Fifth Third Bancorp plans to stay the course in its decision to be deliberate in how it deals with reductions in debit card interchange revenue stemming from a rate reduction that took effect last fall under a mandate from the Durbin amendment to the Dodd-Frank Act.

During the fourth quarter, the rate reduction cost the Cincinnati-based issuer $30 million in lost revenue, the company reported Jan. 20. The new rates took effect Oct. 1 (see story).

Fifth Third is using a “multipronged mitigation approach” that would include such actions as reducing the cost associated with debit card offerings, changes and eliminations to rewards, select fees, incorporation of debit card use into bundled deposit-positive product offerings, and the implementation of new products, Don Poston, executive vice president and chief financial officer, told analysts Jan. 20 during a conference call to discuss the quarter’s earnings.

“We are consulting with our customers about their preferences for our services and how they pay for those services. The effects of mitigation will show up in a variety of areas, rather than in a single line item, and would be expected to include processing fees, deposit service charges, higher deposit balances and lower expenses,” Poston said. “We expect to mitigate roughly two-thirds of the impact of this change by the third quarter and most if not all of it over time.”

He expects total card and processing revenue for the first quarter to be stable to up modestly from fourth-quarter levels.

Card and processing revenue for the quarter ended Dec. 31 was down 25.9%, to $60 million from $81 million a year earlier, driven by the decline in interchange revenue. “This was partially offset by increased transaction volumes as well as an initial mitigation activity, … primarily lower rewards,” Poston said. Card and processing expenses were up 7.7%, to $28 million from $26 million.

Average credit card loans totaled $1.9 billion, up 3.3% from $1.84 billion a year earlier. Total loans at the end of December were $1.98 billion, up 4.2% from $1.9 billion.

Net card losses charged off during the quarter totaled $21 million, down 36.4% from $33 million. The net charge-off rate for the quarter was 4.29%, down 283 basis points from 7.12%

Fifth Third’s ATM fleet dropped slightly, to 2,425 machines at the end of the quarter from $2,445 a year earlier.

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