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Fifth Third Bancorp: Earnings Likely To Have Bottomed Out

Sheen Bay Research profile picture
Sheen Bay Research


  • Exposure to high-impact industries and worsening of economic outlook since the end of the first quarter will likely drive provision expense in the remainder of the year.
  • Non-interest income will likely continue to decline in the year ahead due to fee waivers and an overall slowdown in business activity amid the lockdown.
  • Earnings for the remainder of 2020 will likely improve compared to the first quarter but remain below the 2019 level.
  • Uncertainties related to COVID-19 have increased the riskiness of the stock.

Fifth Third Bancorp’s (NASDAQ:FITB) earnings plunged to $0.04 per share in the first quarter from $0.96 in the fourth quarter. The earnings decline was mostly attributable to a surge in provision expense and a drop in non-interest income. I’m expecting earnings to have bottomed out in the first quarter, but the return to a normal level of earnings will likely be slow. I’m expecting non-interest income to decline further due to fee waivers and a slowdown in business transactions. Further, provision expense in the remainder of 2020 will likely be higher compared to 2019 due to the worsening of the economic outlook since the end of the first quarter. Meanwhile, strong loan growth will likely cancel out the effect of further net interest margin compression. Overall, I’m expecting earnings to decline by 59% year over year to $1.37 per share in 2020. The December 2020 target price suggests a high upside from the current market price, showing that FITB is offering a high return. However, the stock is quite risky due to the COVID-19 related uncertainties; consequently, I’m adopting a neutral rating on FITB.

Exposure to High-Impact Industries to Drive Provision Expense in the Remainder of the Year

FITB’s provision expense surged to $640 million in the first quarter from $162 million in the fourth quarter due to the impact of COVID-19 under CECL, the new accounting standard for credit losses. The provision expense will likely improve after the first quarter as a majority of the impact of COVID-19 on asset quality is already reflected in allowances. However, the provision expense will likely be higher than last year's due to the worsening of the economic outlook since the end of the first quarter. Additionally, loan growth, excluding Paycheck Protection Program loans, will drive provision expense in the remainder of the year.

This article was written by

Sheen Bay Research profile picture
Around 10 years of experience covering Banks and Macroeconomics. Passionate about discovering lucrative investments and generating alpha.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (2)

Long MTB, USB, TFC & PNC among super regionals
Long FITB, FRC, ZION among small regional banks...

Remember 2 things -
1. Buffett sold airlines but not the banks...he thinks they will recover in the long run.
2. Buffett did not buy into 3/23 lows - prices that were last seen on 12/24/2018 when the threat of a recession was factored into prices. Which means he wasn’t willing to make a wager on the 3Ds of this recession - Depth, Dispersion & Duration...

Revenue; Profit margin (MRQ); Price/Book Value

Based on what I see from my brokers’ database

FITB. - 8.9B; 31.16%, 0.63
KEY - 7.58B; 6.83%, 0.71
RF - 6.63B; 8.89%, 0.59
HBAN - 5.64B; 21.55%, 0.80
FRC. - 4.3B; 18.36%, 1.96
SIVB - 3.5B; 28.85%, 1.58
ZION. - 3.19B; 0.79%, 0.72
PBCT - 2.3B; 21.81%, 0.66
NYCB. - 1.89B; 19.86%, 0.75
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