Fifth Third pushes ahead with expansion in face of cost pressures

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Anticipating that pandemic-related credit problems could continue into next year, Fifth Third Bancorp in Cincinnati socked away another large loan-loss provision in the second quarter.

Yet the head of the $185 billion-asset company says it must also balance risk management in the near term with the need to keep investing in its franchise for the long term. In an interview with American Banker following its second-quarter earnings call on Thursday, Chairman and CEO Greg Carmichael said Fifth Third would not pull back on either digital investments or a long-planned branch expansion.

Fifth Third Chairman and CEO Greg Carmichael says he is "managing through that uncertainty and not wanting to do anything that would have a detrimental impact on the success of [the] franchise going forward.”

“There’s a lot more that we don’t know than we do know,” he said. “The question is just managing through that uncertainty and not wanting to do anything that would have a detrimental impact on the success of [the] franchise going forward.”

Fifth Third will proceed with investments in its commercial loan and mortgage origination platforms, and in upgraded accounts receivable and payable capacities for its commercial clients, according to Carmichael. He also said that Fifth Third will continue its Southeast expansion effort as originally planned — about 100 branches in Florida, Georgia, North Carolina and Tennessee by 2022.

Even so, Fifth Third has closed about 50 branches in its core markets in the past 18 months in an effort to cut costs. However, Carmichael said he wants to review aggregated data on the impact of the closings to date before pursuing any more.

Overall net income at Fifth Third declined 62% year over year to $163 million, in large part because the company continued to add to its loan-loss reserves. Fifth Third’s provision for loan losses totaled $485 million, compared with $600 million in the first quarter and $85 million in the second quarter of 2019.

Net interest income fell 4% to $1.2 billion.

Total loans increased 8% to $118 billion, driven by commercial line drawdowns, Paycheck Protection Program loans and increased demand for indirect secured consumer loans.

Noninterest income ticked down slightly to $650 million. Card fees and deposit service charges fell on a yearly basis, while commercial and mortgage banking revenue rose.

Fifth Third shrank noninterest expenses by 10% to $1.1 billion in the second quarter, driven by declining marketing, card processing and other expenses.

Net charge-offs increased $8 million from the prior quarter to $130 million, but still came in lower than originally anticipated, executives said.

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Regional banks Credit quality Growth strategies Earnings Coronavirus Fifth Third Bancorp