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Fifth Third (FITB) Rides on Organic Growth Amid Cost Woes

Fifth Third Bancorp FITB 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.

The company has expanded its fee-income base over the years on strategic acquisitions, thereby enhancing its digital bank product offering. FITB acquired Big Data Healthcare in May 2023. This will drive the company's digital payments and managed services offerings. It also acquired an embedded payment platform, Rize Money in May 2023. The acquisitions of Dividend Finance in 2022 and several past deals will continue to drive revenue growth in the upcoming quarters.

FITB continues to focus on core deposit growth in its retail and commercial franchises on the back of branch expansions and digital initiatives. The company's total deposits recorded a compound annual growth rate (CAGR) of 10.7% over the last five years ended in 2022, with deposit balance declining slightly in 2022 and the first quarter of 2023. Management expects deposits to be stable or grow from the first-quarter average level, supported by strong customer acquisition trends.

Though FITB's total loan and lease balance declined marginally in 2020, it recorded a CAGR of 6.1% over the last five years ended in 2022, the rising trend continued in first-quarter 2023. We believe that the company is well-positioned to continue its organic growth, aided by a strong pipeline, new commitment growth and contributions from inorganic activities.

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As of Mar 31, 2023, the company had long-term debt of $12.8 billion, which declined sequentially. Its first-quarter 2023 times interest earned ratio of 5.8 declined from the prior quarter. Nonetheless, total liquidity stood at $100 billion as of the same date.

FITB maintains investment-grade credit ratings of BBB+, A- and Baa1 from Standard & Poor’s, Fitch and Moody’s, respectively. Thus, with sound liquidity and a manageable debt level, the company is expected to be able to meet its near-term debt obligations even if the economic situation worsens.

Though the company's expenses declined in 2022, the metric saw a five-year CAGR of 4.5% in 2022. The rising trend continued in first-quarter 2023. Expenses are likely to escalate in the near term due to higher compensation and benefits expenses, branch digitization initiatives, marketing expenses and its ongoing strategic investments in several areas, including technology. We project total non-interest expenses to increase 5% in 2023.

Fifth Third's loan portfolio comprises high exposure to commercial loans (63% as of first-quarter 2023 end). Such high exposure can be risky for the company amid an uncertain economy and competitive markets.

Further, analysts are pessimistic about the stock’s earnings prospects. The Zacks Consensus Estimate for FITB's current-year earnings has been revised 4.1% downward over the last 60 days. The company currently carries a Zacks Rank #3 (Hold).

In the past three months, shares of FITB have fallen 20.5% compared with the industry's 10.3% decline.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Bank Stocks Worth a Look

A couple of better-ranked stocks from the finance space are Pathward Financial, Inc. CASH and First Citizens BancShares FCNCA.

The Zacks Consensus Estimate for Pathward Financial’s current-year earnings has been revised 1.8% upward over the past 60 days. Its shares have gained 15.9% in the past six months. Currently, CASH carries a Zacks Rank #2 (Buy).

First Citizens BancShares currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 67% upward over the past 30 days. In the past six months, FCNCA shares have rallied 63.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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Fifth Third Bancorp (FITB) : Free Stock Analysis Report

First Citizens BancShares, Inc. (FCNCA) : Free Stock Analysis Report

Pathward Financial, Inc. (CASH) : Free Stock Analysis Report

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Zacks Investment Research