Cincinnati Business Courier
Fifth Third Bancorp has made its largest financial pledge ever to the communities it serves with a $27.5 billion commitment over the next five years.
Fifth Third (Nasdaq: FITB), Cincinnati’s largest locally based bank, said it will provide that money through loans and investments from 2016 through 2020. It’s primarily targeting low- and moderate-income areas and borrowers. That segment is vital to banks’ Community Reinvestment Act (CRA) ratings. The Federal Reserve Bank conducts periodic CRA exams to make sure banks are meeting the credit needs of communities they serve, including the low-income areas in those communities.
Fifth Third’s commitment includes: $10 billion in mortgage credit access, $10 billion in small-business loans and investment, $6.5 billion in community development loans in its wholesale bank and $1 billion in CRA-related investments through its Fifth Third Community Development Corp. for affordable housing, revitalization, historic preservation and small businesses.
Fifth Third, which has $141 billion in assets and 1,254 banking centers in 12 states, also committed to making $77 million in additional investments and services. That consists of $35 million in CRA donations to back CRA-qualified credits, $20 million in housing-related investments such as downpayment assistance and education of homebuyers, $7 million in small-business investments such as public investment programs and money for providers of assistance to small-business owners, and $15 million in additional investments in areas such as diverse hiring, improved retail accessibility and high school personal finance programs.
“It’s a part of our promise to serve our communities and customers – to keep them at the center of everything we do and to live out our corporate social responsibility in a way that helps create and sustain healthy, vibrant communities,” CEO Greg Carmichael said in a news release.
Fifth Third just completed a five-year plan for its CRA-qualified loans and investments, prompting the announcement, Fifth Third spokesman Larry Magnesen told me. It has never made such a big announcement of so many investments at once. Its last big investment commitment was in 1999, when it said it would invest $9 billion over three years for similar uses. This one is nearly twice as big on an annual basis at $5.5 billion a year.
“This is the first community commitment across the bank that we have made in at least 15 years,” Magnesen said. “And it would certainly be the largest amount ever by a long stretch.”
The commitment represents a larger investment than Fifth Third made in the prior five years, Magnesen said. It will invest a higher amount in almost all categories. In a couple of cases, such as its financial literacy program, it will make the same investment as it had the past five years.
Fifth Third will report its progress toward meeting these commitments to the public annually.
“It would be good to have the problem of ‘Can and should we revise our commitment upward?'” Magnesen said.
The huge financial commitment should help Fifth Third when it gets its next CRA exam. It doesn’t know when that will be. Its last CRA exam was in November 2011. Large banks often get examinations every two to four years.
“This commitment does tie directly to the categories of activity measured under the CRA,” Magenesen said. “Achieving our goals should help drive strong CRA performance.”
CRA ratings fall into four categories: “outstanding,” “satisfactory,” “needs to improve” and “substantial noncompliance.” Regulators such as the Federal Reserve can prevent banks that don’t get at least a “satisfactory” rating from certain activities, including making acquisitions. Fifth Third and its subsidiary banks have always had ratings of “outstanding” or “satisfactory” going back to at least 1990, according to the Federal Financial Institutions Examination Council.