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

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

The numbers fly in the face of the positive tale Fifth Third is telling Wall Street about how it’s doing in Chicago following the $3.6 billion buyout of MB Financial in 2019.

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

“Chicago led all Fifth Third regions with 50 new quality middle-market relationships added in 2021, nearly double the next best among Fifth Third’s regions,” spokesman Larry Magnesen says in an email. “In middle-market lending, Chicago production increased about 50% from 2019 to 2020, and increased a further 15% from 2020 to 2021.”

The bank projects a 13% increase in Chicago middle-market production this year, according to an investor presentation.

The question then is whether Fifth Third is losing so many Chicago business customers that it’s overwhelming the success the bank says it’s having in winning new business.

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

He attributes some of the remaining $1 billion decline to customers paying down their debt.

Fifth Third increased its Chicago-area deposits by $1.6 billion last year, he says, and $600 million of that was from business customers.

“Our clients have a high degree of liquidity and have paid down credit lines,” he says.

Other contributors to the decline include a bankwide reduction in commercial real estate lending.

Finally, he says, “We have continued to allow clients with exposure categorized as ‘criticized’ (special mention, substandard, or doubtful)—which is derived from standard regulatory rating definitions—to exit the bank.”

In other words, many of these are customers the bank is happy to see leave.

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

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

In addition, other local business banks experienced nothing similar last year.

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

Even Chicago-based First Midwest, arguably distracted by its own deal to sell to Evansville, Ind.-based Old National, announced in May, managed to eke out a small commercial loan increase last year—to $9.9 billion from $9.8 billion.

In addition, Fifth Third held its own on its home turf. In Ohio, total commercial loan balances dropped 7% to $7 billion from $7.6 billion in 2020. That perhaps reflected PPP forgiveness.

But total loan exposure in Ohio—meaning commercial credit available to customers, whether they use it or not—grew 5% to $15.9 billion.

Ohio now well exceeds Illinois as Fifth Third’s biggest commercial market by that measure. Illinois was easily Fifth Third’s largest market following 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 right behind Illinois, at 8% each.

Fifth Third doesn’t even have retail branches in California and Texas. Of the 11 states where it does have retail locations, Illinois has the second most—behind Ohio.