On Sep 8, 2014, we issued an updated research report on Fifth Third Bancorp (FITB). Shares of this major regional bank have recorded a one year return of 14.3%. Further, Fifth Third has outpaced the Zacks Consensus Estimate in second-quarter 2014, with an earnings surprise of 8.89%.
We believe this growth story has been aided by the company’s continued focus on organic growth among several other positives including a strong capital position, steady capital deployment activities and improving credit quality.
Management expects full-year 2014 NII to increase about 2% from the 2013 NII of $3.6 billion. The increase is expected to stem from loan growth and higher investment securities balances, partially offset by elevated funding costs and some additional loan spread compression. Moreover, NII is expected to rise throughout 2014.
Further, mid single-digits full-year average loan growth versus that in 2013 is anticipated, primarily reflecting growth in C&I loans along with CRE loans. These positives are anticipated to be offset by declines in residential mortgage balances and continued runoff in the home equity portfolio. Moreover, commercial and consumer deposits are expected to elevate.
Notably, as of Jun 30, 2014, excluding loans held-for-sale, average loan and lease balances increased 4% year over year to $90.5 billion. Average total deposits rose 5% from the prior-year quarter to $96.7 billion.
We view Fifth Third as a sound asset for yield-seeking investors. The company remains focused on managing capital levels efficiently. This is well evident from the clearance of the 2014 stress test and estimated Tier 1 common equity under Basel III increasing to 9.61% as of Jun 30, 2014. Further, in Jun 2014, Fifth Third increased its common stock dividend by 8%. Moreover, the company paid $204 million as common stock dividends and repurchased treasury shares and related forward contract worth $249 million in first-half 2014.
Despite strong fundamentals, we believe there are certain issues that may create pressure on the company’s financials in the near term. These include absence of a credible improvement in the mortgage market, declining net interest margin due to the low interest rate environment and the prevailing stringent regulatory landscape.
Further, the Zacks Consensus Estimate over the past 30 days remained stable at $1.73 for 2014, while it moved down by a penny to $1.82 per share for 2015. Hence, Fifth Third currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked finance stocks include Wells Fargo & Company (WFC), LNB Bancorp Inc. (LNBB) and MidWest One Financial Group, Inc. (MOFG). All three carry a Zacks Rank #2 (Buy).
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