Fifth Third rethinks new-branch designs in light of coronavirus

The coronavirus pandemic won't stop Fifth Third Bancorp from opening about 100 branches in the Southeast over the next few years, but it could prompt some design tweaks and a longer rollout, CEO Greg Carmichael said Tuesday.

For starters, the $185 billion-asset Fifth Third could slow the pace at which it acquires property, anticipating that real estate prices could come down in the months ahead. New branches will remain smaller than current ones as planned, but an old feature that might have been ditched — drive-through windows — will be kept because of their importance to social distancing.

Carmichael, who is also president and chairman of the company, said the bank might even consider adding walk-up windows to its inner-city branches that are not equipped with drive-through windows.

“We’ve got a lot of need for that right now,” he said in an interview following the bank’s first-quarter earnings conference call. “From a design perspective, we’re going to reassess the impact that COVID-19 has when we think about future branches.”

In mid-2018, Cincinnati-based Fifth Third revived its Southeastern branch expansion plans, which it made before the last downturn and then shelved for a decade. Last year, it opened a dozen branches in Atlanta and Nashville, Tenn., and Carmichael said earlier this year that new branch openings could outpace branch closings in legacy markets as soon as next year. The total plan calls for about 100 new branches in Florida, Georgia, North Carolina and Tennessee by 2022.

Fifth Third has kept 99% of its branches open during the coronavirus pandemic, but like many banks it has primarily served customers through drive-up windows or by appointment only in branch lobbies. Branch traffic has fallen 30%-40% at most locations, but the bank is still processing around 100,000 branch transactions daily during the pandemic, executives said Tuesday while discussing the company’s quarterly results.

In addition to other relief efforts it rolled out for consumer and business clients, Fifth Third says it processed around 10,000 applications for small-business emergency assistance under the Paycheck Protection Program. That relief totaled about $3.4 billion and covered approximately 300,000 employees across Fifth Third’s markets. Carmichael said that the average loan size was around $370,000 and that the bank had made very few $10 million loans under the program.

The Senate on Tuesday passed legislation that would provide $310 billion in additional PPP funding — including $60 billion available for loans made by banks with less than $50 billion of assets. The House is expected to vote on the bill later this week. Carmichael said before the Senate vote that he did not believe an additional $300 billion to $350 billion in small-business assistance would be adequate to meet the demand.

“We now have a large number of additional requests and applications loaded into our automated system that we’re ready to push to the [Small Business Administration] as soon as this window opens up,” he said.

Overall, Fifth Third reported net income of $46 million for the first quarter, compared with $760 million in the year-earlier quarter. Like most other banks, Fifth Third’s bottom line took a hit because the bank adopted the Current Expected Credit Losses model in the first quarter and recorded a large provision for loan losses related to COVID-19. Its provision was $640 million in the first quarter, compared with $162 million in the prior quarter and $90 million in the first quarter of 2019.

Executives said they are anticipating stable net interest income, loan growth in the high single digits to low double digits and lower fee income in the second quarter.

But much of that guidance depends on a number of unknowns, something that became clear when an analyst asked, “Do you see yourself continuing to earn positive earnings during the duration of this downturn?”

Executives met the question with nervous laughter. Chief Financial Officer Tayfun Tuzun declined to answer directly, saying that it is difficult to predict right now what the bank’s provision for credit losses and charge-offs could look like in the quarters ahead.

“It is a little difficult to predict exactly what will happen to the provision and the charge-offs,” Tuzun said. “This is one of those environments where unfortunately, looking longer than beyond one or two quarters is extremely difficult.”

This story was updated to reflect Senate passage of additional PPP funding late Tuesday.