Fifth Third Bancorp’s FITB diverse and expanded revenue base will likely support its earnings growth in the upcoming period. Despite the low-interest environment, loan and deposit growth is expected to drive organic growth.
Fifth Third has expanded its non-interest income base over the years on strategic investments. Augmented capabilities through strategic partnerships and acquisitions in different industries will support commercial verticals and result in revenue growth, expense savings and operational excellence.
Additionally, the company is executing other measures like branch optimization to enhance its presence in high-growth markets. It is re-allocating its branch network to enhance its presence in the Southeast and reduce its presence in the Midwest.
Continued focus on core deposit growth in its retail and commercial franchises by improving customer satisfaction, building full relationships and offering competitive rates have enabled the company to witness decent deposit growth.
Notably, Fifth Third’s total deposits, recorded a compound annual growth rate (CAGR) of 11.3% over the last five years ending 2020, with the trend continuing in the first nine months of 2021 as well. As economic growth continues to be solid and the consumer spending trend improves further, loan growth is also expected to drive organic growth.
Fifth Third’s solid balance sheet position supports the company’s capital deployment plans. As of Sep 30, 2021, the company total liquidity was $110 billion. With an investment-grade balance sheet and manageable debt level, we believe Fifth Third’s dividend disbursements and share buyback activities are sustainable.
Following this year’s stress test clearance, FITB hiked the quarterly dividend by 11% to 30 cents in September. The company continues to repurchase shares under the 100-million share buyback program announced in June 2019 and plans to buy back shares totaling $300 million in the fourth quarter of 2021.
Over the past year, shares of the company have gained 59%, outperforming 38% growth recorded by the industry.
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However, elevated non-interest expenses due to investments aimed at operational efficiencies and improvement in customer experience might hinder Fifth Third’s bottom-line expansion in the upcoming period. Also, given its ongoing strategic investments in several areas, including technology, expenses might escalate in the near term. Notably, expenses recorded a five-year CAGR of 6% in 2020, with the trend continuing in the first nine months of 2021.
Fifth Third is expected to continue witnessing pressure on the net interest margin (NIM) due to accommodative monetary policy stance and near-zero interest rates. After recording an improving trend over the last several years, NIM shrunk in 2020 and the first half of 2021 before increasing in the third quarter. Hence, lower interest rates are expected to hurt the company’s financials in the near term.
Currently, Fifth Third carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Stocks to Consider
Some better-ranked stocks in the banking space are Shore Bancshares SHBI, Southern First Bancshares SFST and Colony Bankcorp, Inc. CBAN. At present, SHBI sports a Zacks Rank #1, while SFST and CBAN both carry a Zacks Rank #2 (Buy).
Over the past year, the stock of Shore Bancshares has jumped 40.6%, whereas shares of Southern First and Colony Bankcorp have gained 73.7% and 25.3%, respectively.
Over the past 60 days, the Zacks Consensus Estimate for Shore Bancshares’ current-year earnings has been revised 21.7% upward, while that for Southern First has moved 9.1% north. Current-year earnings estimates for Colony Bankcorp have moved 15.2% up over the past two months.
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