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Fifth Third (FITB) Thrives 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 an increase in non-interest income and deposit balances, is likely to keep supporting balance sheet strength. Yet, mounting operating expenses are expected to hamper profitability to some extent. Also, high exposure to commercial loans is a concern.

Fifth Third has been focused on treasury management and wealth and asset management business in the past few quarters to bolster its non-interest income, which is less volatile compared with spread income. Although the metric declined 0.6% in 2022, it grew in 2021, 2023 and the first quarter of 2024. This was primarily driven by strategic investments. FITB is also undertaking efforts to increase non-interest income through new collaboration. In May 2024, in collaboration with Bottomline, the company launched Enhanced Payables — a new payment platform powered by the latter’s business payments network, Paymode-X.

The company expanded over the years through various strategic acquisitions. The company 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. It also acquired an embedded payment platform, Rize Money. With such efforts, Fifth Third diversified its revenue base which will support the company’s top-line growth even during situations of an economic slowdown.

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 high-growth Southeast markets. The company plans to open 30-35 new branches in its higher-growth markets and expects to close a similar number of branches in 2024.

The bank’s deposits and loan balances have been rising over the years. We suggest total deposit and net portfolio loans and leases to register a compound annual growth rate (CAGR) of 2.7% and 1.1%, respectively, by 2026.

However, elevated non-interest expenses due to investments in technology and improvement in customer experience are a major concern. The metric recorded a five-year CAGR of 2.8%, ending 2023. A rise in the expense base is likely to limit bottom-line growth in the upcoming period.

The loan portfolio of Fifth Third comprises majorly of commercial loans (62% of total portfolio loans and leases as of Mar 31, 2024). The current rapidly-changing macroeconomic backdrop may put some strain on commercial lending. 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 company’s financials if the economic situation worsens.

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In the past year, this Zacks Rank #3 (Hold) stock has gained 40.4% compared with the industry's 37.1% growth.

Bank Stocks Worth Consider

Some better-ranked bank stocks worth mentioning are Northern Trust Corporation (NTRS - Free Report) and BankUnited, Inc. (BKU - Free Report) .

Northern Trust’s earnings estimates for 2024 have revised upward in the past seven days. The company’s shares have gained 3.6% in the past six months. NTRS sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BankUnited’s 2024 earnings estimates have revised upward marginally in the past 30 days. The stock has gained 8.2% in the past three months. BKU carries a Zacks Rank #2 (Buy).

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