Even as the banking industry faces a potential one-two punch, with economic uncertainty contributing to stalled loan growth and falling interest rates weighing on yields, Fifth Third Bancorp expects its net interest income to hit "record results" in 2025.

In an environment where the upcoming election is contributing to unpredictability, the Cincinnati-based bank plugged away at its long-term strategies during the third quarter. Fifth Third beat expectations on core operations by pulling fee-income levers and using its market expansion in the Southeast to bulk up both its retail franchise and its pipelines for middle-market lending.

CEO Tim Spence said in an interview that loan growth will pick up as outcomes around interest rates and the upcoming election become more clear, and that how those events turn out will make a difference.

Commercial clients will start utilizing their lines of credit more frequently once they have more information, which will allow them to make business decisions, he said.

"When we get clarity on who won," Spence said, "and the Fed starts to lower interest rates, as long as the economy holds up, you get an environment where people feel more confident about investing."

Fifth Third doesn't need "heroic" loan growth to deliver on its revenue goals, said Chief Financial Officer Bryan Preston on a Friday call with analysts, as lower interest rates mean the bank doesn't have to pay as much on deposits, and fixed-rate assets from the zero-rate era reprice at higher yields. The bank is modeling for the Federal Reserve cutting interest rates by 50 basis points over the next two months.

Preston added, though, that he thinks the bank is past the days of tepid commercial loan demand, for the most part.

Net interest income of $1.4 billion in the third quarter came out better than analysts expected, and was down 1% from the same period a year prior. In the fourth quarter, Fifth Third predicts that figure will increase roughly 1% sequentially.

But top-line revenue is still projected to get a boost in the last three months of 2024 from the fee-driven businesses where Fifth Third has grown in recent years. The bank anticipates noninterest income to increase 3% to 4% from its third-quarter total of $748 million, which marked a 2% rise from the year-ago quarter, excluding one-time charges.

Fifth Third is also taking advantage of its Newline payments product, which helps businesses launch card and deposit services. Revenue from the business rose 10% from the same period last year.

Spence said in the interview that he feels "confident" Fifth Third can sustain its growth rate in the payments business.

In the bank's wealth and asset management business, assets under management grew 21% from the year prior.

Spence said on the call that the bank will keep investing in growth businesses and market expansion as it aims to drive performance.

"Cincinnati invested hustle," he said — a reference to a slogan from the days of the recently deceased Cincinnati Reds star Pete Rose. "That ethos is part of the way that we try to run the company, is to sprint to first on a walk. We try to work on next year's problems and the year after that this year."

The bank's build-out in states like Florida, Tennessee and North Carolina has boosted its middle-market loan pipeline, which Spence told analysts is at an "all-time record level."

He added in the interview that the growing loan pipeline in the Southeast is partially due to higher economic activity in the region, compared with the Midwest. The sectors that are driving production are similar to those in Fifth Third's legacy businesses, like manufacturing, logistics and health care, though with less exposure to metals and mining, he said.

Fifth Third has increased its relationship manager headcount in the Southeast by 20% in the last year. The bank plans to open 19 new branches in the fourth quarter across the region, and will accelerate the pace of openings so that its branch network is split roughly evenly between the Midwest and the Southeast by 2028.

Spence told analysts that the bank is growing that presence organically, adding that the branches break even on their cost after a few years, and have subsequently been running returns of roughly 20%.

The bank reeled in $573 million of net income in the third quarter, marking a 13% drop from the year prior. Although Fifth Third's earnings per share of 78 cents missed consensus analyst expectations of 83 cents, per S&P data, the bank beat forecasts when excluding expenses related to legal fees, a swap of Visa shares and the costs of layoffs.

Analysts at both Piper Sandler and Citigroup wrote in Friday notes that Fifth Third's third quarter was solid, due to better-than-anticipated fee income and net interest income. Its stock closed down 1.54% on Friday, ending the day at $44.67.

"In our view, the story we hoped would manifest itself continues to do so: improving NII outlook, conservative/do-able assumptions, and solid credit backdrop," wrote Piper Sandler analyst Scott Siefers.

David Chiaverini, an analyst at Wedbush, maintained Fifth Third at an "outperform" rating, writing in a note that the bank's balance sheet should benefit from lower rates.