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Fifth Third (FITB) Rides on Organic Growth Amid Cost Woes
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Fifth Third Bancorp (FITB - Free Report) is well poised to benefit from diversified revenue sources. This, along with rising deposits and loans, is likely to keep supporting balance sheet strength. Yet, mounting operating expenses are likely to hamper profitability to some extent. Also, high exposure to commercial loans remains a concern.
Fifth Third has expanded its fee-income base over the years on various strategic acquisitions. The bank completed the acquisition of Big Data LLC in 2023, adding national healthcare revenue cycle capabilities to its operations. This will, thereby, advance its digital payments and managed services offerings.
With such efforts, FITB has diversified its revenue base which will support the bank’s top-line growth. We suggest revenues to reflect a compound annual growth rate (CAGR) of 2% over the next three years (ended 2026).
A strong deposit base along with decent loan growth provides balance sheet strength for the bank. It continues to focus on core deposit growth in its retail and commercial franchises on the back of branch expansions and digital initiatives. In 2023, it opened 37 new branches in the high-growth Southeast markets and is planning to open another 31 branches in 2024 in that region.
The bank’s deposits and loan balances have been rising over the years. We estimate total deposit balances, and net portfolio loans and leases to increase 4.2% and 0.3%, respectively, in 2024.
Fifth Third’s strong liquidity position provide an opportunity for enhanced capital distributions by the bank. Though it has paused its share repurchases in anticipation of strong loan growth and Dividend Finance deal, the bank aims to deploy capital into organic growth initiatives and strategic non-bank opportunities. Management targets to execute share repurchases with excess capital mostly in the second half of 2024.
However, elevated non-interest expenses due to investments in technology and an improvement in customer experience remain major concerns for FITB. Higher compensation and benefits expenses, as well as branch expansion and digitization initiatives, keep the bank’s expense base under pressure. This is likely to limit bottom-line growth in the upcoming period. Our model estimates the metric to reflect a CAGR of 3.8% over the next three years (ended 2026).
The loan portfolio of the firm comprises majorly commercial loans (62.1% of total portfolio loans and leases as of Dec 31, 2023). The current rapidly changing macroeconomic backdrop may put some strain on commercial lending. Moreover, in case of any economic downturn, the asset quality of these credit categories might deteriorate. Thus, the lack of loan portfolio diversification is likely to hurt the bank’s financials if the economic situation worsens.
In the past three months, this Zacks Rank #3 (Hold) stock has gained 19.6% compared with the industry's 15.5% growth.
Image: Bigstock
Fifth Third (FITB) Rides on Organic Growth Amid Cost Woes
Fifth Third Bancorp (FITB - Free Report) is well poised to benefit from diversified revenue sources. This, along with rising deposits and loans, is likely to keep supporting balance sheet strength. Yet, mounting operating expenses are likely to hamper profitability to some extent. Also, high exposure to commercial loans remains a concern.
Fifth Third has expanded its fee-income base over the years on various strategic acquisitions. The bank completed the acquisition of Big Data LLC in 2023, adding national healthcare revenue cycle capabilities to its operations. This will, thereby, advance its digital payments and managed services offerings.
With such efforts, FITB has diversified its revenue base which will support the bank’s top-line growth. We suggest revenues to reflect a compound annual growth rate (CAGR) of 2% over the next three years (ended 2026).
A strong deposit base along with decent loan growth provides balance sheet strength for the bank. It continues to focus on core deposit growth in its retail and commercial franchises on the back of branch expansions and digital initiatives. In 2023, it opened 37 new branches in the high-growth Southeast markets and is planning to open another 31 branches in 2024 in that region.
The bank’s deposits and loan balances have been rising over the years. We estimate total deposit balances, and net portfolio loans and leases to increase 4.2% and 0.3%, respectively, in 2024.
Fifth Third’s strong liquidity position provide an opportunity for enhanced capital distributions by the bank. Though it has paused its share repurchases in anticipation of strong loan growth and Dividend Finance deal, the bank aims to deploy capital into organic growth initiatives and strategic non-bank opportunities. Management targets to execute share repurchases with excess capital mostly in the second half of 2024.
However, elevated non-interest expenses due to investments in technology and an improvement in customer experience remain major concerns for FITB. Higher compensation and benefits expenses, as well as branch expansion and digitization initiatives, keep the bank’s expense base under pressure. This is likely to limit bottom-line growth in the upcoming period. Our model estimates the metric to reflect a CAGR of 3.8% over the next three years (ended 2026).
The loan portfolio of the firm comprises majorly commercial loans (62.1% of total portfolio loans and leases as of Dec 31, 2023). The current rapidly changing macroeconomic backdrop may put some strain on commercial lending. Moreover, in case of any economic downturn, the asset quality of these credit categories might deteriorate. Thus, the lack of loan portfolio diversification is likely to hurt the bank’s financials if the economic situation worsens.
In the past three months, this Zacks Rank #3 (Hold) stock has gained 19.6% compared with the industry's 15.5% growth.
Image Source: Zacks Investment Research
Bank Stocks Worth a Look
A couple of better-ranked stocks from the banking space are JPMorgan Chase & Co. (JPM - Free Report) and Park National Corporation (PRK - Free Report) . JPM and PRK carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for JPM’s 2024 earnings has moved marginally upward over the past 30 days. In the past year, its shares have risen 19.6%.
The Zacks Consensus Estimate for PRK’s current-year earnings has moved 1.2% south over the past week. Its shares have gained 14.5% in the past year.