenue, and corporate banking income. Improved mortgage banking income reflected seasonally strong originations and higher net servicing asset valuation adjustment. Meanwhile, improved corporate banking income reflected higher levels of institutional sales revenues and an increase in syndication fees, including a strong quarter in corporate bond fees. Finally, the Company’s expenses increased sequentially due to higher incentive based compensation.

Balance sheet fundamentals remain solid. Fifth Third’s sound asset quality continued to improve in 2Q15, reflecting a decline in non-performing assets and low net charge-offs. Meanwhile, capital levels remain sound. Indeed, the Company estimates its Basel III common equity Tier 1 ratio to be 9.30% (fully phased-in basis), at June 30, 2015.

DBRS rates Fifth Third Bancorp Incorporated Issuer & Senior debt at A (low) with a Stable trend.

Note:
All figures are in U.S. Dollars unless otherwise noted.