Why Fifth Third isn't prioritizing M&A in Southeast expansion

UPDATE: This article includes comments from CEO Tim Spence in an interview with American Banker.

Cincinnati, Ohio-based Fifth Third Bancorp is marching on in its Southeast expansion, executives said Tuesday, with 60 new branches planned this year and its existing ones already bearing fruit.

The region remains heavy with competition from banks, and President Donald Trump's new administration is fueling speculation that looser merger policies will prompt banks to acquire competitors in the Southeast.

But buying a bank isn't high on Fifth Third's priority list, CEO Tim Spence indicated, pointing to the bank's early success in the Southeast branches it's building.

"We are growing really nicely organically," Spence told American Banker, which means Fifth Third doesn't have to "reach for M&A."

Fifth Third added 31 branches in the Southeast in 2024 and plans to add 50 or more every year through 2028. By that point, nearly half of the bank's branch network should be in the Southeast region, the company has said.

The bank's yearslong expansion in the region has driven its Southeast deposits to $33 billion, Spence said, and its bankers there have boosted loan momentum.

Executives aren't shutting the door on any option and would consider any merger that provides a "superior return profile" to its current plans, Spence said in the interview. Plus, the bank could have made the math work on a deal last year and likely gotten it done by year-end if it wanted to, Spence told analysts Tuesday.

The bank does remain interested in smaller acquisitions that add to the company's capabilities in areas such as commercial payments, Spence said. But buying a competing bank is trickier.

"The road in our industry is littered with deals that went badly because people focused on scale at the expense of strategic logic," Spence told American Banker.

Earnings

Fifth Third predicts a thriving 2025, despite economic uncertainty

The Cincinnati-based bank aimed for consistency in the third quarter as it built on strategic initiatives. Executives expect "record" net interest income next year.

By Catherine Leffert

October 18

The branch expansions are driving up Fifth Third's spending, and the bank said it expects noninterest expenses to rise 3% to 4% this year. After its early success in markets such as Nashville, Tennessee, North Carolina, and southwest Florida, Fifth Third's next wave of branch openings will occur elsewhere in Florida, along with South Carolina, Alabama and Atlanta.

The bank grew its household deposits by 6% in the Southeast compared with last year, helping Fifth Third get a lower-cost funding source compared to corporate deposits, which tend to be more expensive.

The average interest rate Fifth Third paid on its interest-bearing liabilities fell to 3% in the fourth quarter, down from 3.34% a year earlier. That, combined with stronger loan activity, helped Fifth Third's net interest income regain momentum as the year progressed.

Though net interest income still fell by 3% in 2024 overall, the bank eked out 1% growth in the fourth quarter compared with the same quarter in 2023.

Executives said they're confident they can achieve record net interest income in 2025, forecasting a 5% to 6% increase. That guidance should hold up even if the Federal Reserve doesn't cut interest rates again this year, Chief Financial Officer Bryan Preston told analysts.

The bank reeled in net income of $620 million in the fourth quarter, up about 17% from the previous year. Its earnings per share were 85 cents, short of the analyst consensus of 88 cents, as a one-time expense tied to interchange litigation weighed on earnings.

The outlook for 2025 was positive, with "more things pushing to the upside than downside," Truist Securities analyst Brian Foran wrote in a note to clients.

That included Fifth Third's guidance that loans would grow by 3% to 4% this year, a stronger figure than most competitors have laid out, Foran wrote.

The bank's loans were already ticking up as 2024 came to an end, Spence told analysts, as some companies were waiting for the elections to settle before undertaking investments.

Total loans grew to $119.8 billion at the end of the quarter, up 2% from a year earlier.

"We could see it building in the pipeline for a while," Spence told analysts. "We just needed to get through the election to start to see some of it pull through."

There are "many reasons to feel optimistic about the banking sector" in 2025, he told analysts, pointing to last year's Fed rate cuts and business owners' bullishness this year as two factors. The country may be "on the cusp of a shift in the direction of regulation," Spence said, potentially driving more corporate investment.

Other factors are prompting continued caution with companies, he said, saying some are having trouble finding skilled workers to expand. Shifts in immigration policies and their impact on the workforce remain a question, Spence said.

Banks, meanwhile, are also waiting to see what changes Trump's appointees to bank regulatory agencies will bring.

The past Trump administration, along with Congress, ushered in a looser regulatory regime for community banks and regional banks. That includes the $213 billion-asset Fifth Third, which, like others its size, is now allowed to skip a year in the Federal Reserve's annual stress tests.

Asked by American Banker about potential changes he'd like to see, Spence mentioned tweaks to liquidity rules, recalibration of risk weights on some bank assets and more transparency in the stress-testing process.

But his broad message was that he wants to see policies that "support private sector growth." The U.S. economy was sluggish in the years after the 2008 financial crisis, as the mechanism to boost growth "never really fired the way it should have," Spence said.

The country had "lots of good reasons to tighten up the regulatory regime" for the industry after 2008, he said. But the industry's loan-to-deposit ratios have also fallen significantly, and unlocking some chunk of that could improve growth going forward.

"That's what I want. I want what's good for the economy," Spence said.