Fifth Third closing dozens of branches to help pay for digital upgrades

Fifth Third Bancorp plans to close more branches in legacy markets this year to pay for digital upgrades and its Southeastern expansion, executives said Thursday.

The Cincinnati company said it will consolidate 42 branches in established markets across the Midwest by early next year. It has already closed 43 branches in legacy markets and the planned closures would bring the year’s total up to 85. Fifth Third has also opened five new branches in high-growth markets across the Southeast and plans to add another 25 by the end of the year.

The closings, along with other expense-saving initiatives like renegotiating vendor contracts, should deliver $100 million to $150 million in cost savings next year. The $205 billion-asset Fifth Third plans to drive at least some of those savings into shifting its core deposit and wealth management systems to the cloud.

Full-year expenses are expected to rise 2% to 3%, including costs associated with its branch plan as well as its pending acquisition of the health care-focused fintech lender Provide.

Chairman and CEO Greg Carmichael said Fifth Third is playing the “long game” and that it needs to invest in digital upgrades to remain competitive.

“Whether it becomes a competitive advantage or not, I think it’s a requirement,” he said during a conference call to discuss quarterly earnings. “It’s basically table stakes to be a digital bank. Our customers expect to bank anywhere, anytime.”

The five branches it has opened this year are in Smyrna, Georgia, near Atlanta, and the Charlotte and Raleigh markets in North Carolina. Fifth Third ultimately plants to add 125 branches across the Southeast through 2025, while also trimming branches in its legacy market where it sees overlap. At an industry conference in June, Carmichael said the company is focused on adding branches in those Southeastern markets where it has a “clear path” to achieving at least 8% deposit market share.

Growth in fee income, as well as a negative provision for loan losses, lifted second-quarter net income to $709 million, compared with $195 million in last year’s second quarter. At 94 cents, earnings per share came in 13 cents higher than the mean estimate of analysts polled by FactSet Research Systems.

Improved credit quality led Fifth Third to record a $115 million negative provision for credit losses in the quarter, compared with a $485 million provision in the second quarter of 2020.

Net charge-offs fell to $44 million from $130 million last year, bringing the net charge-off ratio down to 0.16% from 0.44% in the same quarter last year. Nonperforming loans and leases fell to $657 million from $747 million a year ago.

Noninterest income rose 14% to $741 million. While mortgage banking revenue dropped 35% to $64 million, Fifth Third saw growth across most other fee income categories. Wealth and asset management revenue increased 21% to $145 million, service charges on deposits increased 22% to $149 million, and card and processing revenue rose 24% to $102 million.

Net interest income ticked up 1% to $1.2 billion, driven partly by lower deposit costs. The net interest margin contracted by 12 basis points to 2.63%.

Noninterest expenses increased 3% from the year-earlier quarter to $1.2 billion, mainly because of an increase in performance-based compensation.

Total deposits increased 8% to $162.6 billion.

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