Fifth Third Bancorp announced plans to buy MB Financial for $4.7 billion today, folding the Chicago-based bank’s growing auto portfolio into Fifth Third’s.
The merger is still subject to regulatory approval, but Fifth Third has indicated that it plans to keep a number of MB Financials senior leadership in various roles and noted the similarities in the two banks’ credit profiles.
MB Financial grew its relatively small auto portfolio to $692 million during the first quarter — a 20% increase compared with the same period the year prior, according to earnings.
While Fifth Third’s outstandings dwarf those figures — $9 billion in outstandings according to first-quarter earnings — the portfolio’s volume has been on the decline as the company seeks better risk adjusted returns.
“Credit risk management continues to closely monitor the automobile portfolio performance,” Fifth Third noted in its first-quarter earnings report. “The automobile market has exhibited industry-wide gradual loosening of credit standards such as lower FICOs, longer terms, and higher LTVs. Fifth Third has adjusted credit standards [and] focused on improving risk-adjusted returns while maintaining credit risk tolerance.”
Fifth Third has managed to keep net charge-offs in its portfolio flat year over year at $11 million despite delinquencies 90 days or more past due growing to $9 million compared with $6 million during the same period the year prior. However, since instituting its risk-adjusted strategy, delinquencies have come down quarter over quarter.
On the other hand, MB Financial experienced a 59% jump in auto delinquencies year over year to $5.1 million. As a percentage of its total outstandings, delinquencies made up 0.73% of the portfolio in the first quarter compared with 0.55% in the same period the year prior.
“Teaming up with Fifth Third allows us to leverage our complementary capabilities for the benefit of our customers and the communities we serve,” Mitchell Feiger, president and chief executive of MB Financial and the new leader of Fifth Third’s Chicago region, said in a press release. “Our commercial expertise and strong credit culture complement the strengths of Fifth Third in large corporate lending, capital markets, wealth management, and the payments business. Both organizations are committed to a successful integration.”
