Fifth Third Bancorp (FITB), Bank of America Corp (BAC): Five Reasons This Bank Should Sell For More Than Book Value

I don’t always have the time to check out a stock that sounds interesting right away. I keep a watch list of stocks on hand, so I can go back later, and see if the company deserves my attention. In an article by Sean Williams of The Motley Fool, he mentioned Fifth Third Bancorp (NASDAQ:FITB) as a bank that was doing well. I knew that I wasn’t following the company, and I wanted to find out if I was missing an opportunity. By the time I got around to researching the company, I had already missed some of the upside in the stock, but that doesn’t mean its run is over.

Getting It On My Watch List About Two Months Too Late
Sean does a good job for Fool.com in coming up with companies that investors can add to their watch list for further research later. Sometimes he talks up the company, sometimes not, but there is always pertinent information for the investor. He mentioned Fifth Third, and I took notice because I used to work at a bank, and I pretty much remember everything Peter Lynch wrote in his two books. Lynch mentioned Fifth Third Bancorp (NASDAQ:FITB) as a favorite bank stock that was treated like a slow grower.

Sean’s found several positives, such as the facts that the bank just passed the Fed’s stress test with flying colors, they raised their dividend by 10%, and were paying a 2.7% yield at the time. His only concern was the stock traded at 109% of book value, and though he said it might go higher, he concluded by saying he, “might consider a position if the share price drops considerably.” Unfortunately for Sean, that hasn’t happened.

Bad News For One, Opportunity For All
While it’s unfortunate our friend Sean didn’t buy Fifth Third Bancorp (NASDAQ:FITB), I believe there is opportunity in the stock still. Today the shares yield 2.4% because of their higher price, and sell for 117.5% of book value. However, even at this higher price, the stock still looks attractive.

On the surface, Fifth Third Bancorp (NASDAQ:FITB)’s deposit growth of 5% and loan growth of 6% only beats its peer Bank of America Corp (NYSE:BAC). Bank of America, in the last quarter, reported deposits up 4.38%, but loans were down 0.82%. Other banks like PNC Financial Services (NYSE:PNC) and U.S. Bancorp (NYSE:USB) did much better. In fact, PNC saw deposits increase 9%, while loans were up 13%. U.S. Bank reported deposits increased 7.3%, and loans were up 5.8%. The difference between these companies is their deposit composition.

For instance, PNC Financial Services (NYSE:PNC) saw non-interest bearing deposits increase by 7%, which lagged total deposit growth of 9%. The same relationship held true at Bank of America Corp (NYSE:BAC) and U.S. Bank as well. However, at Fifth Third Bancorp (NASDAQ:FITB), the company’s non-interest bearing accounts grew by 10%, which was double the overall growth rate. The reason that faster growth in cheaper deposits is important, leads us to the second reason investors should give Fifth Third a look–their net interest margin should improve.