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Analyzing Bancorp’s Loan Credit Quality

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Commercial loans

Average loans rose in 4Q17 by $925 million on account of increased merger and acquisition activity and stronger customer relationships. The 4Q17 net charge-off ratio was 0.11%. This improved number from 0.34% in 3Q17 was due to higher recoveries. Non-performing loans were 0.26% in 4Q17.

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Commercial real estate loans

Average loans in 4Q17 were down by $612 million due to loan payoffs because of strong permanent market liquidity. Higher charge-offs in 4Q17 were due to enclosed malls and lower recoveries. The net charge-off ratio in 4Q17 was at 0.2%, up from -0.07% in 3Q17. Non-performing loans were 0.35% in 4Q17.

Residential mortgage loans

Average loans in 4Q17 were up by $609 million. The weighted average LTV (loan-to-value) ratio was 70%. More than 91% of balances have been originated since the beginning of 2009 and the quality and performance metrics have improved significantly in comparison to prior years. Non-performing loans were 0.74% in 4Q17.

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Credit card loans

Average loans in 4Q17 were up by $292 million. YoY average loan growth of 1.3% was driven by high credit quality originations. The net charge-off ratio has been constant at an average of 3.7%.

Home equity

Average loans in 4Q17 were constant at $16,299 million. Net charge-offs were stable over YoY with strong recoveries. Non-performing loans were 0.77% in 4Q17.

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Retail leasing

Stable credit profile and high-quality originations led to an increase in average loans of $220 million. Non-performing loans were 0.10% in 4Q17.

Other retail

Growth continued to be driven by the auto loan and installment categories, which were up 6.4% and 11.2% YoY, respectively. Due to the recent tax cuts, the manufacturing business may gain momentum and allow US banks to increase their loan portfolio. This tax cut could also help Bancorp’s peers (XLF) like Goldman Sachs (GS), Citigroup (C), Morgan Stanley (MS), and JPMorgan (JPM) in the long term.

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