While executives at Fifth Third Bancorp are eager to deploy a glut of deposits in the company’s lending businesses, they also aren’t concerned about some of those funds falling off the balance sheet.
Core deposits at the Cincinnati bank increased by 6% to $167 billion in the fourth quarter from the same period in 2020. Fifth Third has a loan-to-deposit ratio in the mid-60% range, meaning that only around $2 out of every $3 in deposits is being lent out.
Company executives said Thursday that an ideal loan-to-deposit ratio would be closer to 85%, and Fifth Third intends to achieve that target largely by ramping up lending. But at a time when the Federal Reserve is expected to start raising interest rates, Fifth Third isn’t afraid to let some deposits — particularly the more rate-sensitive ones — roll off.
“We would be comfortable having up to one-third of our excess cash migrate away from Fifth Third deposit products and into more productive vehicles for those customers,” Chief Financial Officer Jamie Leonard said during a call with analysts. “If deposits leave, it's a very manageable outcome for us.”
The $211 billion-asset company is anticipating loan growth of 5% to 6% in 2022. That estimated range includes commercial loan growth of 7% to 8% over last year and consumer loan growth of 3% to 4%.
During the fourth quarter, total loans and leases of $109 billion were flat compared with the year-ago quarter, as an increase in consumer lending offset a decline in commercial lending.
But Fifth Third executives said that middle-market and corporate clients have adjusted to the pandemic, labor market tightness and supply-chain snags, and they are bullish about loan-growth prospects for the year ahead.
“There was an inflection point this year in our pipelines, when we got people back into the office, and we started seeing clients in person, in April of this past year,” Fifth Third President Tim Spence said. “I think we saw the outcomes of that over the course of the year in terms of the acceleration of loan growth and production in particular.”
Net income in the fourth quarter got a boost from improved credit quality, rising 10% from the same quarter in 2020 to $662 million.
The company’s net charge-off ratio fell from 0.43% in the prior-year period to 0.14% in the fourth quarter, and nonperforming assets as a percentage of total assets fell from 0.79% to 0.47%. Fifth Third recorded a negative credit loss provision of $47 million in the fourth quarter, compared with a negative provision of $13 million a year earlier.
Earnings per share of 90 cents met the mean estimate of analysts surveyed by FactSet Research Systems. Fifth Third’s earnings included two items that shaved 3 cents off its earnings per share: a decline in the valuation of a Visa return swap and a special COVID-19 staffing bonus paid to front-line employees.
Net interest income ticked up 1% to $1.2 billion on higher commercial loan growth, and the net interest margin contracted by three basis points to 2.55%.
Noninterest income rose 1% to $791 million, as growth in commercial banking and mortgage banking revenue somewhat offset securities losses and a decline in other noninterest income.
The bulk of Fifth Third’s deposit growth in the fourth quarter came from demand deposits, interest checking accounts and savings accounts, while certificates of deposit dwindled.
