Is Fifth Third Bancorp In Trouble?

Indeed, the company failed to dodge the subsequent market-wide selloff, with FITB stock falling nearly 40% from its earlier one-year high.

However, according to Federal Reserve estimates, Fifth Third has a long history dating back to 1858 and is reckoned to be the nation’s 17th largest bank.

In fact, the venture lays claim to $207 billion in assets while commanding a share of some of the most important banking markets in the region, spanning from Michigan in the north to Florida in the south.

So, is FITB exposed to this newest financial emergency – or can it withstand the fires of despair that rage all around it?

Fifth Third Bancorp Is Already A High-performing Business

Thanks to its prudent management practices and balance sheet discipline, FITB delivered unprecedented operating results in 2022.

The firm reported overall revenue growth of 16%, while average loan & lease balances increased 13% to $121.4 billion.

Moreover, net interest income rose 32% year-on-year, with the margin on that up 13 basis points from 3.22% to 3.35%.

Additionally, helped along by a strong showing from its commercial banking wing, non-interest income also rose 7% sequentially to $735 million.

However, like many other financial businesses, the current macroeconomic climate has caused Fifth Third’s interest expenses to skyrocket this year.

And yet, despite those costs spiking 413% from $97 million to $498 million, the company managed to generate $1.58 billion in net interest income for the three months ending December 2022.

Are Deposits Safe at Fifth Third Bank?

Fifth Third Bancorp’s disciplined approach to business didn’t just result in a solid quarterly earnings sheet; it led to excellent key credit metrics for the company too.

Likewise, FITB’s nonperforming portfolio assets as a fraction of its loans and leases decreased from 0.47% in 2021 to 0.44% in 2022.

More crucially, the firm’s ratio of uninsured deposits is less than half, with estimates in the corporation’s Annual Report suggesting that only $542 million of its $1.20 billion total are not covered by the FDIC insurance scheme.

Other quality indicators attest to the creditworthiness of Fifth Third Bank as well. Its return on average common equity grew 660 basis points to 18.8%; its Tier 1 Capital Ratio of 10.5% surpasses regulatory “well-capitalized” levels; and Moody’s gave it a long-term deposit rating of A1.

Valuation

At the present moment, market sentiment is firmly on the side of large, systemically important financial institutions such as Wells Fargo, Bank of America, and Citigroup. These firms have seen their share prices recover lately, with the perception of being “too big to fail” making them the preferred choice for investors and depositors alike.

Conversely, while smaller operations have succumbed to sharp losses over fears of a broader contagion, their relative valuations have become much more attractive.

For example, Fifth Third’s price-to-book ratio has come crashing down since the start of the crisis, falling from 1.62x in early March to 1.20x today. Its trailing twelve-month PE multiple has also improved dramatically during that time, dropping from around 10.79x to 7.95x.

Moreover, FITB stands up well compared to its peers in the space. Northern Trust Corporation trades at a far steeper book price of 1.77x, while State Street’s earnings fraction is similarly worse off at 10.53x.

Fifth Third’s Dividend Announcement Is A Positive 

With its recent fall in share price, FITB’s forward dividend yield has shot up to 5.02%. Couple this with its low payout ratio of 36% – and a 5-year dividend growth rate of 16% – and the stock looks appetizing as an income option alone.

In fact, having declared a cash dividend not long after the Silicon Valley calamity erupted, Fifth Third Bank is implying that the company’s not too concerned about liquidity issues – at least in the short-term, anyway.

While dividends are not guaranteed to continue forever, it’s nonetheless a very public show of confidence from the company management. Indeed, when headwinds appear on the horizon, the firm’s cash distribution is often the first to go.

This has yet to happen in this case, which means that those who see the operation from the inside are not overly worried about problems in the future.

Wrap-up: Is Fifth Third Bank Really In Trouble?

It’s undoubtedly a precarious time for banking stocks right now. Comments made by FDIC Chairman Martin Gruenberg that “most banks” are exposed to some sort of interest rate risk has everyone spooked – and there is precious little sign that this sense of unease is about to abate.

Just as critical, though, are Jerome Powell’s remarks that the US banking system is “sound and resilient,” with the Fed Chairman hinting that inflation and the labor market are the genuine concern.

However, for investors with skin in the game, it’s not so easy to be as sanguine about the situation. Interest rates keep rising – which is precisely why so many banking franchises are under pressure.

But for Fifth Third Bank, there are reasons to remain optimistic. The firm hasn’t had to contend with abnormally high deposit outflows – and its average core deposit balances are up slightly quarter-on-quarter. Surprisingly, its average wholesale funding balances also grew a massive 77% annually to $23.4 billion.

Ultimately, FITB is a safe banking play in a sea of ever more hazardous alternatives. And once this latest market catastrophe rights itself, you can expect Fifth Third’s share price to explode.

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