The market has not been kind to Fifth Third Bancorp (FITB) this year, but 2015 looks to have brighter prospects. FITB is an opportunity for investors to get into the stock for growth next year.
With more than $130 billion in assets and a footprint throughout the midwest and southeast U.S., Fifth Third is a diversified financial services company with four business segments: commercial banking (over 35% of 2013 revenues); branch banking (35% of 2013 revenues); consumer lending (14% of 2013 revenues); and investment advisers (about 8% of 2013 revenues).
FITB Stock: Earnings Summary
Fifth Third Bank reported in the first quarter of this year net income of $309 million (36 cents a share) with a return on assets (ROA) of 1% and a return on equity (ROE) of 9%. Net interest income declined 1% from the previous quarter but was up 1% from the prior year with a net interest margin of 3.2%.
Non-interest income was also down, primarily due to the decline in benefit of the Vantiv Inc warrant, Fifth Third’s payment processing unit that was spun off in 2009 as a separate company. Quarterly chargeoffs increased from 0.6% of loans and leases to 0.7% of loans and leases driven by three commercial credits.
In the second quarter, Fifth Third Bank reported net income of $416 million (49 cents a share) with a ROA of 1.34% and a ROE of 11.9%. Net interest income increased 1% from the previous quarter and 2% from the same period last year with a net interest margin of 3.1%.
During the quarter Fifth Third Bank recorded a gain on the sale of additional Vantiv shares of $125 million as well as a positive valuation on the Vantiz warrant, which drove non-interest income up to $736 million from $564 million the prior quarter. Net chargeoffs declined from last quarter to 0.4% of loans and leases in the second quarter, which was below the 0.5% reported in the same period the previous year.
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For the third quarter Fifth Third Bank reported net income of $328 million (39 cents per share) with a ROA of 1.02% and a ROE of 9.2%. Net interest income was flat from the last quarter, but up 1% from the same period last year and net interest margin continued to decline to 3.1%.
Non-interest income was $520 million, which included a $53 million negative valuation of the Vantiv warrant. Net chargeoffs continued to decline amounting to 0.5% of loans and leases, up slightly from the prior quarter and from the same period last year.
FITB Stock: Summary
Fifth Third Bank Stock is trading at a 10% discount to analyst consensus price target, has a neutral price-to-earnings growth ratio of 1.3 and offers a 2.6% dividend yield with a 30% payout ratio. I would expect continued modest growth in total loan growth in the 3% to 3.5% range for 2014, consistent with FITB’s current pace and continue improvement in asset quality, but continued pressure on net interest margin and lower non-interest income due to prior gains already realized with Vantiv.
For 2015, I expect a steeper yield curve will help improve Fifth Third Bank’s net interest margins with continued modest loan growth of 3-3.5% and increasing non-interest income that will boost earnings above peers.
Bottom Line
Fifth Third Bank stock is down more than 4.7% this year, but 2015 looks to be a better year and one for stock growth. It is a bank stock to buy before 2015.
As of this writing, Kenneth Fick did not hold a position in any of the aforementioned securities. Write him at kfick@piercethefog.com or follow him on his blog at www.piercethefog.com.
