Fifth Third Bank has set aside an additional $129 million in reserve for its indirect consumer loans, which consist predominantly of auto loans, during the first quarter to account for higher credit losses due to CECL adoption and the impact of COVID-19, according to the company’s earnings results today.
Allowance for losses increased by $70 million since yearend 2019 due to the quickly deteriorating economy. The bank’s indirect auto portfolio increased 29% year over year to $11.8 billion. Meanwhile, net charge-offs improved too, dropping 14 basis points YoY to 0.43% of the portfolio.
Firmwide total credit reserves clocked in at $2.5 billion, covering 2.13% of the portfolio. Fifth Third overall reported a $1.7 billion increase to the allowance for credit losses, which includes a $653 million increase recorded for the Jan. 1 adoption of CECL and reserve build for COVID-19 impacts.
From a liquidity perspective, the bank sits on a comfortable $80 billion of available liquidity, including $4.1 billion in cash held by Fifth Third Bancorp, its holding company. This cash is expected to “satisfy all fixed obligations in a stressed environment for 26 months,” the bank noted. This includes debt maturities, common and preferred dividends, interest and other expenses, without accessing capital markets or relying on dividends from subsidiaries.
The last time Fifth Third tapped the auto ABS market was in April 2019, with a $1.37 billion offering backed by prime auto loans, marking the bank’s return to the market after a two-year hiatus.
Fifth Third Bancorp’s stock [NASDAQ: FITB] was trading down 5.61% to $15.76 per share at press time. The company has a market capitalization of $11.2 billion.