Fifth Third commercial loans in Illinois fell more than 20% in 2021

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The Cincinnati-based bank saw a similar 21% drop in Illinois commercial loan exposures — lines of credit available to customers, including amounts not yet tapped.

The numbers run counter to the positive narrative Fifth Third is telling Wall Street about how it is faring in Chicago after buying MB Financial for $3.6 billion in 2019.

“From a regional middle market perspective, we generated strong production last year (last) in multiple markets, including Chicago,” CEO Greg Carmichael said on a Jan. 20 conference call with analysts.

“Chicago led all fifth-tier regions with 50 new mid-market quality relationships added in 2021, nearly double the second-best among fifth-tier regions,” spokesman Larry Magnesen said in an email. “Across mid-market loans, Chicago production increased approximately 50% from 2019 to 2020, and increased another 15% from 2020 to 2021.”

The bank expects Chicago’s middle market production to increase 13% this year, according to an investor presentation.

The question then becomes whether Fifth Third is losing so many business customers in Chicago that it dwarfs the success the bank says it has in winning new business.

First, Magnesen says, the year-over-year reduction in loan balances looks worse than it was. Of the $1.9 billion in lower loans, $900 million was due to the cancellation of federally backed Paycheck Protection Program loans tied to government COVID assistance for small businesses.

It attributes a portion of the remaining $1 billion drop to customers repaying their debt.

Fifth Third increased its deposits in the Chicago area by $1.6 billion last year, he says, of which $600 million came from business customers.

“Our customers have a high degree of liquidity and have paid off their lines of credit,” he says.

Other contributors to the decline include a bank-wide reduction in commercial real estate loans.

Finally, he says, “We have continued to allow clients whose exposure is classified as ‘critical’ (special mention, substandard or questionable) – which derives from the standard definitions of regulatory rating – to leave the Bank. »

In other words, many of them are customers the bank is happy to see go.

It’s a standard explanation bankers give for the exodus of customers following a culture-changing merger. Competing bankers usually raise an eyebrow and say deals like Fifth Third, where an out-of-town bank acquires a well-known local institution, are the “gifts that keep on giving.”

Despite Fifth Third’s explanation, $1 billion in a single year is a lot by any measure, given the size of its loan book in Illinois.

Moreover, other local investment banks did not experience anything similar last year.

Rosemont-based Wintrust Financial, for example, saw its commercial lending grow 12% last year, from $15.6 billion to $17.6 billion, according to SEC filings. The majority of Wintrust’s lending business is in the Chicago area. These figures do not include PPP loans.

Even Chicago-based First Midwest, arguably distracted by its own sale deal to Evansville, Indiana-based Old National announced in May, managed to secure a small increase in commercial loans last year from from $9.8 billion to $9.9 billion.

Additionally, Fifth Third held firm on their home turf. In Ohio, the total commercial loan balance fell 7% to $7 billion from $7.6 billion in 2020. This may reflect the discount of PPPs.

But total lending exposure in Ohio, meaning trade credit available to customers whether they use it or not, rose 5% to $15.9 billion.

Ohio now significantly surpasses Illinois as the fifth-largest business market in the third by this measure. Illinois was by far Fifth Third’s largest market after the MB deal.

At the end of last year, Illinois accounted for just 9% of Fifth Third’s total commercial loan exposure. Ohio was 12%. California and Texas were just behind Illinois, at 8% each.

Fifth Third doesn’t even have branches in California and Texas. Of the 11 states where it has outlets, Illinois is second only to Ohio.

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