Fifth Third Bancorp Aktie

Hello, everyone. Thank you for joining us, and welcome to the Fifth Third's Third Quarter Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Matt Curoe, Director of Investor Relations. Please go ahead.

Good morning, everyone. Welcome to Fifth Third's Third Quarter 2026 Earnings Call. This morning, our Chairman, CEO and President, Tim Spence; and CFO, Bryan Preston, will provide an overview of our third quarter results and outlook.

Please review the cautionary statements in our materials, which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward-looking statements about Fifth Third's performance. These statements speak only as of October 19, 2026, and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Bryan, we will open up the call for questions.

With that, let me turn it over to Tim.

Hello, everyone, and thank you for joining us. It's my custom to start these calls with a comment on great banks and navigating uncertainty.

But today, I want to start with something else that distinguishes great banks, their people. This quarter was a defining moment in the history of our company. I am humbled by and exceptionally grateful for the commitment our people showed to our clients, our shareholders and to one another. We announced the acquisition of Comerica 1 year and 13 days ago. And throughout that time, all our people hustled and collaborated to complete the largest and most complicated conversion in our 168-year history.

Following Legal Day One, you welcomed new colleagues on to your teams and introduced Fifth Third to new communities. You made the tough decisions necessary to achieve our expense commitments and work together to identify and pursue revenue opportunities. You invested more than 4 million hours in preparation for conversion and you gave new meaning to the word Labor in Labor Day weekend when you onboarded approximately 600,000 accounts and 293 banking centers while decommissioning 82 others.

Since then, you have continued to work tirelessly to welcome new customers to the bank to get their accounts configured the way they want them and to ensure customers experience the benefits of banking with our combined company. Your advice is what improves our clients' personalized in their businesses. Your creativity is what wins awards for innovation, and your commitment to excellence is what produces peer-leading financial results. Thank you for keeping our customers at the center of everything you do.

This morning, we reported earnings per share of $0.90 or $1.13, excluding certain items outlined on Page 2 of the release. Adjusted PPNR grew 8% over the second quarter as adjusted revenue grew 2%, while adjusted expenses fell 2%. In an increasingly competitive environment, core deposits grew 3% sequentially and loans grew 1%. Net charge-offs remained stable at 31 basis points. Despite the conversion occurring a full 10 weeks into the quarter, we've already exceeded 2 of the 3 2027 profitability targets spelled out in our deal announcement. Our adjusted return on tangible common equity was 20.6%. Our adjusted return on assets was 1.41% and our adjusted efficiency ratio was 54.6%. Even with the largest acquisition in our company's history and the 10-year treasury increasing 114 basis points in the past year, our tangible book value per share grew 2% year-over-year, and our TCE ratio was flat.

With technical conversion and the work on expense synergies now behind us, our primary task going forward is to leverage the power of our combined company to drive organic growth and market share. The FDIC summary of deposit data set is one mechanism we use to measure progress and the 2026 release became available in September. Using a cap branch deposit methodology to focus on retail deposits, I am pleased that Fifth Third ranked #1 in our retail footprint and #3 nationally in year-over-year retail deposit growth.

In Texas, we came straight out of the chute in February. Retail deposits in Dallas and Houston grew more than 20% over the prior year, and we gained more than 40 basis points of market share. We now rank #7 and #8 in Dallas and Houston, respectively, and that is prior to opening any of our 150 de novo branches in Texas over the next 3 years, starting with the first one in the third quarter next year.

In our Southeast footprint, we again ranked #6 in retail market share. Retail deposits continue to grow at a rate more than 5x the rate of the Southeast overall, and they have grown at an 11% compound annual rate over the past 5 years. Our Southeast de novo program continued to be a big part of the growth story, but it is not all of it. We ranked #2 in total new branches built and #2 in average deposits per branch after 3 years, but we are also #2 in same branch deposit growth for legacy branches over the same period. Our total cost of Southeast consumer deposits remains 207 basis points below Fed funds. We've already opened 35 additional branches in the Southeast in 2026 and remain on track to open the [ full $55 ] that we committed for the full year.

One other strategic item I would like to note from the quarter was the formal launch of Fifth Third Innovation Banking, a business focused on startup and growth stage companies, their founders and the investors who back them. Innovation Banking pairs Comerica's 34-year-old tech and life sciences vertical with Fifth Third's payments, digital, investment banking and wealth management capabilities. It will be built around hub cities where venture capital flows are concentrated in the industry verticals where we can bring unique expertise, starting with our recently launched fintech vertical. We will spend more time dimensioning this business for you in the coming months, but we see it as a $10 billion deposit opportunity by 2030 in addition to other avenues for revenue growth.

Now let me close where I usually begin. At Fifth Third, we believe great banks distinguish themselves not by how they perform in benign environments, but by how they navigate on certain ones. While our clients tell us the underlying economy remains strong, this is a fluid operating environment as evidenced by the recent sharp spike in interest rates. When things change to factors that dictate success change along with them, discipline and optionality become very important. In this environment, our priorities are to be strongly differentiated in core deposit growth, broadly diversified in loans and other earning assets with limited exposure to unproven high-growth categories and the interest rate sensitive borrowers balanced across recurring fee businesses and less exposed to market-sensitive revenue streams and to have the profitability to sustain the long-term investments in growth and AI without compromising return targets.

While we will always have opportunities to get 1% better, I feel great about how Fifth Third is positioned and in our ability to deliver an even better 2027. After all, you can't spell flexibility without F, I, T and B. With that, I'll hand it over to Bryan to provide more detail on the quarter and on our outlook for the remainder of the year.

Thanks, Tim, and good morning. Our third quarter results show the profitability of the combined company, even with the expense synergies not yet fully in the run rate. The conversion over Labor Day weekend was the last major step of the technical integration and the remaining expense synergies will follow. Additionally, the rate environment tested the balance sheet. Rates moved sharply higher in the quarter that weighed on capital markets fees and on AOCI, but it will drive NII growth and provide attractive entry points to reduce the increased asset sensitivity we've carried since closing the acquisition.

Through the conversion of the rate volatility, the business has kept growing in both the Fifth Third and Comerica footprints and credit performance remained stable. As Tim mentioned, adjusted PPNR grew 8% to $1.5 billion. Of the $113 million sequential increase, over half came from revenue with net interest income up 3% and fees up 1%. The realization of expense synergies was the primary driver of the $45 million decrease in adjusted expenses.

Page 2 of our release details the certain items excluded from these adjusted figures. The PPNR growth drove the approximately 160 basis point improvement in our adjusted ROTCE and the 250 basis point improvement in our adjusted efficiency ratio. The step-up in profitability is sustainable. In the fourth quarter, the expense base comes down further as the remaining expense synergies are realized and revenue continues to grow organically. With the systems conversion complete and the expense base where it will be, the fourth quarter gives you the first full view of the combined company's profitability and the baseline from which we will grow.

Net interest income was $2.28 billion, up $56 million from the second quarter. The increase was driven by organic loan growth, investment portfolio activity and continued fixed rate asset repricing, partially offset by higher deposit costs and tighter spreads in C&I and auto. Net interest margin was 3.34%, down 2 basis points. In order to simplify certain conversion-related activities, we intentionally migrated Comerica off-balance sheet investment suite products onto the balance sheet into deposit products, which resulted in elevated cash. As a result, average short-term investments rose $3.1 billion and reduced net interest margin by approximately 4 basis points but had no material impact on NII. Excluding this cash build, the margin would have expanded about 2 basis points over the prior quarter.

The higher market rates during the quarter provided attractive entry points to begin reducing our asset sensitivity. We added $2.5 billion to the held-to-maturity portfolio at an average yield of 4.9%, and we added $7 billion of received fixed cash flow hedges. The third quarter taxable securities yield increased 13 basis points to 3.68%. As a result of the investment portfolio actions, period end short-term investments declined $2.8 billion. Even with these actions, we remain asset sensitive and expect to benefit from further potential rate hikes. Loan growth in the quarter were commercial led with production diversified across the combined footprint and verticals. Total commercial loan production in the third quarter was double the production generated in the year ago quarter.

Among regions, Chicago, Indiana and Michigan continue to generate meaningful activity in the Midwest. While the Carolinas and Florida were the standout regions in the Southeast. While vertical production was also very lot based, consumer retail, health care, energy and renewables, media and entertainment, FIG and Dealer Finance all delivered strong production growth, both sequentially and year-over-year.

Our gross production pipelines remain at record levels as we enter the fourth quarter. Average portfolio loans increased 1% sequentially to $179 billion, and period-end loans were also up 1% to $180 million. Average commercial loan growth of approximately $1.5 billion was concentrated in C&I and construction. Commercial line utilization was 38%, down 50 basis points from the prior quarter, partially offsetting the production. Average consumer loans were stable as home equity grew 3% and [ Req Q ] Mortgage grew 1%, offsetting runoff in solar and modestly lower auto balances. The mix remains consistent with our strategy: relationship-based commercial growth and consumer categories where we have long underwriting experience and attractive risk-adjusted returns. Core deposits funded the quarter's loan growth and continued to replace wholesale borrowings.

Average core deposits increased 3% sequentially to $236 billion, led by retail deposit campaigns and payments linked operational deposit growth. The previously mentioned migration of Comerica investment suites onto the balance sheet added $3 billion in deposits. Additionally, we simplified some of Comerica's legacy deposit products into more modern interest checking product structures, resulting in a shift from commercial savings and money market into interest checking, which grew 6%. Money markets still grew 5%, thanks to the success of our retail deposit campaigns, while savings in retail CDs each declined 2%.

Consumer deposit growth was 5% sequentially in the Southeast and 23% in the Southwest. At the end of the first quarter, the Southwest represented 7.6% of our consumer deposits. At September 30, that increased to 10.4% of our consumer deposits. When we announced the merger last year, we believe our consumer deposit growth strategies would be replicable in new markets. Our early campaign performance continues to support our belief in this $10 billion plus growth opportunity in the Southwest. Average noninterest-bearing deposits were up slightly sequentially and represent 27% of core deposits. Total deposit costs rose 9 basis points sequentially to 1.64%, reflecting promotional pricing from the successful retail campaigns and the impact of the Comerica Investment Suite migration to the balance sheet. Excluding the investment sweep impact, deposit costs rose 7 basis points. The deposit growth allowed us to reduce average wholesale funding 10%, including a $1.3 billion reduction in long-term debt and a $1.1 billion reduction in FHLB advances. With that mix shift, the rate on total interest-bearing liabilities rose 6 basis points and only 4 basis points, excluding the American investment sweeps impact.

Our loan to core deposit ratio was 76%, down 1% from the prior quarter. Our approach has not changed. Granular deposit funding, meaningful liquidity buffers and active management of overall funding costs. Shifting to fees. Adjusted noninterest income, excluding the items listed on Page 4 of the release, was $1.05 billion, up 1% sequentially and 33% from the prior year. Sequential growth in wealth, commercial banking and mortgage more than offset a $7 million decline in capital markets fees. The late quarter rate move pushed out some expected capital markets activity as well as having a negative impact on mortgage fees. Wealth and asset management revenue was $259 million, up 1% sequentially, reflecting higher institutional trust and personal asset management revenue.

Total assets under management were $125 billion at quarter end. Retail brokerage revenue was $60 million in the quarter, up 7% from a year ago. Commercial Payments revenue was $256 million, up 1% sequentially with growth in deposit fees partially offset by higher earnings credits. Capital markets fees were $147 million, down 5% as lower M&A advisory and loan syndication activity more than offset higher corporate bond fees. Commercial banking revenue rose 2% to $128 million on higher lease remarketing and syndication revenue and mortgage banking revenue was $47 million, up $8 million as the prior quarter loss on net servicing valuation did not repeat in the third quarter. Consumer Banking revenue was $158 million, down 2%. With 5 key categories each generating more than $500 million in annual run rate revenue and each representing at least 10% of our total fees, our diversified fee engines kept total fees growing despite the 5% decrease in capital markets.

Now to expenses, where the integration progress shows most clearly. Adjusted noninterest expense was $1.82 billion, down 2% sequentially, driven by lower compensation and benefits expense as synergies were realized. Adjusted expenses exclude certain items listed on Page 2 of our release and the nonqualified deferred compensation mark-to-market. The adjusted efficiency ratio improved 250 basis points and we generated approximately 450 basis points of sequential positive operating leverage. Remaining synergies will be realized from the system decommissioning, staffing changes and branch consolidations that followed conversion weekend, including the 82 banking centers consolidated and will take effect in the fourth quarter.

Merger-related charges recognized on interest expense were $215 million in the quarter, primarily associated with the systems conversion and total approximately $1.1 billion year-to-date, consistent with our integration time line. We continue to expect total merger-related charges of approximately $1.3 billion, with substantially all remaining charges anticipated in the fourth quarter.

On credit, performance remained in line with our expectations. Net charge-offs were $139 million or 31 basis points, up 1 basis point sequentially and at the low end of our 30 to 35 basis point range we guided to in July. Commercial net charge-offs were 22 basis points, up 1 basis point, while consumer net charge-offs improved 1 basis point to 52 basis points. The NPL ratio increased 1 basis point to 59 basis points. The NPA ratio increased 4 basis points to 64 basis points, reflecting the impact of a $58 million increase in branch and other corporate real estate that were consolidated as part of the integration. Excluding this merger-related real estate impact, the NPA ratio was up 1 basis point. Early stage delinquencies improved with the 30- to 89-day balances down $21 million sequentially to 30 basis points driven by improvement in the commercial loan portfolio. The allowance for credit losses was $3.1 billion or 1.74% of portfolio loans, down 2 basis points sequentially reflecting stable loss performance and improvement in the commercial portfolio risk profile. The allowance covered nonperforming loans 294% and nonperforming assets 271%.

Provision expense was $122 million compared with $129 million in the second quarter. We made no changes to our macroeconomic scenario weightings during the quarter. Our baseline and downside cases assume unemployment reaching 4.7% and 8.3%, respectively, in 2027. The credit results are consistent with the disciplined and diversified portfolio construction Tim described. We are focused on limiting exposures most sensitive to higher rates and continue to grow in categories where we have long underwriting histories, and structural protections. Our exposure to nondepository financial institutions was 8% of total loans at quarter end, concentrated in subscription and capital call facilities corporate facilities to traditional financial institutions and secured lending to mortgage-related entities with private credit exposures representing less than 1% of total loans.

Moving to capital. CET1 ended the quarter at 10%, up 9 basis points as earnings more than offset risk-weighted asset growth of 1% and the impact of $211 million of after-tax charges related to the integration and other items. That places us within our 10% to 10.5% operating range. The increase in longer-term interest rates impacted AOCI by $1.6 billion during the quarter. Given the bullet locked-out structure in the investment portfolio, which represents approximately 57% of fixed rate securities and available for sale, we have a high degree of certainty into the timing of the AOCI accretion back into capital given the scheduled nature of the principal cash flows. Using the forward curve at the start of October, we project AOCI accretion to generate 27 basis points of marked CET1 and 4% growth in tangible book value per share by year-end 2027 before considering any future earnings contributions to capital. We estimate our fully phased-in Basel III capital ratio to 9.2%.

Given the speed and magnitude of rate increases during the quarter, we deferred restarting our share repurchase program, which delayed a small repurchase planned for September. Future share repurchase activity will be based on capital needed to support organic loan growth and overall industry capital levels. In September, we raised the quarterly common dividend 5% to $0.42 per share. Our capital return priorities are unchanged. They had a strong dividend, support organic growth to deliver the best long-term returns for our shareholders and then share repurchases.

Moving to our outlook. Tim highlighted, we grew across the combined footprint and delivered returns ahead of the targets we set for 2027 in the third quarter. Those trends should continue in the fourth. We expect average loan growth of 1% to 2% sequentially, led by continued commercial loan growth, primarily in C&I and CRE, we expect net interest income to be up 2.5% to 3.5% sequentially driven by higher yields on floating rate loans, a full quarter impact of the securities deployment and continued fixed rate asset repricing, partially offset by higher deposit costs. This outlook reflects the forward curve at the start of October, which assumes a 25 basis point rate hike in December. With the current rate outlook, we see fourth quarter net interest margin at or above the 3.40% level.

Adjusted noninterest income is expected to be up 2% to 4%, reflecting seasonally strong capital markets activity and continued growth in wealth and commercial payments. We expect the remaining synergy realization to take adjusted noninterest expense down 2% to 3%, partially offset by compensation associated with seasonal fee strength and occupancy expense growth associated with [indiscernible] order branch openings. In total, our guide implies adjusted PPNR to grow 9% to 10% from the third quarter. It also places net interest income and the implied PPNR for the full year to be at the high end of the range we provided back in January for the combined company.

The fourth quarter is typically our best quarter for ROTCE and the efficiency ratio. Even after adjusting for normal seasonal strength, our guide delivers the 2026 exit rate profitability at or better than the 19% ROTCE and 53% efficiency ratio we set at the deal announcement and on the time line we committed to in January. As is our custom, we will provide our full 2027 outlook in January on the fourth quarter earnings call. For credit, we expect net charge-offs of 30 to 35 basis points in the fourth quarter. On capital, we expect CET1 to remain within our 10% to 10.5% operating range, and we expect to repurchase $200 million to $300 million of stock in the fourth quarter, depending on the strength of our organic loan growth. The third quarter showed the profitability of the combined company with the synergies not yet fully realized. The fourth quarter brings the rest of the synergies into a business that is already growing. We exit 2026 as one bank, with the value of the Comerica accommodation no longer a projection, but a run rate and with the organic growth momentum that carries it from here.

With that, let me turn the call over to Matt to open it up for Q&A.

Thanks, Bryan. Before we start Q&A, given the time we have this morning, we ask that you limit yourself to one question and one follow-up and then return to the queue if you have additional questions.

Operator, please open the call for Q&A.

[Operator Instructions] Your first question comes from the line of Ryan Nash with Goldman Sachs.

Maybe just to kick off where Bryan had left off regarding the 2027 expectations of 53% efficiency in 19% ROTCE. Obviously, a lot of things have moved around. I know that we'll get an update in January. But maybe just broad strokes on how you're thinking about some of the key drivers? What's really changed since the initial guide came out? And also just how you think about reinvestment in the business versus letting maybe some of the upside hit the bottom line?

Yes. I mean, I think the adage in my household, Ryan, is good things come to those who wait. So we're asking to talk about 2027 guidance today. But Bryan -- I'll walk through a few of the moving parts in the script, and I'm going to let him talk a little bit about just the framework we're using to think through as we see revenue growth based on sources and otherwise, what it means for efficiency and reinvestment.

Yes. Thanks, Tim. The main thing I would tell you that has changed since the deal model is just the rate environment. Obviously, we've had carried an asset-sensitive balance sheet that's benefiting quite a bit from the changing rate outlook. No one was anticipating 100-plus basis points of hikes over the 24-month horizon post the deal when we closed the deal. So certainly, that has been a big difference that's created a lot of earnings power for us as a company, which we're feel very good about from a positioning perspective.

We've been able to deliver on the $850 million synergy target. We've actually outperformed that a bit from a gross perspective. That number is really low 900s from a gross perspective, but we've used some reinvest back in the business, whether it's marketing expense to grow households or even just continuing to accelerate sales force hiring in the newly expanded markets. Those are the main areas that we're looking at from a reinvestment perspective.

From a longer-term perspective, 53% efficiency is where we want to run the company. We think that is a good prudent place and it's going to allow us to deliver those 19% ROTCE that we've been talking about. But we also recognize that we do want to continue to invest in growth, and we're going to do that in a very, very prudent way. But when you see the kind of rate environment changes we've seen, there's never -- we're not going to have the ability to invest as quickly as you may like with those changing rate environment changes. So there is an opportunity for us to outperform that 53% in the near term.

Got you. And then -- Tim...

No, I just was saying agreed on everything Bryan said.

Got you. You guys had really successful deposit growth this quarter. Maybe just unpack some of the growth, how much is due to the campaigns you've been running across the Southwest markets. And now that the conversion is behind you, how do you think this changes the curve in terms of deposit gathering?

Yes. Good one. It's fun right now to spend time thinking about the deposit franchise. The old adage here at Fifth Third was loans are for show, deposits are for no, right? We went through a period where both in terms of the date of the curve and absolute levels of interest rates. Loans were show [indiscernible]. But we're back to a place where I think the ability to grow high-quality, low-cost deposits is going to be like the determinant of your ability to generate really strong returns in an environment where if the economy continues to clip along at 6%, 7% nominal GDP, we should have pretty good loan growth across the board.

The composition of deposits at Fifth Third, it's so radically different today than what it was previously. Like if you look at the breakdown now, deposit balances are like 50% Midwest, 25% coming from the high-growth Southeast and Southwest markets and then 25% national, whether that's corporate banking or deposits we're able to source via our fintech platforms provide and otherwise. As Bryan referenced in his remarks, about 45% of the deposit growth in the quarter was the decision we made to move Comerica sweep deposits back on balance sheet. I do expect that some of those deposits may go back into other forms of liquidity now that we're through the conversion and things are stable. But we also had some more modern hybrid account structures that I think will be appealing to some of those clients.

The unique thing now is going to be where the growth comes from going forward, right? I think we had seen in the last couple of quarters, folks have varying degrees of success in driving deposit growth. And our view is if you're going to get low-cost deposits, it has to come from some structural investment that accumulates over time. And whether that is the continued power of the build-out of the Southeast, which we've talked about is in excess of a $10 billion incremental opportunity or the $10 billion opportunity we think exists in Texas to anything. I think we're probably more [indiscernible] on given the early success that we've had here or the success that we continue to have driving operating accounts in small business and from commercial payments. And then now the innovation banking platform, which is at a minimum a $10 billion opportunity in the next handful of years. Those are going to be the places that we go to find the incremental growth.

Your next question comes from the line of [ Scott Seifers ] with TD Cowen Securities.

So I guess now that the cost savings look increasingly like the locks as the market's focus sort of begins to shift more visibly to the revenue side. You've had, I guess, the benefit of even more time since the closing and conversion. Maybe if you could speak sort of broadly about how you're feeling about the revenue synergies you guys articulated in the past. And as you sort of think about timing and magnitude, which of these at this point, feel like sort of the easiest pickings, which could take more time to marinate or require more investment, et cetera?

Yes. Bryan and I think we're commenting this morning, Scott, that one of the fun things about this acquisition is pretty much everywhere where we thought there was opportunity we're finding opportunities. So what I think we have said from the outset was the revenue synergies that we could get at with structural levers. We're going to be the ones that would materialize the fastest. The stuff that involved either teaching people, new products and services or building new connectivity inside the company would be the sort of the remediate and then the stuff that required at the investment in physical plant, like the branches would be what took us the longest. That's more or less how it's playing out.

Like obviously, the success we had with the deposit campaigns in the second quarter and carrying over to the beginning of the third quarter. It is evidence of the ability for us to deploy the tactics that we've utilized to drive consumer deposit growth. through Comerica's Southwestern markets. And I only anticipate that will get better as we get now checking account and marketing online with the technology conversion behind us. So quite excited about our ability to even grow faster than the 8% household growth that we generated in the Southeast in the third quarter -- I'm sorry, Southeast and the Southwest in the third quarter.

A second structural level was just balance sheet capacity, as we talked about for commercial lending. So when we announced the acquisition, the big question we got was would we be able to maintain Fifth Third's prior pace of growth? I think C&I growth last year annualized out something on the order -- in the third quarter last year, like 4%, 4.5% for Fifth Third, it was 4.7% in the third quarter this year. So I asked an answer in terms of our ability to get Comerica's specialty verticals and markets running at the pace of growth that Fifth Third legacy was doing. And I think there should be more upside from there as we add bankers. We actually have more bankers in Texas today than we did in February 1 when the deal closed just as an example. And that's just now -- we're just now scratching the surface on our ability to utilize the ABL products, the leasing products. Some of the other things, Fifth Third had in the specialty lending categories through Comerica's markets.

Lastly, then, I think Wealth, really nice early progress there. We expected Wealth to materialize a little more slowly because we have to repay for all of those clients. And typically, you've got to get through a conversion before you can do a lot of deepening. But we have already seen about $100 million in new AUM added from Comerica private banking clients and $100 million in mandates for our institutional business from commercial clients, removing retirement plans and pensions over onto these new platform. So very excited about the energy that now that we're through conversion and that we can focus on new business and not just taking care of existing client relationships about what we're going to be able to do.

Perfect. And then Bryan, I appreciate the fourth quarter repurchase commentary. And I know how you think about capital management sort of thematically from your remarks. But as I think about things, there's just going to be so much capital creation over -- especially the coming year, even if you -- or as you reinvest, there should still be a lot of excess developed over time. Any thoughts to maybe help kind of narrow the cone of potential magnitude as we look out a few quarters?

Thanks, Scott. I think you're right. The profitability of the company is driving a lot of capital creation every quarter. I mean, rough math, it's north of $1 billion a quarter, just from earnings contribution to the company, about 45 basis points on average. Think about 1/3 of that goes into the dividend. So that's still 30 basis points of capital every quarter then to support growth or for share repurchases.

And you think a normal growth rate, we talk a lot about high single-digit normal GDP plus 1 point or 2 from a growth perspective. That's only $250 million, $400 million, $500 million capital from a retention perspective, which leaves $300 million to $500 million a quarter available for share repurchases if we were wanting to execute that. So there is a lot of optionality on that. And even with the higher rates, yes, the higher rates has an impact on AOCI, but it also helps us generate more income and more profitability over that same horizon. So we've got a lot of capital flexibility from here as we continue to navigate this environment.

Your next question comes from the line of Manan Gosalia from Morgan Stanley.

Tim, a lot of conversation and debate through the quarter on the potential risk to deposit from AI-driven cash optimization tools. I was wondering if you can give your perspective on what that could mean for the banking industry and how Fifth Third might choose to respond over time?

Yes, sure. Let me maybe make a broad comment, and just -- I'll give you some data on what we see because I think there's more sorting that goes on in the banking sector today than people maybe broadly -- I appreciate. My own view on this one is that this is the right question to ask. Like every time you have a new technology platform that either reduces friction or increases transparency. You should be asking the question about what that means for margins.

I just think that you're asking about the wrong companies. Like what history has shown us over and over again is that the groups that are most exposed to this sort of change are the ones that have nothing but pricing defining their value propositions, which again, I think in our world, in the case of deposits would mean the online-only banks who have to lead with rate or who don't have any distribution and therefore, have to buy liquidity through aggregators or the wealth platforms that are pricing sweep deposits at inferior yields to market rates where there are equivalents and not the folks who have either distribution or product advantages or relationship advantages, as I certainly believe that we do because those are the things that justify incremental margins. It's just -- it's the sweep deposits of the world, the online-only deposits are going to go from being low-margin products to even lower margin products.

And I think for the rest of us, there's enough interplay here, whether it's proprietary distribution, like we have been building across the Southeast and the Southwest through the direct marketing capabilities we have. And then the unique value that's embedded in the products themselves or in broader relationship pricing on both the consumer and the commercial side of the equation. So our estimate is that something on the order of $2.5 billion of deposits on our platform are sorted every month, okay, meaning they either move from a paycheck that comes into a deposit account or out of the equities markets into cash or come off of promotional pricing or in an [ MMDA ] or move out of a CD product and then move somewhere else, okay? In our case, we have been successful in retaining about 80% of those deposits. 90% of that tends to go back into a deposit. About 10% of it hits a liquidity portal either on the consumer or the commercial side of the equation or goes into an investment account.

So the mechanisms that need to be in place to ensure that money that's there for investment and at rest versus money that is in motion, like basically money that's on a layover in a checking account because it came in through a paycheck and then it's going to move out in the next 2 to 4 weeks in the form of some sort of expenses. That settles in the accounts where it should settle. The advantage banks like us who have these branch networks and the checking led proposition on the consumer side of the equation, and then a heavily operational commercial deposit base led by all the stuff that we do in commercial payments is that the money is operational. It needs to be here. The median checking account at Fifth Third is like $3,100, right? So there's just not a lot of value there.

I think the last point, I just want to make sure that I make is like every time you have a new platform like this, the battle for a market comes down to weather incumbents get the innovation faster than the insurgents get distribution. I think that's an old and recent hors line. It's definitely the mine. But we're going to take every valuable service that you can get done on use, whether that's looking at subscriptions and finding opportunities to generate savings or budgeting or otherwise. And we're all going to build them into our apps and the benefit you'll get then is investment-grade or bank-grade information security as a perimeter. And no blending between the information that exists in your financial graph with the information that exists in your social graph, which today is monetized by basically selling you to third parties for ad purposes and otherwise. And I just think the incumbents have a lot of leverage here provided that we respond.

That's great color. I really appreciate your response. Bryan, maybe to switch over to the other side. I think you noted that loan pipelines are at record levels right now. Are you seeing any impact from higher rates at all? Is that part of the conversation? Are there any projects that clients are pulling back on in the high rate environment? Or on the flip side, are you reducing your appetite to lend in any specific industries or for any projects?

Yes. I mean clients are still very, very productive in their conversations right now. Certainly, as people talk about high rates, it influences how they think about the world. But I think in general, the feedback that we're hearing overwhelmingly is that it is still a growing economy. And high rates are not a meaningful driver of decision-making from here. It's like they need investment because they're worried about continued inflation and input costs and things where they know they need to make this investment. They want to go ahead and get it done.

Another 50 to 100 basis points on rates do not impact their view. They do worry about demand from here if there were a broader slowdown because of rates. But in general, most of our clients are saying that they are going to continue to move forward with investment. The things that we are focused on right now, clearly, consumer discretionary is a category that we're paying a lot of attention to between the combination of the rate environment and continued inflation. And anything that we think is interest rate sensitive. We are paying particular attention to. We've continued to be very disciplined on leverage lending, our leverage portfolio continues to be a very small portion of our balance sheet at about 2%. That's not an area that we've been looking to grow. And we just think that there's areas where the unproven asset classes, we're continuing to be very cautious around.

So in general, most of the core middle market banking that we've been doing and the industry specialties where we have real expertise, we're seeing a lot of opportunity in, and that's the spot where we're going to continue to lean into.

Your next question comes from the line of Ebrahim Poonawala with Bank of America.

So maybe first question, Bryan, just wanted to circle back. I think you mentioned the efficiency ratio long term, still 53%, seems like number you like with the balance between investments and efficiency is kind of what management is targeting could be lower in the near term. But one, I just wanted to make sure I heard that right. But maybe bigger picture, just about areas of investment spend. And when we think about AI, you're adding scale and density should we expect the bank to be incrementally more efficiently than you look at it unit cost economics or medium-term efficiency ratio, would that be headed towards the 50%? Or is that just unreasonable given the investment spend that you have ahead?

Yes. I think certainly, there is going to be opportunity to leverage AI to get the company more efficient over time. That is something that I think is a little bit longer term out. And obviously, that is the big question is we're sitting here talking about news and the impact on deposit cost. If AI is so effective that it actually gives you the ability from a cost-effective perspective to optimize low balance deposit accounts, it's going to create a lot of opportunity for us to get efficiency in how we operate as a company.

So those are all the trade-offs we're thinking about from a longer-term perspective and as cost structures change and those opportunities come manage on it, but it does take near-term investment to get there, near-term investment and fuel capacity and infrastructure associated with deployment of AI. I would tell you that from a near-term perspective, when we talk about investing, it is a continuation of the strategies that you have heard us talk about for a long time. It's investment in retail distribution and marketing to grow households, it's investment in middle market bankers and product partners and capital markets and treasury management and wealth and its investment in product and product from a consumer banking perspective, continuing to advance our Momentum Banking consumer product as well as continuing to invest in our payments business. That's such an incredible portion driver of future growth for us, both from the deposit and operational deposit perspective as well as fees.

And so -- those are the near-term places that we're looking at that keep us in that kind of 53% range. But certainly, as technology and other structural investments change, it does give us an opportunity to continue to evolve our expense base.

Yes. If I can just put a point on a couple of things there. You touched on it and admittedly, I haven't done this analysis in a while. But historically, average deposits per branch were basically the 1 metric that positively correlated with the efficiency ratio. I agree it was never scale, again, controlling at least to some extent for some of the audits that are out there in terms of business mix.

So as we get more dense, you should expect the existing business to continue to improve its efficiency. The question is just always where you get the leverage on the marginal dollar. Like are we better off where we're positioned at this level of profitability, trying to grind out a little bit more in the way of return are we better offering the compound tangible book value per share. And we have done that now recently, and we just are of the belief that sustaining peer-leading returns and driving up TVB per share growth is a more powerful lever for long-term investors than trying to go from peer-leading returns to even more peer-leading position.

Got it. And maybe just sticking with sort of density deposits per branch. So Comerica seems to have gone relatively smoothly. You have a playbook on bank M&A. Like as we think about the next 6, 12 months, like how do you think about potential opportunities that could accelerate some of what you plan to achieve through de novo branch openings via an acquisition?

Yes. I thought we might get that one. So I spent some time steering at the data that comes out of my or ring this morning. And it says I'm still operating with a moderately high sleep deficit.

So I think from Fifth Third's perspective, we got to get back into balance on sleep deficit and otherwise, before we would look at anything else. We have a lot of opportunity in front of us organically. I think the playbook has worked well, but part of the reason that the playbooks worked well is because we had discipline in terms of what we elected to do. And then we committed ourselves to getting it done entirely before we got distracted with the next thing. And that ethos is just an ethos here, whether it's organic investment or inorganic investment.

That accuracy of the ordering is suspect you might be sleeping better than you think.

Well, I still want to see a crown before I get too excited about anything.

Your next question comes from the line of Gerard Cassidy with RBC Capital Markets.

Tim, question for you both. On the investment portfolio, you folks have about 70% in available for sale and 30% in held to maturity. And when we think about Basel III end game, when it's finalized, we all know about the AOCI being included in CET1. Can you guys give us some thoughts on how you might change that mix over the next couple of years to manage the AOCI volatility?

Yes. Gerard, thanks. Great question. There is no doubt as the capital rules are finalized, we will be using more HTM as part of our investment portfolio. The thing that we have been cautious around is, has honestly been waiting for the final liquidity rules because we wanted to make sure that we weren't making this decision without understanding if there were going to be some limits on the amount of HTM securities that [indiscernible] liquidity.

But I think it's fair to say that as long as there's nothing meaningfully unexpected in those rules that we're probably going to be operating at a closer to 50-50 split between AFS and HTM going forward. So we do think as we continue to invest cash flows over the next couple of years, you're going to see that mix continue to head into the HTM direction. And what -- from a broader balance sheet perspective than what will happen is the AFS portfolio will manage with a slightly lower duration than the HTM portfolio. And that in general, our balance sheet has needed a security portfolio with a 4- to 5-year duration. And so we'll try to blend that with a little bit longer duration stuff in HTM to help manage that capital volatility risk.

Very good. Tim, I might regret asking this question, first, for somebody like me. Credit quality for you folks and your peers is very good. It's been very resilient, maybe surprisingly so for all of us to see. And here's maybe the regrettable question. Has the credit picture for the industry and you guys specifically changed in the sense that either your better underwriters or more conservative underwriters. We know what's happened post financial crisis with the derisking of the industry? Or is it just the economic environment is much better than we all thought and don't get over your skis to think that the banking industry is smarter now on credit?

I think that's the first time I've ever gotten the question where the asker expressed regret twice. We got to the end of it. Listen, I think there are a few things that are going on here. There's no question that coming out of the financial crisis, there was a huge investment made inside the banking sector. to get smarter on credit. And in particular, I think to get smarter on early warning signals. Certainly, that's the case here Fifth Third. There's an apparatus around early warning that supports the continuous monitoring that we do in commercial. There's a lot more behavioral data utilized in the underwriting process in consumer and then in small business and otherwise, which has proven to be very useful as a complement to conventional scored underwriting.

So I think we've gotten better. Clearly, the -- some of the risk has migrated out of the banking system just given the growth in the NBFI world. Now that obviously has come back in through back leverage and otherwise. But with enhancement that didn't exist previously. So I do think that the higher leverage points, the more rate-sensitive borrowers and otherwise are more prominently supported by nonbanks today than certainly they were in the past. So those things are good. That said, like I mean you know this better than I do. The history is that big credit cycles are not driven by that sort of normal economic cycle in mature industries. They're driven by relatively not well understood, high-growth asset classes or new channels that turn out to drive negative select or otherwise.

So while I think we're better at the stuff we've always known, as you know, we tend to be a little bit more reticent to dip our toe into areas of the credit markets that are not proven or where it's hard for us to see that they're being accurately priced. Like that is the reason that we have essentially set out the data center construction lending to the data center sponsors. It is the reason that I think we have the lowest exposure combined with our combined balance sheet to private credit relative to the others. It may well be that we were wrong there to be worried about credit and right to be worried about just being priced appropriately. But in my mind, those are 2 sides at the same point. So yes, I think we're better and new risks will continue to materialize as long as human beings are continuing to find new ways to take risk.

Your next question comes from the line of Chris McGratty with KBW.

Tim, in the past, you've talked about the Midwest being one of the more competitive markets, whereas I think some of your peers have talked about the Southeast. You gave an interesting stat in your prepared remarks. I think it was -- the Southeast was, I think, a little over 200 basis points, the pricing was a little bit below the Fed funds. Do you have those same stats by market? Like I guess what I'm after is deposit -- incremental deposit costs by your 3 big markets.

Yes. Chris, it's Bryan. What I would tell you on that front is, you have to be careful when you look at those numbers because the seasoning of the book matters as well. And so what you're going to see is that the Midwest market is our highest margin market because it has the oldest book. And part of that is the legacy checking accounts, in particular, are just higher balance on average. The Southeast has a higher percentage of promotional offers then as a percentage of the deposit book. And even with that, you still have 200 basis points of spread relative to the Fed funds rate and then the Southwest book will have the absolute highest rate of promotional offers as a percentage of their book. So it will have the lowest margins right now relative to Fed funds.

In general, I don't have the exact numbers in front of me for the Midwest and the Southeast. But I would expect that the Midwest at this point is probably about 50 basis points better than the Southeast. And the Southwest is going to be probably 50 to 100 basis points worse. But it is just a function of the percentage of promo offers as a percent of the aggregate deposit base.

Yes. And then the measure of competition in my mind is not sort of what is the price on the seasoned portfolio. It's what is it cost to grow the marginal deposit in each of those markets. So when we talk about the Midwest being more competitive, it's at the margin, if you wanted to grow another dollar of deposits, it is tougher to do it. Just when you look at the promotional offers that are in the market in the Midwest than it is in the Southeast today. I think the other dynamic that's worth mentioning is the more consolidated market structures tend to be less competitive in terms of the bleeding edge offer, the less consolidated market structures.

And the Southeast and the Southwest have both historically been more consolidated market structures than you see in the Midwest, which is part of the other reason that we're, I think, quite optimistic about our ability to continue to gain share in both of those places. And that frankly, that the tactics that have worked so well over the past several years in the Southeast are portable to the Southwest in just one simple statistic, 4 out of the 5 largest banks by market share in Dallas, as an example, do not offer a totally free checking product, right? And that is, I think, 4 out of 5 the 5 largest bank by market share in literally every Midwest market would have a totally free checking product.

Okay. That's interesting. And then maybe a comment or an update on Direct Express post conversion?

Yes. Thank you. Good progress there. As you'll remember, we launched our new platform in -- at the beginning of the second quarter. Every one of the participating agencies inside the federal government is issuing cards on that platform, and we got through the period of hyper care that we always run when we launch a new product, and we're very pleased with the outcomes. You can see it just in the -- whether it's the digital channel usage or Direct Express customers, taking advantage of some of the functionality that's built into the mobile app to support things like paying rent. And otherwise, we also have made some changes to policies, whether it was ATM or in the branches to enable Direct Express customers to do things more easily than they were able to do at Comerica and then that is a huge benefit associated with having a broader branch network in terms of the way that we service those folks.

We anticipate initiating the full conversion of the legacy program this winter moving into next spring. So there's lots of work underway to ensure that, that is a seamless transition. This is just by definition, a population that tends to need a little bit more handholding and therefore, we have been very concerned about executing the conversion in a way that produces the least disruption for our clients. But the fit goal inside the U.S. Treasury has been a wonderful partner here. We're very excited about the platform that Fifth Third and [indiscernible] offer to be able to turn this program really from a funds disbursement model for the federal government into a tool for financial health for the population that it serves. So business continues to plug away. We continue to see it as a nice growth engine for the company.

Your next question comes from the line of Mike Mayo with Wells Fargo Securities.

My general question is simply for more granularity on what's taking place in Texas. You said you've added bankers, but deposit costs are 50 to 100 basis points more. So it seems like some cross currents there. So my long shock question is, it seems like your return on assets, firm-wide it's 1.4%. It's probably a lot less of the Southwest. What is it in the Southwest or Texas what sort of gap is there? And I'm not expecting an answer, but I thought I'd try since you're a line of business company. So an easier question, if you can't answer that, what time frame were you referring to? So Southwest deposits are up 23%. Households are up 8%. Dallas Houston, Austin deposits are up over 20%. Is that year-over-year? And if you can just give some of those types of metrics for loans, businesses and anything else?

Yes, sure. Let me start on that, Mike, and I'll try to answer both of your questions, and then we'll transition. So the ROAs in the business are best in markets where we have a really strong middle market commercial banking franchise that is potentially self-funded or even a liquidity -- net liquidity provider back to the bank with low-cost sort of checking anchored consumer deposits. So we have a very nice middle market business in Texas through the combination of the sort of legacy Comerica, which was a very strong sort of top 5 market position in core middle market in its Texas markets and then the expansion market that Fifth Third has built there.

What we don't have yet is the retail deposit funding base that we will have as we build out the branch network. So the branches in Texas, with the average branch deposits for consumer small business are, I think, a little bit less than half what we would have in our Midwest markets just as a point of comparison and about in line with what we have in the Southeast despite all the branches in Texas being seasoned already and very few of the branches in the Southeast as a percentage of the total being seasoned and still seasoning on their own. So we expect the ROAs in Texas to go up from here, not to go down as we're doing the construction and as we continue to add talent in the market.

So as it pertains to the statistics that I provided on retail small business, it's year-over-year pro forma. So we added Fifth Third and Comerica together, which in retail in Texas was Comerica something Fifth Third, nothing a year ago and then the combined company today. And then we capped the individual branches at $250 million to get the headquarter and wholesale deposits out and the 20% -- the greater than 20% growth rates across the 4 MSAs that you mentioned are year-over-year. They would also be greater than 20%, if you cap the branches at $500 million. So there's no game playing there. It's just you have to draw the line somewhere. So we did. The 8% household growth is year-over-year households.

So it's Comerica households a year ago. It's Comerica plus the new households we've been able to generate across the Southwest this year. And I anticipate that the growth rate there should be double digits because that is what we have demonstrated repeatedly we're able to do in markets where we're adding to the branch footprint where we're adding direct marketing support we got 8% with no checking marketing across the Southwest in terms of where we're going.

No, I think the one other stat that you didn't reference but that I will give you is we've added, I think, something on the order of 80 or 85 middle-market relationships in Texas this year from Feb 1 forward. That's a pretty good clip for us down there, and it is a faster clip. It's about 2x the pace per middle market banker that Comerica was adding them the in the last few years. So you can see the acceleration there from both the impact of the combined teams and the additional balance sheet capacity and the new solutions that we're bringing to the market.

And that 80 to 85 middle market is off to what sort of base is that kind of small? Or is that meaningful?

It's meaningful growth. I don't have the total number off the top of my head here, but we'll be happy to share that.

And then just when you say they're 2x faster per banker in that footprint. I mean how does that happen? I mean because you have more balance sheet because you told them to work harder because you have more accountability. I mean it's hard to just flip the switch and make that happen. So what are you doing differently that's helping them?

Yes. I mean what you hear when you talk to the bankers is they have more attachment points. So when you are in the markets and you talk to Comerica like very seasoned Comerica bankers as we were actually across the Southwest over the course of the last couple of months. The anchor products Comerica had to lead with where C&I lending or maybe a personal loan through the private bank to the owner of the business historically. The average that C&I loan tenure at most banks is like 18 or 19 years, just when you look at the average length of the relationships, you have to wait a long time if that's the only attachment point you have.

Whereas at Fifth Third, as we have talked about in the past, C&I remains the primary attachment point in the middle market. But our folks lead with lease lines through the equipment leasing platform, they lead with hedges like commodity hedges or currencies through our capital markets platform. And then they have the commercial payments business which as I think we have shared repeatedly adds almost one new relationship that's payment led for every relationship that it adds that's attached to a new C&I facility on an annual basis. So what you hear from the bankers is they just have more arrows in the quiver. And if they can't move the working capital line, that there's a lot of other things that they can do to initiate new relationships with clients. So that's part of it.

I think the other big part of it, as we've talked about it in the past, is Comerica was going out of its way to ensure that the liquidity and the capital that we're available to support lending principally supported the growth of existing relationships, which is absolutely the right thing to do, if that's a constraint. In our pace, we have a larger balance sheet that we, as evidenced by the sequential growth during the quarter even when you strip out the incremental deposits that came from moving Comerica suite product on balance sheet. We have ample liquidity to support more lending activity. And therefore, it's allowed them to be more front-footed in terms of what they can add to grow.

Your next question comes from the line of Erika Najarian with UBS.

Just wanted to clarify, Bryan, your response to Ryan's question like an hour ago, did you say when the rate environment changed a lot since the deal. So you don't have the ability to invest this quickly. Did you say it gives you a better chance to outperform the 53% efficiency or it's tougher to outperform to 53%? I just wanted to make sure I read on that right.

Yes, yes, it gives you a better chance to outperform because the idea is that with the asset sensitivity, it generates profitability at a clip when rate changes happen at a pace faster than we typically plan and deploy investments. You think about the sales hiring and the branch builds, like those are multiyear strategies that we're executing. So from a near-term perspective, it's going to give us an opportunity to outperform the deal targets.

Got it. Glad I clarified that. And just to follow up, obviously, especially after Comerica, your balance sheet is more short rate sensitive, but there's also movements in the portfolio. You talked about taking down flu you also brought on a bunch of off-balance sheet deposits that may come back off. As we think about the forward curve and you think about maybe the 10-year not going hopefully not testing 53 anymore. How should we think about the net interest margin trajectory from that plus exit rate in 4Q, assuming the forward curve?

Yes. I mean it's a -- obviously, we're positioned to be benefiting from continued rate increases, but there's a lot of big questions further out just in terms of what the loan environment and the deposit environment looks like in '27. We'll give you more clarity on that at the beginning of next year when we give full guidance.

But statically, it sounds like it should be a net positive, assuming no changes in mix and modest growth?

Yes. I mean, all else being equal, the rate environment is beneficial. We've obviously continued to generate fixed rate asset repricing. The opportunity on that $4 billion to $5 billion a quarter of repricing that occurs has actually gotten better again, closer to 100 basis points. We are sensitive to the front end. So the higher rate outlook is beneficial to us. The wildcard on all these things is just where is deposit competition over time, but certainly a very productive environment with what we're seeing right now.

Our next question is from the line of Ben Gerlinger who has disconnected. Please hold.

We will now take the question. Our next question from John Pancari with Evercore.

I'll try to be quick. Just on the -- related to the last question, maybe just another way to go at it with the deposit side. I mean, can you just help us with the trajectory of your expected trend in deposit costs here into fourth quarter and into 2027. And what beta are you assuming in the uprate environment could that differ on the downgrade data or previous up rate betas that you're seeing now that you've got the compare balance sheet on board?

Yes. The beta assumption right now from a near-term perspective is a mid-50s beta for just a hike to. Certainly, that if you were to see more persistent hikes, that could start to drift up a little bit. And you see this in -- as Tim was referencing earlier, the overall deposit cost, new money costs in the consumer business. That used to be a Fed funds plus from a promo perspective, that as of the last couple of quarters, shifted up closer to Fed funds plus 50. Now part of that is just the outlook from a rate expectation perspective.

And when we talk about the relative competitiveness of the market, it's that Fed fund plus 50 number that we're focused on when we say the Midwest is more competitive. But you're typically in a plus or minus 10 or 15 basis point range across markets on that new market, new money pricing. If we were to see a lower expectation of hikes we're only to get 1 or 2 more. I think you're going to see that start to rationalize again because certainly, people are acting in front of rates.

With that, if new money continues to come on, on that rate, I think you would see a continued deposit cost migration that looks similar to our migration that you saw from 2Q to 3Q, excluding the impact of the off-balance sheet sweeps that we brought on balance sheet because we do intend to continue to keep growing deposits, but we'll also be able to do some things to some of the prior vintages of promos to offset some of that cost. It's that same strategy that we've used continuously on reinvesting interest expense, recycling it in different areas will allow us to continue to grow. Even with where we price things down, we're still keeping in the range of 80% of balances somehow within the framework of our company, either between deposit book or in some of our off-balance sheet investment products. So we do retain a fair amount of dollars even after we reprice those balances down.

Got it. Okay. And then lastly, on the credit side, I know you said that certain areas that you're watching more closely consumer discretionary average lending. Are there any areas that you are seeing stress start to evolve? We got a couple of the banks this quarter [indiscernible] have a couple of bumps. And so are you seeing anything on that front? And then the ACL ratio declined a bit this quarter, a couple of bps. How should we think about the reserve level?

Yes. Not really. In terms of any areas. As you mentioned that -- the areas of the economy where there've been transitioned, consumer discretionary is one. And you just -- you see the value position brands and the luxury brands doing better than the sort of the middle market brands in consumer discretionary at the moment in terms of what's going on. We were watching commodity price exposed categories really closely. But the margin compression this last quarter was like 1.4% in terms of their operating margins in our portfolios as we got new financials in.

So they've done a very nice job of positioning themselves either to be less sensitive to the movement in commodities prices or to be able to push price along to their own customers, rate-sensitive borrowers and particularly the ones that are reaching or refinance wall or all these places that we look that tends to be real estate and leverage lending. There's just not a lot in our leveraged loan book, so there's not a lot to watch in that particular case, although we always watch it closely.

And then on the real estate front, I mean, you could see it in our performance this quarter and you get the stratification there. I think we feel pretty good about what's going on that front. But those are going to continue to be the areas that we watch like is there a factor that could drive a shift in demand. Is there volatility in input costs, or do you have a scenario where debt service costs become challenging for clients. Those are the things that anticipate credit stress in the portfolio. There's just not a lot of that going on, really anywhere in the industry as you referenced.

There are no further questions at this time. I will now turn the call back to Matt Curoe for closing remarks.

Thank you, Alexandra, and thanks, everyone, for your interest in Fifth Third. Please contact the Investor Relations department if you have any follow-up questions. Alexandra, you may now disconnect the call.

This concludes today's call. Thank you for attending. You may now disconnect.

7:30 on the dot. So we'll keep this conference this traditional staying on schedule. Good morning. I'm Jason Goldberg. I cover the U.S. large cap banks at Barclays. Thank you for attending our 24th Annual Global Financial Services Conference.

As a reminder, to my left in the middle of the room are our marketing decks and posters. So please grab them on your way out. We have a very jam-packed morning. I think we're in this room for 7 presentations through lunch, and then we got more in the afternoon. But very pleased to have kicking off today's festivities is Fifth Third Bancorp from the company, Bryan Preston, Chief Financial Officer; and Jamie Leonard, Chief Operating Officer. Morning, guys.

Morning.

Well, I know you just had a really busy week over the Labor Day weekend converting Comerica. I just thought I'd start with guidance and get that out of the way.

I know last night, you posted a slide deck kind of reiterating the guidance you gave on the third quarter. But within that, there were some regions. So maybe just with the conversion now complete, maybe just talk to how the quarter is progressing relative to plan and maybe what's coming a little bit worse, a little bit better than expected?

Yes. Thanks, Jason. Quarter is coming together nicely. We're quite pleased with the progress we're seeing out of the company right now. The slide, if you look at it, it's the same guidance that we provided back at earnings, but we're actually coming in now at the upper end of our NII guide, the upper end of our fee guide and the lower end of our expense guide and right in the middle from a charge-off perspective. So we feel really good about what we're seeing from the performance of the company perspective. Loans are coming in as expected, and we've seen quite a strong quarter from a deposit growth perspective as well.

So the trajectory of the business and the expectations that we're expecting to get out of Comerica, both from a revenue growth and an expense synergy perspective are coming in right as expected. So we're set up quite well for the fourth quarter, delivering on the deal model in terms of 19%-plus ROTCE being in a position to deliver a run rate 53% efficiency ratio, as we head into 2027. So the trajectory is in really good shape.

Sounds good. We're going to unpack that as we go through the session. But maybe just take a step back and just give us your outlook kind of for the national and local economies, Fifth Third serves. And just what are your commercial customers telling you about their willingness to expand and borrow? And what are you seeing in line utilization?

Yes. Line utilization has actually been steady this quarter. We've not seen really much volatility there. From an activity perspective, gross pipelines are very, very strong right now. I would tell you the rate environment and some of the recent volatility is certainly causing some customers to pause a little bit. But for the most part, we're seeing activity continue to come through. It's in line with what we've said from a loan growth perspective. I think a lot of customers, the feedback they'll tell you is that they just can't wait any longer. Yes, they would like to have a little bit more productive interest rate environment, but the reality is it's time to go. They have to do some investment.

I think on the margin with the higher rates, some of the M&A activity could slow down a little bit from a financing perspective, but that's not really been the core of our business. We're primarily a working capital lender. We've seen commitment growth. We've seen line utilization stability. So we think that activity is going to continue to go.

Got it. And then maybe on to the conversion, right? So the conversions for Comerica went live over the weekend. 600,000 customers, I think almost 300 branches, now onto the Fifth Third platform. We read your CEO's all positive commentary on LinkedIn, but maybe behind the scenes, any surprises kind of on the first day post conversion?

I guess I'll start with not burying the lede, which is that it was a very successful conversion. We were able to complete all of the core system migration from Comerica, including all of the employee infrastructure as well. So all of their employees are now inside the Fifth Third umbrella. The next steps on the conversion would be the wealth conversion is scheduled for Halloween. You like to do those on a month end that is not a fiscal quarter end. And the HR systems conversion will be January 1 because you don't want to reset people's FICO -- FICA in the process.

So that went very well. Our goal heading into this was deliver a perfect conversion for every customer. And that might be an unattainable goal. In my 27 years, we've done 9 bank conversions. And I think this conversion was as close to perfect as I've seen at Fifth Third. There are always a few wrinkles and a few hiccups in terms of surprises. We had a lightning strike on a Fifth Third branch that burned circuitry, so that branch was closed. So those customers had to go to the nearest Comerica branch. And obviously, that makes for a very busy day inside that branch.

But if you look back how this conversion unfolded, if you look at how Old Kent was, it was a multi-geographic play with rolling conversions over 3 months. And then you look at our last conversion with MB, where it was a little more straightforward with a single city, predominantly a commercial bank, 90 branches.

And then you look at Comerica, it's the most complicated conversion we've had and the largest transaction in the company's history. And so it was a little bit of both in terms of how we went about doing it. We pre-converted as much as possible. Everything from swap dealer conversion on legal day 1, capital markets over the summer, syndicated loans over the summer, TM preview period, all of the ATMs, all of that was done ahead of Labor Day. But Labor Day was a very busy and successful week. And coming out of it now, all of these customers, and we can watch login activity has been great.

The activity we're seeing with the customers playing around in Jeanie and with some of the other tools that we have, it's very encouraging. And I think ultimately, we'll do a great job of driving primacy. And I think the best data point, besides my being here today, in terms of how well the conversion went was, if you look at MB, we had -- it was May 6, 2019, and we had a 5 business day week, and we were a much smaller company then. You look at Friday of last week versus the Friday of the last week of MB. With Comerica, we added -- there were 352 branches. We had to consolidate roughly 60 of those.

So we turned on 293 Comerica branches. So we have a bigger branch network. We've obviously had all of the growth at Fifth Third from a household perspective since MB through Comerica. And one of the big changes we made in order to cover the West Coast is we have extended call center hours, so 3 extra hours per day. So bigger customer base, longer window for somebody to call. And on Friday of last week versus the Friday of the first week of MB, we had 15% fewer inbound phone calls. So I would call that a very big success for us.

Interesting. I guess, in that vein, on the second quarter earnings call, you were talking about customer retention running ahead of plan. I think the commercial retention was 99.4%, and the consumer base was a net positive. Conversion done, kind of any updated thoughts around attrition?

Yes. So I'll take it in 2 parts. So first, there's just the gross attrition. And so in commercial, gross attrition continues to run sub-1%. A very loyal customer base, and Comerica was a very strong middle market lender. And that means you will end up with very low attrition, and that has played out perfectly. On the consumer and small business side, the attrition levels are also very stable and very muted. There -- the Comerica attrition within the retail book and the small business book are in line with or better than Fifth Third's normal attrition rates. So that's on a gross basis.

On a net basis, both the commercial book of business and the consumer book of business have grown, and they've grown pretty substantially over the past year. So we're very pleased about our ability to grow the franchise. And obviously, we'll talk revenue synergies later.

Yes. I want to maybe stick on expenses for a moment because after that glowing review, I think you get another follow-up question. But you talked to $850 million in run rate expense synergies from Comerica. I think that's 35% of the base in the fourth quarter. Conversion now complete, went well. Any upside potential to that $850 million?

So we have never in my 20 -- at least in the last 20 years, we have not missed an expense number bogey we have put out there as part of a transaction. So we hit the $850 million. The hay is in the barn. Did the team overachieve? We overachieved a little bit. However, Bryan will be quick to point out, $850 is the number that will drop to the bottom line in 2027 from an annual expense there are opportunities to deliver those revenue savings that we would like to have some additional investments in, whether it's branches, marketing, sales expansion. And so building out the Southwest similar to how we built out the Southeast, is a big priority for us. So we will deliver the $850 million. That is money good. And from there, it's then choosing the best path forward on growth and returns.

Part of what Comerica needed was capacity for growth investment. And to us, that is the priority from a near-term perspective. There's so much opportunity in those markets, whether it's the branch builds as we transition from building 50 branches a year to 100 branches a year, the talent acquisition, when you think of both just bankers in market on middle market and wealth, product partners, when you think about coverage from a capital markets perspective, from a treasury management perspective. There is so much opportunity for us to invest in those markets from a growth perspective that we are going to focus on putting the company in a better position to grow faster and take advantage of the demographics that are available in those markets. There's so much opportunity for Fifth Third in the Southwest and in the California market.

So $850 million expense saves fall to the bottom line. I guess, any sense of what kind of the gross expense save number could be?

I mean we're probably north of $900 million at this point.

I knew exactly what it was. I was just curious what you were going to say.

Okay. And maybe as a follow-up, as Comerica's expense saves get reflected in the run rate, what does the path to a sustainable efficiency ratio near 53% look like through next year? And just how you're balancing reinvestment in technology, iBranches, sales force expansion against 53% that you're targeted when you announced the deal? And then -- is 53% the right number? Or could you better than that?

Yes. 53%, when we think about where we want to run the company from a long-term perspective, we think that 53% is a good spot right now. It is an industry-leading amongst our peer group from an efficiency perspective, it puts us in a position to be leading our peer group in terms of return on capital as well. And it gives us capacity to continue to invest in the company. We just see that there is so much potential, and we're going to invest prudently. I think that's the thing that everyone always needs to recognize. The decisions that we're making are based on our view that can we grow in a responsible way that delivers better returns on capital for our shareholders so that we can actually compound book value growth faster. That's the goal.

And if those are -- if those opportunities aren't there, we'll have the opportunity to let a little bit more of that -- those savings and that efficiency drop to the bottom line. So we like to maintain a lot of optionality. And we think that the path that we're heading down puts us in a good position to be able to take advantage of those opportunities that are there. But in terms of sustainable 53%, we're there. Like we just have to continue to execute the play that we're on to deliver those numbers.

Got it. And then Jamie touched on the revenue synergies, I think in slide deck, you related $500 million plus over the next 3 to 5 years, which levers could you prove out fastest post conversion and which require most execution?

There's a lot of -- I mean, there's a lot of near-term deposit growth opportunity. I mean we're seeing that from the initial deposit campaigns. And Jamie can spend a little bit of time talking about what it means from a consumer perspective. But that is one that has been out the gate that is going to create opportunities for us. From a loan growth perspective, in the middle-market franchise, the ability to offer -- we have the capacity from a balance sheet perspective to be able to grow a little bit faster.

We're not having to ration liquidity. Our balance sheet is incredibly liquid right now. To be able to offer the right product partner capabilities, we're seeing great opportunities out of the gate in ABL lending and equipment finance. We're also seeing a lot of opportunity in the capital markets businesses. Those are all things that are -- that can come relatively quickly. There are some areas where it does take a little bit more time. Some of the wealth investments, as we think about growing banker or wealth investment advisers over time.

That can take a little bit more time to come to fruition, but we've got a nice staggering of near-term opportunities, but also longer-term opportunities as we make some investments that will continue to grow and give us an ability to see some great opportunities over time. One of the other areas, and we've talked a lot about the $4, $10 billion deposit growth opportunities. We think there is a lot of opportunity in the innovation banking space. That's one that will take some time to build out as well as we're growing the capabilities in that space. Comerica had a great foundation in their tech and life sciences business. But that's one where that team needs to grow over time, and we need to continue to grow our capabilities. So that will take a little bit more investment, but we're excited about what that can be over the next 5-plus years.

You want to talk consumer?

You want to hit consumer?

A little bit.

I would love to take 25 minutes more on consumer. The fastest revenue synergy we will see from Comerica on the consumer side will be tied to our ability to deliver a one bank experience. The Comerica franchise had limited investment and limited what we would call branch partners able to help drive fee business and lending activities out of the branches. So just in the Southwest, the roughly 200 branches that they have today. The biggest opportunities will be in mortgage, we'll actually this year do about 5x the mortgage volume that Comerica did in 2025.

And we've hired 40 MLOs to help deliver that. Those MLOs sit in the branch and help branch production, investment executives and what we would call a preferred banking program, where we focus on customers with $100,000 to $2 million in liquid assets. And that's a program Comerica did not focus on. There's a large opportunity there.

Home equity, I was in branches in Detroit, the Monday before Labor Day. And one of the branch managers in Detroit had just gone through a Fifth Third home equity application. And her comment to me was, I think I did it wrong because it was so easy. And she said that it actually was perfect. So home equity will be another nice opportunity. So all of those things don't take additional investment. They just take leveraging the technology and process and the people leadership that we already have in place. The longer-term revenue synergy will be the construction of the 150 branches in the Southwest as we continue to finish out the remainder in the Southeast.

I guess maybe following up on the Southwest expansion. I think you talked about a $2.5 billion deposit campaign, you more than double your target. You talked about 100 to 150 Texas branch locations you have secured. Just maybe talk, is that deposit performance sustainable? And just how should we think about the ramp in payback from the Texas build-out? Because it does seem to be an increasingly competitive market.

Yes. I think in order to look at the Southwest and what that opportunity is, you need to look at the Southeast and what we've been able to accomplish. The Southeast, if you just were to look at Florida, we have 218 branches and $13 billion in deposits just in the state of Florida. That compares to our largest state, Ohio, where we have 245 branches and $30 billion in deposits. And now Michigan is #2, 227 locations and $27 billion in deposits. So $13 billion in Florida is really incredible growth over the past 8 years as we've been on this expansion.

But more importantly, it's a coiled spring that will continue to deliver and ultimately reach those levels of, as a state, that opportunity, $25 billion to $30 billion in consumer deposits. And so we look at the de novo performance that we are -- for the total basket of de novos from 2018 through the end of 2025, we are at 125% of our deposit goals. So we're running ahead of pace over that period of time. And every vintage has gotten better and better and better as we continue to learn, we continue to make changes, we continue to adapt.

The only year where that's not true is the 2020 year during COVID. And what we have found with de novos, when you get off to a slow start, it's hard to recover. And so the rest of those vintages better, better and better. And that is the play that we are running in the Southwest. We ran the marketing program in the second quarter to train some of our models on the Texas market and the California market. We tried a sampling of test and learn across Texas to see what drove the best responses, what drove the best responses in California.

And we feel really good about our opportunity to both improve the existing branch network, which at the time was averaging about $30 million per location in deposits, whereas on the Fifth Third side, $90 million and up would be the target to get there over an extended period of time, but certainly getting over $50 million in 5 years is a nice barometer to use for what a de novo ought to be able to deliver.

And so improve the performance of existing while building out the first wave of 150 and that 150 is split, Dallas and Houston at 60 each and the remainder in Austin. And so that will be the wave we focus on over the next 3 years. We just opened our 32nd branch in the Southeast last week in Charlotte, and we'll do 55 in the Southeast this year, which then next year, the initiative will be 100 branches, 50 in the Southeast, 50 in the Southwest, and we see that playing out as the years go by.

Sounds good. Hoping to kind of circle back where we started to maybe delve more into kind of some of the financial trends. But you talked to net interest income at the upper end of the 3Q guide. Maybe just talk to kind of what gets you there? And then maybe more specifically, net interest margin expanded to 3.36% in the second quarter. Maybe just kind of puts and takes from the margin from here and just how much is deliberate balance sheet management versus rates because I'm told the Fed is going to hike tomorrow and just how does that impact things looking out?

Yes, we're certainly fairly well positioned in the event of a hike. We've talked for a while that we -- we moved a pretty asset-sensitive post the Comerica acquisition. We had concerns around just what could play out on the long end of the curve. So we're pretty deliberate on redeployment of duration, just given that we just had some concerns around where the rate environment could go. So we feel very strongly that we're going to deliver some really strong results as a result of that. The puts and takes, rate environment overall and continued earning asset growth is part of what gets us there.

We'll have a little bit of noise this quarter, just because the deposit growth has come in so strong. We put about $2 billion of Comerica sweep balances in our deposit book this quarter just to help ease the transition. So we are running a little heavy on cash right now. We've been north of $20 billion on cash for most of the quarter as a result of that. Every $1 billion of cash is about basis point in a quarter on NIM. So I think NIM sticks in the mid-330s this quarter, and then we'll get back on that upwards trajectory back to the 340 exit rate that we've talked about as that -- as we work through that conversion cash and the normal seasonality that we would see. But the rate environment certainly has helped us. And the fixed rate asset repricing has been part of that story as that's continued on.

Got it. And then maybe on deposits. Maybe just talk to -- the more Comerica deposits you want to bring on balance sheet. Fifth Third always had a good funding base, just how durable is your deposit base as is the environment appears to get more competitive? Just talk of AI-related disruptions and just how you're thinking about your funding advantages?

Yes. We feel the strength of our funding franchise today, I think, is underappreciated. We have so many avenues today for deposit growth. And the investments that we've been making over the last 8 to 10 years to really position the bank to. The goal of the company is we want to fund the bank on primacy. And we have been really deliberate around that starts with granular consumer and small business accounts, which looking at -- we put a new slide out on the high-quality consumer franchise. We have one of the highest concentrations of consumer deposit growth amongst our deposit base and one of the fastest-growing consumer deposit franchises.

And so this is just call report data that we've pulled out. We think that advantage continues for sometime, and we're going to continue to see strength. And as we always try to remix the balance sheet to make sure that we have the most stable and profitable deposit base as possible. The investments that we make in payments as well has been another driver of deposit performance. The combination of granular consumer deposits and operational deposits tied to treasury management services.

That, to us, is the foundation of the company going forward, and we're going to continue to make those investments that keep us in that position. We think there's a lot of durability. As Jamie talked about, the consumer opportunities and the maturation of the Southeast. That is going to drive a lot of deposit growth in the new branches in the Southwest. We are confident. We know the playbook to make sure that we can deliver those outcomes.

Okay. And then you kind of talked about kind of reiterated the guide of 1% loan growth in the third quarter. But if memory serves correct, you were going to keep Comerica's loan book flat in the third quarter.

Relatively stable. I mean we knew that our teams needed to be focused on the conversion. In our commercial portfolio, Comerica represents about 40% -- the legacy Comerica book is about 40% of our commercial loan portfolio. And as Jamie talked about, the goal in the third quarter was about delivering a perfect conversion for those customers. What's exciting now is that we're on the other side, we're all on the same systems. Our customers are all on the same platform. And it's time for us to actually go on offense. We have the ability now to acquire new customers at a different pace. And the Comerica sales team, they can now transition away from getting their customers over to the Fifth Third side to actually now going out and acquiring new customers. There's a lot of opportunity there.

The NQRs, we've continued to deliver record NQRs from a new quality relationship perspective in commercial. And as I mentioned, the gross pipelines are really strong right now. We feel good about the opportunity, bringing our products, our capabilities, our technology to those markets, we think is going to create a good outcome.

So I guess maybe where do you think the blended growth rate to get to now the conversion is done and just where do you see like kind of the C&I demand is strongest?

We think that -- at the end of the day, we think the banking industry is a nominal GDP growth rate industry from a lending perspective. And we'd like to be a nominal GDP plus a point or 2 franchise. There are some areas where we have made the intentional decision to not participate. We're not participating in a meaningful way in the NDFI categories. And again, you can see this in the regulatory filings. It is the smallest percentage of our loan portfolio amongst our peers and the smallest growth.

There are folks that this is the majority of their growth right now. And it's just an asset class we've made the decision to not participate in. We've not been participating in the AI data center lending category as well. And so those 2 areas certainly have an impact when you think about relative growth rates, but we think that there is plenty of normal course business as usual, middle market, Main Street America lending for us to be able to do. And we're going to be able to generate good growth as a result of that.

We are benefiting from the data center investments tangentially because the normal the HVAC installers, the concrete companies, all of those businesses are benefiting from that investment. And those are the companies we want to bank. And from -- for us, it's the normal course underwriting. It's the traditional measurements around concentration risks in those client bases, and in those revenue streams amongst those customers to make sure that you're managing that risk appropriately.

We just think there's a lot of unknown potential volatility in some of the other asset classes that we just aren't sure you're being paid for that risk. So we're going to watch it and pay attention to what's happening there. But we're going to stay focused on growing our middle-market customer base.

Got it. I guess charge-offs, 30 basis points, I think the lowest we've seen in like 3 years, talk about 30 to 35 for the quarter. I guess beyond data centers and private credit, I guess, any other areas we should be mindful of just looking out?

Right now, we're seeing broad-based health, not a whole lot of problem areas that we see in our book. Obviously, paying attention to what inflation and energy costs may mean to certain sectors of our customers. And from a consumer perspective, we're a prime, super-prime lender, so we're not seeing any real challenges in the consumer portfolio as well. It's pretty benign from a credit environment perspective right now. And our commercial customers are very liquid, and they have a lot of optionality as to how they manage these environments from here.

And I guess on the fee side, you talked to the upper end of the range. I know it's not a huge range. But I guess maybe what's tracking a little bit better than you thought back in July. I know there's asset wealth management, commercial payments, each over $1 billion annualized revenues. Capital markets is $600 million, where do you kind of see the most runway for growth? And then just how much investment additionally is required to kind of achieve that?

Yes. We think both wealth and commercial payments, $1 billion annual fee categories today can be high single-digit growth categories for a while. And we should be able to deliver that without a lot of significant incremental investments to continue on that pace. We would like to accelerate and go faster. So we will look for opportunities to invest in those areas to go faster. And we also think that there's a lot of upside from a capital markets perspective. That's $600 million a year in annualized revenue. We think that can be our next $1 billion category. That is one that would take a little bit more investment, but we're going to be thoughtful and prudent and really do that by expanding sales force over time in a responsible way.

Got it. And then expenses, you talked to the better end of the range despite the fact that fees are the upper end of the range. Is that Comerica saves? Is that prudent management? I know it's not huge numbers, but what's helping that?

It's a little bit of everything. It's not one big thing. I do think the timing of Comerica Saves continues to be beneficial as we're realizing them -- we've been realizing them a little bit faster in year than the original estimates have been. So that has certainly been a good opportunity for us. And then it's just been prudent management across the broad-based expense categories.

Got it. Then maybe on capital, I think CET1 was like 9.9% in the quarter. Obviously, have some AOCI movement this quarter. Just how you're you thinking about just balancing organic growth, dividends, buyback? You haven't been buying back stock for a while. I think it's coming. Just updated thoughts around that?

Yes. We -- the priority is, obviously, we want to pay a strong and stable dividend. Then we want to be in a position to invest in organic growth. And we view share repurchases as the residual then. And so to the extent that there is more organic growth opportunity.

You'll see us do less share repurchases to the extent that organic growth is a little slower, we'll do more. And we'll have -- we'll be back to what we view as a more normalized share repurchase program in the fourth quarter.

Fourth quarter. Got it. And then I guess, Jamie, in the vein of no good deed goes unpunished, you just sat up here at the beginning and talked how great the Comerica conversion went, Best one in 27 years. Do you expect bank consolidation to pick up? Just maybe view Fifth Third's role in future consolidation.

I'm good. I've done my share.

It's the same story that we've said for a long time, which is M&A is not a strategy. M&A has to accelerate the strategy. And Comerica did that for us. We'd been on a multiyear journey of trying to transition the footprint to a faster growth footprint. Comerica allowed us to do that. Texas was the one market we had been staring at saying, how do you enter that in a prudent way? Because there's so much opportunity in that market and Comerica was a great opportunity for us to do that. So we're looking for something that's strategic and we're looking for something that's financially compelling for our shareholders.

A huge dilutive deal that takes years to earn back in an industry where we're valued on tangible book value per share. You have to be very, very careful about that because in a 5-plus year earn-back that you may see in some transactions, there's a lot that can happen in those periods of time. So we're going to be cautious around anything to make sure that we are making the right decision for our long-term shareholders.

I think it's important to be able to deliver on your commitments. And so as Tim and Bryan proved with Comerica, appropriate pricing and then being able to execute with speed to hit our commitments, not just on expense synergies, but also the timing and the ability for us to deliver a nice clean fourth quarter so that you all get a good view of the power and the profitability of the combined company. That was very important to us. And so we worked very hard all year to make that happen. But with that said, we have plenty of organic growth opportunities ahead of us.

Got it. I guess it took us this long, but now we're on kind of the topic of AI. And you made it broadly available internally. We've read about some customer-facing capabilities through your mobile app. Just where is AI moving the needle on productivity and the customer experience?

I'll take customer experience first. What you see in the consumer business is a couple of instances of AI that you're interacting with. One is Jeanie. And Jeanie is our chatbot, which continues to get smarter and smarter every day. We just rolled out as part of the Comerica transition that Jeanie is now conducting all of her intents in Spanish as well as English. And so that was AI aided in order to deliver that. And then earlier this year, we also rolled out a universal search feature, which is the first item that pops up when you enter the mobile app, and that universal search is essentially a quick way to navigate the mobile app.

What we have found as the mobile app has become richer and richer with features, customers are having to ask questions, how do I do this? Where do I go? And certainly all of the change that comes from the Comerica digital experience to the Fifth Third digital experience, which is significantly enhanced. The search feature has been very helpful. In last week alone, search feature activity, and keep in mind, the Comerica consumer base, call it an eighth to a ninth of Fifth Third legacy size.

The universal search and Jeanie activity doubled last week as the Comerica legacy customers have entered our domain and then started to see what is possible. So AI helped fuel both of those. On the productivity side, we obviously are using AI in everyday code writing, and that has been a nice boost to productivity, not as much about driving expense savings but more about for the lines of business inside the company, getting the tools and features that they want in the systems.

During the conversion, we used AI for monitoring, what we call the control tower as well as our orchestration plan and being able to identify any areas where we might need to pivot. And so that was also helpful. And then obviously, in due diligence, we talked a lot about the ability for AI to help both speed up the due diligence process as well as identify additional expense savings, especially in the contract and vendor area.

So we've got a lot of use cases out there. We have a lot more we want to do as we get back to taking the roughly 4 million people hours of labor that brought about the Comerica conversion and now redeploy that into sales growth as well as additional productivity on AI use cases.

I guess at this conference last year, you guys announced a Direct Express contract. I joked at the time that maybe should have bought all Comerica to get it, happened a few weeks later. Can you talk to just how that's going and just how that opportunities with that book?

Direct Express has gone really well. Now, the conversion plan changed obviously, as a result of the Comerica acquisition. But we went live with issuance of new cards to the Direct Express customers under our program earlier this year. We've been issuing 40,000, 50,000 cards a month. And then we will see a broader back book conversion early next year. So we're excited about the progress there. We think that program continues to grow, just the demographics associated with government payments, as well as this is the government's electronic payments mechanism.

So as more programs go live from a government perspective, there's going to be a lot of opportunities there. It's a $3.7 billion, $3.8 billion DDA that has a lot of stability on our balance sheet that creates a lot of funding benefits for us. That's the real value of the program, and we think that deposit balance can continue to grow.

And I guess another announcement you made at this conference last year was Tricolor. But you showed earlier that your NDFI exposure was kind of relatively less than peers, but you kind of cited some risks kind of rhetoric has kind of died down on that. But just as we kind of look at the space, maybe just talk about where you see risks out there for others.

Yes. Tough to weigh in too much on what's happening in everybody's portfolios. I think the challenge for us in the NDFI space in particular, is the layered risk in terms of the level of leverage that is inherent in the system. And it's very difficult to see how all of the compounding leverage components start to add up. And that's the piece that one of the reasons why we've stayed cautious around it is that we're just not sure what happens in a deleveraging moment because of the lack of transparency in that space. I mean, we're an industry that every 10 to 12 years there's a crisis.

And leverage is typically tied to it and concentration risk is tied to it. And differentiated growth models is often tied to it. So we're just trying to stay cautious around an asset class that we think could be more cyclical.

Great. On that note, please join me in thanking Jamie and Bryan for their time today. Thank you.

Hello, everyone. Thank you for joining us, and welcome to the Fifth Third second quarter earnings call. [Operator Instructions]

I will now hand the conference over to Matt Curoe, Director of Investor Relations. Please go ahead.

Good morning, everyone. Welcome to Fifth Third's Second Quarter 2026 Earnings Call. This morning, our Chairman and CEO and President, Tim Spence; and CFO, Bryan Preston, will provide an overview of our second quarter results and outlook.

Please review the cautionary statements in our materials, which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward-looking statements about Fifth Third's performance. These statements speak only as of July 17, 2026, and Fifth Third undertakes no obligations to update them.

Following prepared remarks by Tim and Bryan, we will open up the call for questions.

With that, let me turn it over to Tim.

Good morning, everyone, and thank you for joining us. At Fifth Third, we believe great banks distinguish themselves not by how they perform in benign environments, but how they navigate uncertain ones. In a strong macro environment like this one, our job is to stay disciplined and to build durable franchise earnings, not simply to enjoy the cyclical boost. As we always say, it's stability, profitability and growth, in that order.

Today, we reported earnings per share of $0.83 or $1.02, excluding certain items outlined on Page 2 of the release. When we announced our merger with Comerica 9 months ago, we made 3 commitments: to produce no tangible book value per share dilution, to become an even more profitable company and to create an even better platform for long-term growth. While we are still in the middle of integration and not every metric is yet where it will be, our trajectory and long-term credential are visible in this quarter's results.

Tangible book value per share increased 10% year-over-year, 1% sequentially and 7% since the announcement of the transaction. Our adjusted return on tangible common equity improved to 19%. Our adjusted return on assets improved to 1.3% and our adjusted efficiency ratio improved to 57%, even with most of the expense synergies still yet to be captured.

As importantly, our organic growth strategies continue to deliver on the broader footprint and opportunity set that Fifth Third and Comerica together possess. End-of-period consumer and small business deposits increased 4% sequentially, driven by strong new customer acquisition. In the Southeast, consumer checking households grew by 7% year-over-year, approximately 4x the rate of underlying market growth. We opened more than one branch per week during the quarter and remain on schedule to open 55 new branches in the Southeast for the full year.

Encouragingly, Comerica's Texas, Arizona and California markets grew checking households by 4%, the first net new household growth in several years, and added $2.5 billion in deposits, more than double the $1 billion expectation that we shared in our last earnings call. We also opened our first Fifth Third branded branches in Texas and California during the quarter. Following conversion, we expect Southwest household growth to accelerate further as Comerica's existing branches see the full benefit of Fifth Third's products, digital channels and analytically driven direct marketing. We will also see the pace of new branch opening accelerate in Texas, having now secured 101 of the 150 additional locations we targeted to build by the end of 2029.

Turning to commercial lending. End-of-period C&I loans grew 2% sequentially. Comerica's legacy markets and specialty verticals grew C&I loans, with Texas, California, Michigan Environmental Services, Dealer Services and Tech and Life Sciences, all showing growth. Overall, we continue to see demand in sectors and markets benefiting from infrastructure investments as well as in aerospace and defense.

Our largest fee businesses hit important milestones during the quarter, with commercial payments and wealth and asset management each achieving a $1 billion-plus annualized fee run rate and capital markets fees reaching $600 million annualized pace.

Newline continued to drive growth in commercial payments, with fee revenue increasing 35% year-over-year and the technology behind it earned 2026 top financial innovation awards from both the American Banker and Global Finance. We also shipped the first Direct Express cards on our new platform during the quarter, with 66,000 new beneficiaries and all participating federal agencies now live.

Behind the scenes, our product and technology teams had a strong quarter, both in terms of integration and innovation. On the integration front, we executed our second [ mark ] conversion in June with good outcomes. We remain on track to execute systems conversion on Labor Day weekend, the last step to unlock the $850 million of annualized run rate synergies we committed to deliver in the fourth quarter.

On the innovation front, Newline extended its model context protocol server capabilities with skills, standardizing how AI models can use our tools and workflows. And our consumer team shipped a new AI-powered interface within our mobile app, designed to streamline navigation and cash completion for our customers.

We also launched Fifth Third for Business during the quarter, a banking experience designed to help small businesses manage working capital and get paid faster. This solution includes several differentiated tech-enabled elements, including credit ineligible payments such as merchant receivables and government payments up to 2 days early for free, enabling business customers to accept payments via Zelle and CaptoPay directly on their smartphones and providing access to working capital through the same award-winning digital interface that powers provide.

Internally, Fifth Third colleagues continue to make significant use of AI tools to boost quality and productivity, executing more than 1 million prompts in the month of June alone. In technology, the prompt expected rate for new code was 45% during the quarter, and over 87% of unit testing was automated by AI. While it's early days and we have much yet to learn about how best to harness the power of these tools and looking forward to what we will be able to do after our technical conversion is complete.

Before I hand it over to Bryan, I would like to take a moment to thank our team members. The work you do is detailed, demanding and important, especially now as we serve existing customers and communities, along with executing the largest merger in our history. We are building a Fifth Third that is not just bigger, but better, more differentiated and more resilient. That's why earlier this morning, Euromoney recognized you as their best U.S. bank in 2026. Congratulations.

With that, I'll turn it over to Bryan.

Thanks, Tim, and good morning. Our second quarter results reflect a core franchise that kept compounding and the earnings power of the combined company beginning to show through in the margin, the fee lines and the expense discipline. The comparisons to the prior quarters remain distorted by the acquisition. So let me review the key themes in 2 parts. First, our organic engine kept executing. And second, Comerica broadened the runway ahead of us.

Starting with our organic performance, net interest income and margin show the benefits of the continued disciplined execution in addition to the acquisition benefits. Net interest income was $2.22 billion, and net interest margin expanded 6 basis points sequentially to 3.36%. The margin moved breaks down cleanly. The additional month of Comerica contributed 3 basis points and the remaining expansion came from the continued benefit of fixed rate asset repricing, loan growth and deposit performance. Loan growth was broad-based and granular. Period-end portfolio loans of $179 billion grew 1% sequentially, with commercial loans up $2 billion or 2% on production across middle market and corporate banking. Line utilization was stable at 40.8%, flat with the first quarter.

Clients remain active despite continued market volatility. Shared national credits remain a modest 26% of total loans, consistent with our focus on granularity. In addition, our Provide fintech platform grew loans approximately 4% sequentially. We are realizing the benefits from expanding provides leading digital experience and practice finance into a broader small business lending platform, where we have moved from #31 in SBA lending nationally a year ago to #15 today.

Period-end consumer loans grew steadily with the mix continuing to shift. Home equity balances increased 3% sequentially, and we were the #1 originator of home equity lines across our legacy footprint. This growth maintains the same credit discipline, with an average FICO of 774 and a loan-to-value ratio of 63%. Given the rate outlook, we expect continued momentum in this product where we have been building share.

Our funding discipline shows in the deposit book, where we saw granular deposit growth and well-controlled deposit costs. Average core deposits were $229 billion in the quarter and period-end core deposits were $231 billion. We remain focused on improving the composition of our deposit base towards our long-term goal of retail deposits, contributing 60% of our core deposits.

During the second quarter, consumer deposits grew nearly $5 billion and offset the intentional reduction of higher-cost nonrelationship deposits and normal seasonality in commercial. The $2.5 billion of consumer deposit growth in the Southwest that Tim described was a meaningful driver of that growth and reflects early traction in our newer markets. Average noninterest-bearing balances were 28% of core deposits, up from 25% a year ago, reflecting Comerica's commercial DDA franchise and our own consumer DDA growth.

On a legacy Fifth Third basis, households grew 3% over the past year. And as Tim highlighted, even faster in the Southeast markets, translating into 5% consumer DDA growth, reflecting relationship-based, not rate-driven growth. Total deposit costs fell 4 basis points sequentially to 1.54%, a favorable outcome relative to industry trends. Interest-bearing deposit costs also improved, down 2 basis points sequentially.

Our balance sheet management posture is unchanged. We prioritized granular insured deposit funding and we continue to hold meaningful liquidity buffers. We maintained a Category 1 LTR ratio of 107% and a loan-to-core deposit ratio of 77%. We have and will continue to actively manage our overall funding costs through pricing and mix, a discipline that has allowed us to expand NIM this quarter while continuing to fund growth.

The fee business performance carried the same breadth, with not 1 line, but 3 delivering solid outcomes, the same 3 that we have invested in for years, and the returns are compounding. Adjusted noninterest income, excluding security gains and other items listed on Page 4 of the release, was $1.04 billion.

Wealth and asset management revenue was $256 million on higher personal asset management fees and favorable market performance. Total assets under management were [ $128 billion ], and on a legacy Fifth Third basis, AUM was $85 billion, up 16% from the prior year. Within wealth, Fifth Third Securities continued its momentum, with retail brokerage revenue up 18% from the prior year.

Commercial payments revenue was $254 million, led by strength in Newline and core treasury services. As Tim noted, Newline fee revenue was up 35% compared to the prior year, and related deposits were $5.3 billion, an increase of $2.1 billion from the prior year. Direct Express contributed $22 million in fee income, with average deposits of $3.7 billion in the quarter.

Capital markets fees were $154 million. On client financial risk management and loan medication activity, an annualized pace in line with the $600 million run rate Tim described.

Now to expenses, where the benefits from Comerica and the integration progress are already being realized. Total adjusted noninterest expense of $1.86 billion was better than our expectations as we continue to realize synergy benefits ahead of schedule. Page 5 of our release details the certain items that had the largest impact on noninterest expense this quarter, primarily $203 million in merger-related charges.

The full $850 million of annualized run rate expense synergies is on track for the fourth quarter, with systems conversion over Labor Day weekend, the next major step. Given that conversion timing, we expect to realize the majority of the remaining synergy benefits in the fourth quarter. The adjusted efficiency ratio was 57.1%, a strong improvement from the first quarter and we remain confident in achieving our run rate efficiency target of 53%.

On credit, trends were benign and improving. The net charge-off ratio improved 7 basis points sequentially to 30 basis points at the bottom of our range and the lowest level since the second quarter of 2023. Commercial net charge-offs were 21 basis points, down 5 basis points sequentially, with stable trends across industries and geographies despite the continued market volatility. Consumer net charge-offs were 53 basis points, down 5 basis points sequentially, and consumer delinquency trends remain stable. Nonperforming assets were relatively stable, up 3 basis points from the first quarter, and commercial criticized assets decreased during the quarter.

Where we grow as a choice, and so is where we don't. Our exposure to nondepository financial institutions is approximately 7% of total loans, well below the industry average, concentrated in subscription and capital call facilities, corporate facilities to traditional financial institutions and secured lending to mortgage-related entities. In each of these areas, we have deep underwriting history and structural protections that provides significant loss absorption before we would recognize $1 of loss.

On private credit, our loan growth does not rely on lending to private credit vehicles and business development companies, which together are less than 1% of total loans, a deliberate decision given the structural complexity that is harder to assess through a cycle.

On software and data center lending, we believe in the long-term demand for AI infrastructure, but has stayed selective at less than 1% of total loans, that exposure is intentionally limited and performing in line with expectations.

The ACL ratio ended at 1.76% of portfolio loans, down 3 basis points sequentially, reflecting continued strength in the risk profile of our book, particularly in C&I lending. Provision of $129 million was down $98 million from the prior quarter, which included an $83 million day 1 CECL bill for Comerica acquired non-PCD and non-PSL loans.

Our baseline and downside economic cases assume unemployment reaching 4.6% and 8.5%, respectively, in 2027, consistent with the prior quarter scenarios. We made no changes to our macroeconomic scenario weightings during the quarter.

Moving to capital. CET1 ended the quarter at 9.93%, an increase of 4 basis points sequentially despite strong period-end loan growth and absorbing $175 million of after-tax charges related to the merger and other items. Our CET1 ratio, including the AOCI impact of our securities portfolio, was 8.7%, and tangible common equity, including AOCI, improved to 7.3%.

We expect continued improvement in the unrealized losses in our securities portfolio, given the bullet locked-out structure as approximately 55% of the fixed rate securities in our AFS portfolio have a defined principal repayment schedule, a portfolio construction choice that gives us a high degree of certainty around the timing of the AOCI accretion back into capital.

Finally, there was no share repurchase activity in the first half of the year.

Moving to our current outlook. Our outlook reflects the forward curve at the end of June, which assumes a 25 basis point rate hike in September. Given the updated rate outlook and actions we took during the quarter, we are increasing our full year NII guidance to a range of $8.74 billion to $8.8 billion. Those actions, repositioning $4.5 billion of securities and adding $3 billion of forward starting received fixed swaps as a cash flow hedge on our commercial loan portfolio added to the NII outlook while beginning to reduce our asset sensitivity.

We are refining our average loan guidance range to $174 billion to $176 billion. As a reminder, the average balance for the year will only include 11 months of Comerica. We are raising and narrowing our full year noninterest income guidance to a range of $4.06 billion to $4.16 billion, reflecting continued growth in commercial payments, capital markets and wealth and asset management. We are also lowering and narrowing our full year noninterest expense guidance to a range of $7.22 billion to $7.26 billion. This outlook excludes acquisition-related charges.

Taken together, our guidance implies full year adjusted PPNR growth of more than 40% versus 2025, including the impact of CDI amortization. We remain on track to exit 2026 and profitability and efficiency levels consistent with our 2027 targets. For credit, we expect second half net charge-offs of 30 to 35 basis points, which would place our full year performance in the bottom half of our 30 to 40 basis point range.

Turning to capital. Our CET1 operating target is 10% to 10.5%, and we are effectively there, with capital continuing to build through our earnings power. Our capital priorities remain unchanged: maintain a strong dividend, support organic growth where we see the highest returns on deployed capital and then return excess capital through share repurchases. Consistent with that approach, we expect to resume regular quarterly repurchase activity in the second half of this year.

For the third quarter, we expect NII to grow 2% to 2.5% from the second quarter, driven by the continued benefit of fixed rate asset repricing and day count. Average loans are expected to be up approximately 1%, led by growth in C&I, home equity and auto. Adjusted noninterest income is expected to increase 1% to 3%. While adjusted noninterest expense is expected to decrease 1% to 2% as expense synergies continue to be realized.

The second quarter turned the integration thesis into results. The earnings power of the combined company isn't a forecast anymore. You can see it in the margin, the fee lines and the expense discipline. The core grew on its own, Comerica widened the runway and with the Labor Day conversion just weeks away, the earnings power is landing on the schedule reset.

With that, let me turn it over to Matt to open the call for Q&A.

Thanks, Bryan. Before we start Q&A, given the time we have this morning, we ask that you limit yourself to one question and one follow-up and then return to the queue if you have additional questions.

Operator, please open the call for Q&A.

[Operator Instructions] Your first question is from the line of Ebrahim Poonawala with Bank of America.

I guess maybe talking about the upcoming systems conversion at Comerica, just talk to us as we move forward. I mean, obviously, the expense synergies, things kind of playing out in line, if not better than expected. As we think about what's next tied to the deal and the opportunities it has created for the bank, maybe lay out if there's more to do on the efficiency front as we think about expenses becoming -- making that franchise more productive? And then does it create idiosyncratic revenue growth runway for Fifth Third, even as early as 2027?

Sure. Thank you. And -- good question, a lot there. So yes, I think we feel very good going into the Labor Day systems conversion. I think we've talked before about the fact that the mantra here on any sort of a big program, whether it's a thing like this or the organic expansion, is think slow, act fast. So we elected to do 3 [ mocks ] as opposed to 2, which I think is generally where people are. So we got through the second [ mark ] in June, and that went very, very well.

We actually have built some pretty cool tech tools for this conversion effectively an intelligence layer that sits on top of the -- like the Microsoft project plan hard deck that is able to monitor the conversion in real time and then help the teams coordinate, including having AI essentially listening into the Teams or Slack fees and monitoring for any sort of sign that there may be a delay and then helping us to think through the contingencies and whatnot. So we feel very good about being able to get the conversion done in Labor Day, which then, to your point, Ebrahim, unlocks the last large wave of synergies, both as it relates to real estate and to people and then obviously to the elimination of the systems.

We are -- if you just look at it mathematically running a good bit ahead of the $850 million in synergies. Our plan, assuming that the environment holds the way that it has, has been to redeploy anything above the $850 million into supporting revenue growth, unless we just don't have opportunities to be able to do that. So at least as it stands today, the intent would not be to allow the additional synergies to fall directly to the bottom line in the form of incremental efficiency. It would be investing.

The deposit campaigns in the Southwest went obviously extraordinarily well. I think when we talked to you in January, we said we were hoping post-Legal Day 1 to be able to get $0.5 billion to $0.75 billion out of the Southwest market. So we did the earnings call and the programs we're tracking at a plan. We said we hope to get $1 billion. We hit $2.5 billion of incremental deposits into those Southwest branches. And so we're eager post conversion to be able to turn on the checking household acquisition marketing, and we expect to do very well, like the unannualized sequential checking household growth in the Southwest was 4%, as I mentioned in my prepared remarks, which -- whatever, I won't make an effort to calculate the compound rate, like just multiply that by 4, it's 16% annualized growth in incredibly robust markets. And that's without the products, the checking products that Fifth Third will bring and the incremental household marketing.

I think the other area is we intend to turn on the [ jets ] and the product specialists and -- in the relationship manager sales force. We're ahead of the game on mortgage. We were able to move earlier there because Comerica really didn't have a large mortgage platform. We did the same amount in production in the Comerica footprint in 2 months that Comerica did in last -- in 12 months last year. And so that is evidence of where I think we'll be able to see pick up.

We had had some sizable commodity hedging relationships in metals and recycling come online, aligned to Comerica's vertical -- Comerica's verticals in the second quarter. About 10% of the Comerica payment sales force production was Fifth Third products that Comerica didn't previously offer. I think that could be a lot more, that could be 50% by the time that we're done there. And the ABL product, in particular, in addition to equipment leasing, continues to be quite successful. We had Comerica Bankers win new quality relationships. So not just servicing existing relationships but win new relationships with those products.

So I'm of the view that given that those things are materializing today, pre-conversion, when it's still a little bit [indiscernible] to be trying to manage client relationships across 2 technology stacks that when we get through to the other side of this, we should be able to show a pickup in both loan production, but in particular, feed production on the commercial side of the equation next year, and that there's no reason not to take the household growth rates and to multiply it by 4 for the Southwest because we will invest in an environment where whatever deposits continue to be important, where the demand continues to be ample. What incremental we generate above and beyond the $850 million and the bottom line drive up tangible book value per share growth.

Got it. And maybe, Bryan, one quick one for you. As we think about, I'm assuming you still think -- expect the normalized margin to move into the [ 3 40s ], I guess, sometime next year. Just talk to us on the deposit side given the campaigns all are running in terms of just what are you observing both from a competitive standpoint, maybe by market or whichever way you think is helpful. But beyond competitive landscape, also from a customer behavior standpoint, our -- is the Fed not doing anything just leading to deposit pricing discussions ebbing or customers are still kind of mixing towards higher [ ad ] products?

Thank you. We would tell you the environment certainly is competitive, and that's not unexpected in what has now really shifted into a loan growth environment. Loan growth obviously creates deposit growth for the industry as well, but there's a lot of sorting that has to occur. So we are certainly seeing an uptick in the competitiveness across the footprint.

I would tell you, the consumer deposit franchise is probably the most competitive area right now across both the Midwest Southeast -- across all the Midwest, Southeast and Southwest. We've tested a lot of different rate offers over the last 6 months in the first half of the year, and it certainly is getting more expensive to grow deposits. But what we feel really good about is our ability to manage overall deposit costs, which you see in our results this quarter.

We've done and remain disciplined on our ability to recycle interest expense into new opportunities. I think one thing that is hard to see in the numbers is that we're still maintaining in the area of about $100 billion, what we would refer to as high beta balances that we have the opportunity to recycle some of that cost through some cuts and into growth strategies, and that has been a real focus of us for quite some time on how we actually execute that and it's what's helped us deliver that strong deposit growth and deposit cost discipline this quarter.

And so we see that trend continuing. And what we're excited about is the opportunities in the Southwest markets, in particular. Because we have such low share in those markets, we have the ability to go to those markets and drive for some good growth opportunities that have really limited cannibalization costs for us from a book perspective. And that really helps us manage the overall marginal cost of those deposits, which has been a key part of the strategy. So we think it's going to continue to be competitive.

On the commercial front, it's -- I wouldn't say it's as competitive as what we've seen in the consumer books, still competitive. People are obviously trying to be positioned on the commercial front to be able to be in a position to take advantage of the rate hikes. We, obviously, one of the ways we manage through that is making sure that our index portfolio is structured the right way, which we feel good about right now. But I don't think people are, at this point, overly focused on the hikes because I think people are kind of a coin toss if we're going to see something. But it is something we're keeping a close eye on right now.

Yes. If I just add one thing. I think environments like this one favor people who have some sort of differentiated strategy, right? If you're just in the commodity markets for deposits, the competition dictates your margins. When you have differentiated platforms, in particular ones that are operational in nature because they're just harder to build quickly, you have optionality that others don't. So you know well, like $1 billion is a yard in the bond lexicon, if you go through the numbers this past quarter, like we got 2 yards year-over-year from Newline. We got 3 from consumer, most of which from the Southwest and the Southeast and then 4 yards for Direct Express. So we get one more yard and we are at a first down, right?

It's just -- but those are things that not everybody can play. And in the case of Direct Express, it's a unique attribute. In the case of Newline, it's highly differentiated. And there's a lockout in the case of consumer. There are a lot of people who will build branches, but not a lot of people who have been building branches and therefore, have the benefit of the 150 in the Southeast that have been built over the last [ handful ] years, coupled with the fresh territory that we have in the Southwest to be able to just grind away. Three yards in the cloud [indiscernible] guests, right, and get your first down in 4.

Your next question comes from the line of Manan Gosalia with Morgan Stanley.

Tim, when you think about reinvesting those incremental expense synergies from Comerica, you're also talking about several benefits in the top line that I'm guessing can come in relatively quick order next year. So as you think about the benefit of the revenue side as well, you think about the investments you're making on the AI side, how should we think about the medium-term efficiency ratio? Bear in mind that you also want to keep reinvesting in the business?

Yes. We feel very good about where we're going to end the year right? And Bryan reinforced that whatever the glide path, we are almost at on the ROTCE, the original target we set for 2027, and then said we could get to in the fourth quarter. And we made a huge step from first quarter to second quarter toward the target efficiency ratio.

I would remind everybody, seasonally, the fourth quarter tends to be our most efficient quarter. So we should do better than the 19 and 53 that we had set for 2027 in the quarter. And when you take our guidance and work it through your model, I know it will show down.

Our belief is that at the level of profitability we are running at today, that maintaining that level of profitability, which means showing enough operating leverage to continue to support the sort of 19% plus ROTCE through a little bit of additional operating leverage that essentially compensates for the roll-in of the AOCI into tangible common equity and then driving tangible book value per share growth is the best way for us to generate long-term value for shareholders.

So we do intend to accelerate the pace of investments that we make in AI. I'm very proud of our tech and product teams for having shifted all the things that I mentioned earlier because for all the obvious reasons, their principal focus is making sure that we deliver a flawless conversion. But there is a lot more we're going to be able to do when we can move out of an environment where the workflow applications here are effectively on a code freeze to drive more efficiency into the business. It's just we have a lot of proven strategies to generate low-cost deposit growth, to generate fee growth that are a better, I think, path for us, given our position in the ecosystem, then focusing on trying to go from -- I'm going to make it up here, but 19% to 19.5% to 20% on the sort of core profitability spectrum.

Got it. And then maybe separately on Direct Express. You spoke about issuing new cards, adding the 66,000 new beneficiaries. I guess how quickly can that brought up scale relative to the $3.7 billion in deposits you just mentioned? And how are you thinking about the opportunity to expand that program in the years ahead?

Yes. So the -- there are sort of 2 stages here, right? There's front book, back book. So the front-book products live, all new beneficiaries in the federal government that go into the Direct Express program or going on that new platform. And that platform will effectively grow at the rate that new beneficiaries who elect not to have their benefits routed to a checking account are added. There then secondarily will be a back book conversion that we will be commencing this year. That will scale the new platform, but that essentially is moving deposits off of the old platform that Comerica operated onto the new solution that Fifth Third and [ Fiserv ] are offering.

We are seeing pretty good underlying growth in deposits, Bryan, you may want to reference the sort of pace with which deposits are growing if you just look at the Direct Express portfolio in total. But in general, we're at the right point. The retirees are a good place to be focused on, given the shape of the demographic pyramid in the U.S. And the byproduct of that is I actually think we're going to see pretty nice secular growth tailwinds there.

Yes. And if you were to look back on a multiyear view of this, in 2024, this program averaged closer to $3 billion in balances. And as it continues to scale, it's sitting at $3.7 billion today. We would expect that kind of growth to continue. When you think of the makeup of this program, which is obviously, it's retirees and it's sectors of the economy that we think are going to continue to grow in terms of the unbanked effectively that don't have traditional bank accounts, it is -- there are some good demographic trends here that should continue to deliver strong growth from a DDA perspective in this portfolio.

Your next question comes from the line of Ryan Nash with Goldman Sachs.

So Tim, to an earlier question, you talked about the deposit growth engine moving full speed ahead with your first down reference. And Bryan also talked about runoff of some higher balances. So I guess, given all the initiatives you have going on, can you maybe put a finer point on what is assumed for deposit growth and how you're thinking about deposit growth over the medium term as well as the key drivers of it? And I have a follow-up.

Yes, Ryan. When we look at the numbers, it's -- I do want to highlight, it is hard to see the moving parts just given that we're now comparing a full quarter impact of Comerica, 2/3 of a quarter impact as well as now -- and layering on top of that, normal commercial seasonality.

We saw -- if you look at -- and again, this is information that is a little harder to see. June average balances versus March average balances for the month, we saw 1% sequential growth, including a recovery of DDA balances from the normal seasonality that we see associated with tax seasons with DDA balances being up. So when we think about a mid-single-digit kind of growth rate, we think that's the trajectory that the company can be on for some time, and we can accelerate faster than that, depending on the speed that we want to deploy marketing dollars to grow more balances. A mid-single-digit growth that supports what we talk about in terms of mid-single-digit growth in the loan portfolio, that really is the foundation of how we think about it coming together. And we think we have a long runway in front of us.

We've talked for a bit now about the [ 4 $10 billion ] deposit opportunities in front of us, the maturing of the Southeast network, the growth associated with now the Southwest network, the build-out of our small business product to getting it into the place where we should be from a market share perspective and then the tech and life sciences growth from an innovation banking perspective, that's a $40 billion opportunity that we think we can achieve over the next, better part 5, 6, 7 years as the network matures out.

And so we think the tailwinds associated with the deposit franchise are there. And as Tim mentioned, what we're excited about is it's not just a single play. We have a very diversified franchise. That gives us a lot of abilities to grow in different areas, both geographically and from a business perspective. And we've delivered, and hopefully, you feel like you've seen it in our numbers, good outcome. The consumer franchise continues to deliver and the investments we've made from a branch perspective continue to pay off.

When you look at our overall deposit cost, it's the -- and consumer core franchise, $116 billion of deposits that are at a [ 1 25 ] total cost of deposits right now. We feel very good about the profitability that, that franchise is kicking off. And what you see is the ability to attract new customers and rate is often part of that. But when you can provide a customer with a leading product, great service and convenient locations, we're able to maintain those customers as we price them down over time. So they're getting a great experience at Fifth Third, and we think that business model could continue for some time.

Got it. Tim, you guys put a finer point on loan growth expectations. When I look in the quarter, you saw a solid C&I growth. Maybe just expand on what you're seeing in the market. Any signs of irrationality or areas you're leaning into versus pulling back? And do you think we could sustain these types of loan growth rates going forward?

Yes. I feel pretty good about our ability to sustain the loan growth pace going forward, barring a material change in macro. Like when you look at the commercial clients that we have, I think confidence is up on a pretty broad basis. It really is not sector focused. Now that was based through the quarter on the belief that the situation in the Middle East was deescalating. And also, I think the fact that the tariff confusion has settled out. So clearly, we have some retrenchment on the Middle Eastern front, but the tariff confusion has settled like a simple example there.

One of the metal stamping businesses that I had the opportunity to talk to in Michigan and stop bidding at market rates just given input cost uncertainty and had to resume bidding during the quarter. And I think clients across the board indicate that demand is pretty stable, and in some cases, actually had been improving. The sector is linked to infrastructure, capital investment in data centers. Places where there is real evidence of reshoring activity like automotive where you have foreign OEMs building plants here in the U.S. is where the business is moving, I think, most strongly. The folks that are focused on more value-oriented consumers are probably the places where you've seen more hesitancy.

But at least as it relates to us, like if you just disaggregate the C&I loan growth, legacy Fifth Third was up by more than 2%. The big driver there is the fact that new quality relationships are running about 20% ahead of where they were in the prior year. And that is informed by the fact that they're about 6% more middle-market bankers on the Street than we had a year ago.

The legacy Comerica business lines and markets grew C&I loans by about 1% sequentially after having been basically stable or flat for the past 3 or 4 years. So there's a nice step forward there. And the verticals, in particular, the specialty verticals were the standout. They grew 6%. And the energy and talent of the bankers there is really exciting. I think as we get through the conversion, there's no reason to believe that both teams will converge around the same growth rate. So good underlying demand attached to secular things more than sort of specific points in the cycle and just both the sort of added feet on the street on the Fifth Third side and then continued reacceleration of the rate of growth that Comerica had demonstrated it was capable of prior to the last 3 or 4 years, and you have a pretty nice sustained loan growth outlook for the bank.

Your next question comes from the line of Erika Najarian with UBS.

So just to make sure that we're taking away the right thing from those responses, Bryan, should we assume a mid-single-digit rate of annualized growth for the second half of the year on the deposit side? And also, just hoping to put -- to borrow Ryan's words, a finer point on what -- on your response to deposit costs to Ebrahim. If -- obviously, as you pointed out, you did a great job of taking the deposit cost down in the quarter. As we progress through the year, what should we expect for deposit costs assuming no Fed hike? And if we do get that Fed hike, what kind of beta would we see?

Yes. I think a mid-single-digit growth rate is a fair growth rate for us from a long-term perspective. And given that's aligned with what we're trying to do from a loan growth perspective and keeping our balance sheet core deposit funded.

From a second half of the year perspective, there's a little bit of deposit seasonality that you'll see. We typically have a little bit of a ramp in the end of the fourth quarter as commercial balances build heading into year-end. That's the only thing I would caution you on, just to pay attention to normal seasonality on that front. But that is the right kind of core long-term growth rate to think about for us. And there's nothing that causes us to look at what's happening in the second half of the year to think that you should expect anything different.

From a cost perspective, we do think that more of the balanced growth, just given where we are from a rate environment perspective, will come in at an interest-bearing product. So I do think that you're in a stable to maybe slightly up rate perspective for deposit costs from here on out, even if you were in a flat Fed funds world. But we're able to manage through that, obviously, with continued asset growth as well as the fixed rate asset repricing that continues. And then we would benefit from a balance sheet perspective, given our asset sensitivity. If we were to see a hike, obviously, it would have an impact on deposit costs from here. But the repricing of the asset side of the balance sheet would outweigh that, which would be a benefit for us from an NII perspective.

And my second question is, some of your peers have started to put a little bit more detail as they've done more work on some of the deregulatory impacts. And I'm wondering if you could share with us any updated thoughts on Basel III endgame and electing either enhanced risk-based or revised standardized? Additionally, you mentioned, Bryan, Category 1 compliance on LCR at 107%. Could you maybe help frame for us how bulked up your balance sheet is for LCR compliance and liquidity compliance? And what it could mean for your natural margin if we do have LCR reform that would allow you to draw from the discount -- the discount window of liquidity?

Yes, we are exactly where we need to be from a balance sheet perspective, from an LCR requirement perspective. And so any LCR relief would create some value from a long-term margin perspective, and the concept there is that you could ultimately hold a smaller security portfolio, and in particular, smaller Level 1 allocation, which would obviously be NIM accretive and margin accretive. So we do feel good that, that would be a good outcome.

It's tough to say at this point of what that would look like from a quantification perspective. There's a lot of speculation out there on allowing for credit from a discount window perspective in those calculations. But what we've not really seen at this point is sizing of what does it look like from a minimum security portfolio size perspective.

If you look at our disclosures, we keep a lot of collateral place at the discount window, well more, well -- above what our security portfolio is. And so we don't believe we could take our security portfolio to near 0. So it's really going to come down to what those floors look like.

From a capital perspective, obviously, we feel very good about where we are from a Basel III end game perspective. On a fully phased-in basis, we're above [ 9.5 ] from a CET1 perspective. Taking into account the phase-in on the AOCI, we would be north of [ 10.5 ] at this point. So capital is in really good shape. We're having the conversations around whether we would adopt the expanded risk-based calculation approaches, which is about a 10 basis point difference between the standardized approach. So that is an option that we'll have in front of us. But we feel like we are in a good position from a capital perspective, and we've got some optionality in front of us.

Your next question comes from the line of Gerard Cassidy with RBC Capital.

A question for you, Tim. Obviously, you pointed out that the synergies are coming in ahead of the $850 million, a good bit ahead. So obviously, [ Jamie ] is shaking out more expenses from the trees, which is great. The question I have for you, and I don't need to -- we don't need the number today, but when can you tell us about what Darren King is doing to grow revenues? You laid out the expenses when the deal was announced, of course, and they're coming through. But revenue synergies, which you never priced into the numbers, which is great. Do you think a year from now, you guys will be able to quantify or Darren can show us that, gosh, because of the success, we have grown revenues. Now, I know you touched on the mortgages already, residential mortgages, how much you've done. But when do you think you could quantify for us that not only do we get these expense savings, but look at this revenue growth?

Yes. No, great question. I think going into next year, I don't think we have to wait for next year. Like we're tracking all of this stuff in a pretty detailed way. Hence, my point earlier about -- as I said, I think I said roughly 10% of new production is exactly 8% of new TM production from Comerica TMOs, the Fifth Third products that Comerica didn't offer previously. Like it's down to the deal level that we're measuring all these things.

What I would say is the focus will shift when we get past conversion from the sort of job 1, which is protect what we have and get the expense synergies out, to job 2, which is energize the combined team around the opportunities to drive growth. The job 1, we talked about the expense synergies. I think the other thing maybe that is worth mentioning that they didn't, is 99.4% of the customers that Comerica had in commercial at the beginning of this year are still clients today. So we're actually running ahead of normalized client attrition, like we're doing better from an attrition perspective than you normally would in this sort of equation.

So the teams have done an incredible job of ensuring that the existing relationships understand why they're better off with the combined company than they would have been with either company being independent. But we've done the product innovation rollouts. We have added specialists in several of the markets. We'll continue to do more of that. And I think as we get into the fourth quarter this year and we're looking forward to next year, we'll give you a view of what we think from growth perspective is coming from sort of legacy Fifth Third strategies versus what's coming from the application of those strategies to new markets or leveraging Comerica capabilities across the broader Fifth Third platform. And we'll just transparently let you see it.

Very good. I appreciate that color. And then as a follow-up, it's more of a macro question, it might be kind of difficult to get your arms around the answer. But we all know how important the growth of AI is to this country's economy. And it's been very powerful not just with the data centers, and I'm not suggesting you guys are making construction loans to build out the data centers. But have you been able to do any work to find out the second derivative of some of your commercial customers that might be benefiting from the revolution here in AI?

And then second, we saw during the dot-com era when all that fiber was built and it was so overbuilt, much of it went dark and caused problems. And I'm not suggesting we're overbuilding yet for AI. But how do you guys get your arms around the risks with this AI growth to this country? And eventually, it slows down in some of the second derivative impacts to your bank.

Yes. I mean you know that we worry about that. Look I -- just given the time that I spend technology, like one guaranteed rule is that we will misestimate the amount of capacity that's required here because you have a lot of different competitors. You've got a nascent market, which means you don't have a normal market structure, which means you have more people trying to gain share than there is share to be gained, which by definition means there will be some overbuilding.

Now my own view on this is that there's a possibility that, that capacity gets absorbed just over a much longer time frame than people anticipate, but it makes being on the construction financing side of that equation a little bit dicey. That said, given the composition of the client portfolios that Fifth Third and Comerica have, which tend to be real economy businesses disproportionately, right? We have lots of relationships with people who are engaged in constructing data centers.

Like I -- the chance at one market visit I did out West to meet an HVAC contractor who mentioned that they have a 5-year backlog equating to like $300 million in incremental backlog due to hyperscaler demand. Clients that we bank that are in the exotic businesses of quarrying aggregates or mining line that goes into concrete that gets poured into the foundation and otherwise. I don't know that it would be possible for us to do a portfolio level look at the sort of second derivative exposure. But we do that work every time we re-underwrite an individual client. Like we look at the concentration risk that exists in their revenue composition. We look at the stress scenarios as it relates to sort of demand overall as well as idiosyncratic scenarios.

And the benefit of banking the people constructing data centers as opposed to making the construction loans for data centers is to the point you made earlier, there is an underlying business there that given the length of the relationships we have with these clients was doing fine on a regular way basis prior to the data center build.

Your next question comes from the line of Mike Mayo with Wells Fargo Securities.

If I could just get a clarification, you've not changed your $850 million expense saving numbers. Is that correct?

No. No. $850 million or more will drop to the bottom line. The or more question will be a function of our ability to -- whether we have the ability to drive better value for shareholders by reinvesting into revenue growth or whether we think the environment is such that we're better off just continuing to run a more efficient company.

Okay. And you said you have 99.4% retention of Comerica's commercial customers. Do you have a figure like that for the consumer customers?

The consumer franchise is up. It's net up. It's 102% or something like that of what it was at the beginning of the year. Essentially, flat in Michigan and up 4% in the Southwest markets.

Okay. And then as far as commercial loan growth, it's okay, not great. And I know you're more inward focused than you'll be until after the Labor Day conversion. Any thoughts about just the relative growth because this should be the sweet spot for the commercial lending and your -- Comerica and your commercial lending. So I don't know. I mean it's -- I got the sense that commercial loan growth was accelerating and maybe it is, maybe it isn't, but just what's your take? I know you've talked some about this, but is it accelerating for the industry? Do you expect it to accelerate more for you after Labor Day?

Yes, sure. I mean, I think the loan growth accelerated, right? And my own view is that there's no reason to believe barring a change in the environment that it will decelerate from here, okay? Legacy Fifth Third C&I up more than 2%. I think that compares pretty favorably. Comerica from flat the last 3 years to up 1% sequentially during a period of time where appropriately what we are asking our teammates to do is to make sure that we take care of existing customers and get them through the migration process, and that's all production. We didn't get a lift in utilization quarter-to-quarter. So there is a nice production trend there.

Commercial real estate, we were softer then I think I have seen at least thus far from others, we were up 0.5%. Many others are up a little bit more than that. Our general view there, as you know, is to live in a slightly more conservative place in the ecosystem. We have not been providing back leverage to a lot of the private credit funds that are out there in this market. I think that is the place where we've seen structure and pricing deteriorate. In C&I, it's actually remained pretty consistent. So we've elected not to chase some of the stuff that is either stretched recourse or on LTV or otherwise.

And then the other -- I think the -- if you flip and look at the consumer side of the equation, which you didn't ask about, but I'll give it to you anyway. Home equity has been really strong for us. The indirect auto business has been a source of growth for the last few years. The market there is, as you know, is very efficient. Pricing has come in and we sort of reflected that in origination levels. But to the extent that pricing or the balance sheet needs change, there's no reason why we couldn't continue to round at the levels that we were running previously.

So I don't disagree with you. Like I would like for the whole company to be running at the 2% plus level that Fifth Third did, but we'll get there. We're going to get through the conversion, we'll get everybody on the same platforms with all the same products. And I do think at that point, you will continue to see an acceleration of the blended combined Fifth Third Comerica C&I growth rate.

If I could just slip in one last one. I'm still digesting. So your customer retention on the consumer side is 102%. I'm not sure I've heard a figure like that before for a merger. What's the gross to net of that, if you have it, but I appreciate just having that number.

My understanding is that the gross and net is something like 94% or 95% attrition of customers -- or I'm sorry, retention of customers that were on the books at the beginning of the year, plus, call it, whatever that is, then 6 -- 5% to 6% top line above it, that gets you to the 102% overall. So it's a normalized rate of attrition on the legacy book, which would be 10% to 12% on an annualized basis, coupled with a real pickup in production. And on the commercial side of the equation, it's 99.4%, meaning 0.5 point, 0.6% of attrition since the beginning of the year. And then the new production has resulted us being over 100% on a net basis there. So that would be the comparable, to your point.

Your next question comes from the line of John Pancari with Evercore.

I'll be quick. Just on the capital side, I know you had indicated that you expect to resume buybacks in the second half. So I just want to see if you could help us with the cadence there in terms of how we should think about the pace of buybacks in the third and fourth quarter?

And then just separately, on your market strategy, if you could just remind us on the branch approach to the other markets, the Michigan and California markets? I know Michigan, you note some consolidation? Any change in that approach? And then in California, I believe you -- you said you opened your first Fifth Third branch in California. What's the approach there, and that's it.

I'll take the branches, and then Bryan can hit the repurchases. So that -- the unique thing about Michigan, considering the size of the branch network that both banks have there is Comerica was heavy in the eastern part of the state, Fifth Third, the western and northern part of the state. So there are just over 70 consolidations that will happen in Michigan. They've all been announced. There are no others that are contemplated at this point in time.

Many of those locations literally share the same parking lot in the same strip centers. So we're not moving people very far. And the intent at this point in time is to execute those consolidations, get customers settled. And then we will look the way that we do across the rest of the Midwest at -- on an ongoing basis at where growth pockets are and we'll add next-gen financial centers there. We'll move branches down the road to the extent that we can get a better pad or otherwise. But I would just -- for all intents and purposes, I would say Comerica customers will have 60% more branches. Fifth Third customers will have 40% more branches, and that's sort of the plan of stasis.

California, that -- the branch -- we have a couple of other de novos that we will add there. They are in the Central Valley and in places where we have commercial operations, where neither Comerica and by definition, since Fifth Third now had no branches nor Fifth Third had any locations. Beyond that, there really isn't a plan to add or subtract at this point in time. We got 150 to build, I guess, 149 now, to build in Texas, along with finishing off the Southeast. And as we get, call it, into the end of '27 or 28, we're looking forward to what 2029 will build, that's the point in time where we'll reevaluate whether there's a different strategy for us on the ground out West.

And John, on capital. From a pacing perspective, the third quarter will be a smaller quarter than the fourth quarter. Obviously, with some more significant deal charges coming again in the third quarter associated with system conversion and the branch closures that Tim mentioned. That's probably a $50 million to $100 million range, but also dependent on what happens from a loan growth perspective. We saw some nice end-of-period loan growth in the second quarter. We're seeing some good activity. So we do think that obviously, that could have an impact from a capital return perspective. And in the fourth quarter, we should be back to our more normalized pacing, which is we view as a $200 million to $300 million a quarter kind of pacing.

Your next question comes from the line of Brian Foran with Truist.

I apologize in advance, this is going to be a little bit myopic on the questions. But any time you get to this point in the year, some people do the game of the first half actuals, the 3Q guide and an implied 4Q based on the full year. And if you took everything literally at the midpoint, 3Q would be 1% or 2% below consensus, but then 4Q would be maybe 3% above -- 2% or 3% above. But I'm also cognizant like all these things have ranges, I don't know that consensus really captures the seasonality of the business fully. So just kind of in your mind, is the message more like 3Q is a little light, but 4Q is better? Or is the message like, hey, all these things are plus or minus 1%, the bigger pictures, things are coming in, in line?

Yes. Here, I thought you were going to say the questions were myopic because your eyes are blurry after this many bank earnings releases in a single week. The -- I think there's a sort of a simpler explanation here, which is -- I am sympathetic to all of you who need to try to model the cadence of expense synergies in an environment where deals closed mid-quarter and where conversion happens in the first week of the last month of a quarter.

I honestly, when we looked at it, just in the anticipation of the question on the call, I think it's a pacing of the expense synergies coming out because while the conversion is happening in the third quarter, for all intents and purposes, you're not going to get any real benefit to it because it's not like we're going to send people home the day after Labor Day weekend. We're going to make sure that things are stable. But it's not like we're going to decommission legacy platforms until we have a couple of weeks of water flowing through the pipes. So that as much as anything changes the trajectory.

I think the other element of it just purely on the revenue front is we want people focused on helping clients get through conversion this quarter. And in the fourth quarter, you're going to see a real pickup in regular way production, right, across the entire company as opposed to it just being regular way production in unaffected markets and others. We -- I'm very happy with how far out ahead we are on customer communications, like we are pretty data-driven here.

So like the TM conversion, the payments conversion is always among the most complicated in any of these businesses, and that's an important part of the Comerica franchise. So 290 of the 300 most complex commercial payments clients of Comerica already working through a pre-conversion date concierge conversion process, right? And 2/3 of the others already engaged and moving towards that date. That stuff takes work, but it's the way that you stick the landing and preserve the value of what you got.

So I don't think it's the sort of conventional hockey stick of the third quarter is seasonally soft because people go away from vacation on August and then you get a pickup in activity in the fourth quarter, although there is always a little bit of that. So much as it just is, it's hard for people to model a deal closing in the middle of -- whatever, in the middle of the first quarter and then converting in the first week of the last month in the third quarter.

Yes. And I would just boil it down to that the message we'd like you to take away is that full year PPNR, we're increasing our outlook. And this is the first time we've given you the split from 3Q to -- basically that once you see 3Q to 4Q.

That's super helpful. If I could sneak in one other just as we relate back to the kind of $4.89 in the deal presentation. You've been very helpful on where everything is tracking on all the PPNR inputs. Just as we think about credit, and I know there's always a macro component that you can't control. But when you look at credit outperforming out of the gate, would you kind of feel that's more a moment in time, the environment is super benign? Or is there any feeling that like, hey, if you look at the Fifth Third and Comerica book combined and where the new production opportunities are, could this credit outperformance be a little bit more sustained? Or would you view it more as a short-term thing?

I think my own view is it will carry forward. But it's mix driven, right? The Comerica portfolio was more heavily weighted to commercial and to C&I in particular, then the Fifth Third portfolio where you have a lot of consumer assets. And even though we're a super-prime lender, your loss rates on consumer assets are almost structurally higher, right, than they are in your commercial business lines.

So we lowered the range for the second half of the year, which obviously reflects the continuation in the immediate term. And my own view is that barring a more fundamental shift in the mix of the portfolio, that you should expect that to carry forward. There's nothing going on there, like no outsized recoveries or things like that. There's no meaningful impact to purchase accounting or otherwise that's driving the outlook, hence the reason you see it carrying forward from there.

Your next question comes from the line of Ben Gerlinger with Citigroup.

In terms of just the branches themselves, obviously, the duplicative branches in Michigan, it makes sense that you reduce that and then you're clearly deploying and building branches in the Southeast. So there's a lot of cross currents.

And this isn't a '26 or '27 or even '28 question, but what would you point to in terms of -- for shareholders to see the successes of those branches? Are there than just market share within the MSAs you build them in? What would you point to, considering there's a lot of moving parts to sort of deposit level?

Sure. So I think -- like we look at these things on a branch to branch basis, right? So that's the easiest way to say, "Can you get a -- Jamie Dimon gave a talk, several of us watched not too many months ago now where he -- he talked about the fact that the reason you have the branches is because you scale them and they make $2 million a year to infinity. And that obviously is the goal, right, is you make a capital investment to build a building, you create operating expense and marketing and people to operate that building on an ongoing basis. And you build up the book and you get an annuity out of it.

So -- like take the Southeast. So in 2018, when we started the Southeast expansion at pace. I think we had like 278 branches and a rounding air to $10 billion in deposits. Today, we have 420 plus branches, so like plus 150 right up to [ 422 or 423 ] and a little over $20 billion, like maybe $21 billion, $21.5 billion in deposits. So the branch count has gone up by 60%, deposits have more than doubled, meaning average deposits per branch have obviously also increased. And even though you have a bunch of new branches there, right? So which means you both have higher market share because you've got more branch count, more deposits across branches, but also better profitability per branch.

The profitability in the Southeast today is just under half what it is in the Midwest branches because of the dynamic on average deposits per branch and the fact that the Southeast is continuing to grow. So you've got a tailwind that we are happy to provide detail on from just the continued maturation of what we've built in the Southeast already, plus then the incremental 150 that are coming in the Southeast and the incremental 150 that are coming in the Southwest.

Comerica's Southwest network looks stunningly like Fifth Third Southeast network in 2018. There are about 200 branches there. It's about $6.1 billion in deposits or at least it was at the time that we close. So the average deposits per branch in Comerica's Southwest markets, if you just run the math, are sort of in line with where they were in the Southeast for Fifth Third in '18.

We learned a lot of lessons along the way. I don't think it's a 7-year journey to get Comerica's Southwest markets to look like Fifth Third Southeast markets. We intend to do that much faster. But then you have the same dynamic of the branches that will layer on top. So we'll continue to give you data on de novo performance. But average deposits per branch are today, certainly the single best proxy for our sort of hitting breakeven and then achieving that ideal Jamie Dimon, $2 million to infinity and beyond sort of a run rate.

Your next question comes from the line of Kenneth Usdin with Autonomous Research.

I know it's going long. Just one question for me. Just, Bryan, maybe on the -- you've talked about the incremental asset sensitivity given the transaction now that we've seen the full quarter and you're kind of getting a better feel for the balance sheet and the rates environment. Just where does that sit relative to your ideal position, I guess? And where do you sit in terms of either continuing to remix both the swap portfolio and the securities portfolio?

Yes, we're certainly more asset sensitive than we've historically been. And you can see that in the disclosures in the back of our presentation, but we have done some work to take that down, and that included some actions that we took in the security portfolio, which was repositioning about $4.5 billion during the quarter. There was some nice entry points that we felt like it made sense to go out and we put on -- moved some things from about a 1-year duration to a 4-year duration. So that was a nice trade as well as the $3 billion in swaps that I mentioned. And you can see the details on that in the presentation as well. And that took us just under 10% from an asset sensitivity perspective, if you look at our year 2 disclosure.

We'd like to continue to make progress. That's something that over time, we'd like to get into the mid-single-digit range, but we want to do it in a very measured way, just given the volatility that you're seeing in the market right now, and we just know how impactful entry points are on some of these investments associated with duration. So good progress on that front, but certainly still a little bit more asset sensitive than we would normally be. And that is -- in this environment, we feel comfortable with that position, but it is something we'll work down over time.

Your next question comes from the line of Chris McGratty with KBW.

Just on the capital markets outlook. Any comments, obviously, great momentum there. But Tim, on the additional savings reinvested into the business, is that one of the areas where you might be putting more dollars to work? And if so, I guess where do you think today you are versus potential?

The preponderance of the sort of investment into the business right now is focused on the consumer deposits. So it's the continued expansion of the branch network plus the direct marketing programs, digital and mail that will support that sort of growth the addition of sales force. And I think that has included in the past 2, 3, 4 years, specialists who are sector experts to support the build-out of the M&A advisory practice, as an example, in the capital markets business, but also payments and otherwise and then into the technology, like we're big believers in the value of product differentiation in digital world, in particular, what we're going to be able to do on the AI front.

So we are pleased with having the $2 billion fee income platforms. We were pleased to have Capital Markets [ crest ] above $600 million. The investment in the capital market side is really going to be in real estate capital markets next, right? I think it's appropriately so with as much focus as there's been on Comerica. People are looking past the fact that we closed on the acquisition of the Home Street mechanics [ DUS ] lender, and we're very excited about what we're going to be able to do in turning that into a multi-agency platform and in generating real estate capital markets fees on a go-forward basis. So there will be some investment there, too.

There are no further questions at this time. I will now turn the call back to Matt Curoe for closing remarks.

Thank you, Alexandra, and thanks, everyone, for your interest at Fifth Third -- in Fifth Third. Please contact the Investor Relations department if you have any questions.

Operator, you may now disconnect the call.

This concludes today's call. Thank you for attending. You may now disconnect.

Okay. Welcome to day 2 of the 17th Annual Morgan Stanley Financials Conference. Kicking up today, we have Fifth Third. We're delighted to have with us today Bryan Preston, CFO; and Kristof Schneider, Chief Credit Officer. Thanks for joining us.

Thanks for having us.

All right. Perfect. Let's get into it. Let's start off with the outlook. I know you put out a slide deck ahead of the conference, and you reiterated the guide there. Do you want to share any expectations for the second quarter, give us any more color there?

Yes, absolutely. We're feeling really good about the trends that we're seeing out of the company right now. The economic environment, despite all the volatility that we've seen with the situation in Iran, activity remains robust. We're seeing good activity from a loan production perspective. We're seeing customers actually doing some things from an investment perspective, and it's translating into financial outcomes.

NII and fees are coming in right where we expected and expenses are actually coming in at the low end of our guide. So we're expecting the quarter to be from a PPNR perspective to be slightly better than what we had originally guided to. From a credit perspective, credit performance is very strong as well, right in the ballpark of what we had guided from a charge-off perspective.

Actually, we think we're probably leaning a little bit towards the bottom end of the range right now from a charge-off perspective. So a lot of good activity that we're seeing and a lot of good trends. The integration remains on track. The expense saves remain on track. We feel very good about our ability to deliver the fourth quarter metrics that we've been talking about for some time.

All right. There's a lot to dig into there, but you reiterated the guide, expenses coming in slightly better and charge-offs coming in slightly better as well. All right. Perfect. And then are there any implications of that to the full year outlook that you provided at earnings?

Yes. It's certainly positive for the full year. A couple of other factors. The rate environment obviously has an impact. We're very -- we have shifted to asset sensitivity with the Comerica acquisition. So a higher for longer rate environment is one that is productive for our balance sheet. The idea that we're now talking about potentially a hike or 2 is something that would be productive for our balance sheet today.

The volatility in the markets over the last 6 weeks has also created some opportunity for us on the balance sheet management side, whether looking at some incremental swaps to lock in some levels. We've done a little bit of that activity in the quarter. And we did realize a little bit of securities loss this quarter as we've taken advantage of some market opportunity. The structure of our investment portfolio is such that we actually have a decent amount of cash flow that we're coming in within the next year.

And we took some of the disruption moments to accelerate the receipt of those cash flows to redeploy them. And so it will be less than $10 million of security losses, but we were able to lock in yields north of 100 basis points higher than we were expecting on a couple of billion dollars of balances. So that's certainly something that's productive for us. The earn back on those losses -- on those locked-in levels is 3 to 4 months. So we felt like that was a pretty productive trade.

Got it. And that would be in the second quarter as well.

That $10 million. It will be no more than $10 million, but it will be in the second quarter as well.

Got it. So while we're speaking about, I guess, the asset sensitive -- and you put on some swaps as well. But how are you thinking managing this interest rate positioning from your -- just given you used to be neutral. Do you want to move back to neutral? Help us think through how you want to manage the balance sheet from here?

Yes. Our long-term bias is to be neutral. We just don't think that investors are paying us to take big market positions. But we also want to be very disciplined on how we get there. One of our big lessons as we think about investing is that entry points matter. And your risk of having a bad entry point when you have very concentrated positions where you've entered at a very concentrated point of time is what puts you in a position to take more risk.

And with our rate outlook, we did have a view heading into the year that it was likely a higher for longer environment. We just felt like the economic activity, the impact of the tax bill, the impact of the infrastructure spending associated with the data center build-outs, what we're seeing in the labor market, all indicated that inflation was likely to be a little bit stickier. Could the Fed have done a cut or 2 at the beginning of the year or expected a cut or 2 at the beginning of the year? Absolutely.

But we just felt like the trends were higher for longer. Everything that's happened in the last 6 to 8 weeks, obviously, has reinforced that view now. So we're going to continue down our measured approach. And if we need to, we can do some things to accelerate some of that shift, but it's going to be something that's going to progress over time.

And I think you've guided to approximately a 3.40% NIM by the end of this year. Any thoughts on what impacts that?

No, we still feel very good about that. Like I said, a lot of the things we did from an investment portfolio perspective were a little bit of just pulling forward earlier into the year, some of the things that the repricing that was going to occur. But we do feel good that from a trajectory perspective that exiting near 3.40% is still a very, very -- we have high confidence we're going to be able to deliver that.

All right. Perfect. So we should pivot over to loan growth. 1Q growth was really strong. Legacy C&I was up, I think, 6% year-on-year. Consumer and small business was up 7%. Can you tell us what the trends have been there on the loan growth side since?

Yes, absolutely. Want to touch on that?

Sure. Yes, I can touch on that. So the -- look, the loan growth has really been broad-based. It's been a combination of a lot of things happening that were set up coming into the beginning of the year with last year being really a year of another set of volatile factors that clients were dealing with. And I think they've gotten to the point now where the sentiment is generally that volatility is the new normal, and they're just going to have to get on with investing.

And so it's a mix of working capital. It's a mix of CapEx. It's a mix of some M&A that's more strategic in nature. And so we're seeing that broad-based across the company. And then I think everybody is aware, we've been investing in RMs across the Southeast. We are seeing gains and just continued momentum from the addition of new bankers. And then with Comerica being added on with that, there's some exuberance amongst the client base early on with the prospect of using some of the new products we're bringing to bear with those clients.

So overall, I think the environment is pretty constructive, especially looking rearward. Charge-offs have been pretty well behaved. Delinquencies are still behaved. Consumers are still spending. And the one question we keep getting is when might that end? And our portfolio is predominantly tilted toward homeowners who are sitting on low interest rates and they feeling relatively confident from the stock market being up in their 401(k)s and other investment accounts being stronger. So they're spending through and looking through to the other end of this potential uptick here in gas prices and some of the volatility that we're seeing with the geopolitical environment.

Yes. It's been good to see that we've seen -- continue to see stability in utilization as well. Our portfolio is in the commercial side and C&I in particular, is pretty heavy revolver that is -- we're a working capital lender. It's a big part of what we do as we serve our customers. And it's nice that this year -- and despite all the volatility in the market, we've seen good stability. Utilization is a little bit above where we entered the quarter. And what we're seeing is just normal fluctuations in utilization. That was a big headwind for us in the industry last year as we were seeing a significant pullback in utilization in response to the tariff policy.

Got it. And Kristof, one of the things you guys spoke about on the 1Q earnings call was that loan spreads were coming in a little bit. Is that -- it's been a consistent theme across the space. Is that something you guys are still seeing in the second quarter? And how are you thinking about competition for loans overall?

Yes. I think spread compression is -- mild spread compression is still an environmental factor right now. It's just there's a lot of competition, and there's some new demand for loans now. And the one thing that we haven't seen is anybody being super undisciplined in the risk taking. So structures are not being destroyed in the environment we're in right now as a competitive force. It's mostly on the pricing side that we're seeing primarily.

And part of that narrative is mix as well because in an environment where you're seeing a little bit more high-quality credit being originated, those tend to originate at a slightly tighter spread. So it's not that you're seeing this dramatic reduction in pricing across all credit spectrums. What you're seeing is just a little bit of a mix shift as well.

And is that a comment for C&I or...

For C&I.

Okay, for C&I. Got it. Bryan, maybe on the deposit side, I guess, same question, right? We're hearing deposit competition picking up across different regions. You've highlighted that the Midwest has been more competitive than the Southeast, which was a surprise to me when you said that at earnings. Can you give us an update on that? And I guess, how conditions are shaping up in Texas?

Yes. We feel very good about what we're seeing from a deposit perspective. It's clearly competitive, but it's rational. The Midwest has always been competitive from a consumer deposit perspective. The Southeast has typically been, say, 10 to 15 basis points behind it from a market offer perspective. That theme is continuing to hold out and continue. There's always a little bit of volatility there just depending on if a particular bank has a need for funding. So you'll see some movement depending on what a bank might need.

In the Southwest, it continues to be a pretty productive environment. We talked about deposit growth from the Comerica marketing campaigns that we did for their markets in the Southwest. We had talked about delivering $1 billion of deposits. We're actually expecting to now deliver $2 billion of deposits from the Comerica marketing campaigns in the second quarter. So we expect to have that in the door by June 30.

So we're seeing really strong response from the direct mail campaigns that we've done, and it helps reinforce to us that the tactics that we've been relying on, the things that have been proven winners for us across the Southeast, across the Midwest markets, those same tactics are working in the Comerica markets. And what's exciting about that for us is we're doing that without all the tools that we have from a Fifth Third perspective.

We're still doing that on the Comerica brand. We're still doing that with the Comerica processes without the same digital experience that you have from Fifth Third. And we're doing it without the ability to originate digital accounts. And so all the things that we felt like we knew that our processes would work there, that's proving out, and we're seeing great results from an early-stage perspective.

So we'll talk about the conversion in just a sec. But I guess as you get the digital conversion, there's more to come there as everything moves to the Fifth Third systems.

Yes, there's more to come because we can actually sell the whole bank. And we can also -- we're seeing good experience from a household growth and a primary checking perspective, even with some of the older processes they have. So we're excited about the opportunity when we're able to actually originate digitally a checking account, Fifth Third, you can originate a digital checking account in less than 2 minutes. It's a much longer process from a Comerica side.

So we're excited about what that brings. And we're excited about what the branch investment is going to bring. We're going to open -- you think about all the branch investments that we've made the last couple of years. And those branch investments have been working, right? We've got a very well-defined playbook, they're growing very well. We're getting good economics out of them. We opened 55 branches in 2025. I think that puts us in a pretty elite club, maybe one other member, and they've got $4 trillion of assets.

We are going to open 60 branches this year, and we're going to open 100 branches in 2027. So we're excited about the ability to continue to execute on that playbook and what it means for us from a deposit growth opportunity. We think the branch play is a $20 billion deposit growth play for us as those branches season, $10 billion from the seasoning of the Southeast branches and $10 billion from the Southwest branches we're going to be building.

Got it. And this is a playbook you've already deployed in the Southeast. So it's -- what trends are beating in a different region?

That's right. And what's good is that those early indicators are supporting that we can continue to rely on that same playbook. And we're continuing to learn. And that's been one of the fun parts of our experience as well as we've learned how to make every vintage of those branches better.

And so all of those learnings from the last 8 years, we're -- the 2025 branches we've opened have been one of the strongest vintages that we've had. So now 55 branches is being one of the strongest vintages. We're confident that the 60 branches in 2026 and 100 branches in 2027 are going to be just as strong, if not stronger.

Got it. All right. Perfect. So before we dig in on the integration side, I just want to take a step back and talk about the macro environment. And Kristof, you alluded to this a little bit in the loan growth question. But I guess, what are you seeing across the client base in terms of overall activity levels? Any risks that you're seeing on the credit side, anything you're focused on here?

Not reward looking, certainly forward-looking perspective, right? So we do a variety of stress tests across the portfolio where we stress macro factors, and we can do isolated shock analysis to see how these things would play out across our portfolio as a transmission mechanism for risks. And so one of the things we're obviously watching right now is oil and commodities with the volatile situation over in the Middle East, while that is a long way away from here, the prices for a lot of those commodities are global in nature.

And so they will affect some level of domestic industry, either through transportation costs or commodity prices as a critical input to products. So we have thought about that. We think it will play out and be passed through largely through the industries we cover. But ultimately, that's going to play into something Bryan mentioned earlier around inflation stickiness.

We think that, that is something that's going to be here to stay for a while just because there's no way for the economy to absorb the sharp increase in prices with that getting passed through without it showing up in real day-to-day things like food prices and things like that. So we're not overly concerned about it right now, given the fact that consumers remain resilient. The performance of that portfolio is still very strong. And we think borrowers in general have gotten used to this level of volatility.

They've been through a sequence of these things, really starting before COVID with the first Trump regime when tariffs and have a lot of practice at managing through these situations, both from a liquidity and a leverage standpoint. So we feel pretty confident in the client base being able to navigate their way through the environment despite there being a lot of uncertainty on the horizon with it. So...

Have you been surprised by the resilience of the consumer so far? And then you have confidence in the ability for them to navigate through this environment that I guess you might have a little bit more inflation. You could have a hike in rates as well. Do you think -- is there anything you worry about in that kind of an environment?

The -- obviously, the lower end of the K -- the lower side of the K when we talk about the K-shaped economy is concerning. That's not a large exposure for us. I mean it's less than 1% of our portfolio. So that's not a huge concern. Obviously, if conditions were to remain such that it would cause a tipping point in the economy where maybe there's a retraction in the stock market where people are feeling a little less affluent that would cause them to drastically cut back on things.

That would be a bit more concerning for us. And we do track that as part of our behavior-based metrics we have in the consumer portfolio along with credit scores and trended utilization metrics and things like that. But that shows up in the DDA information that we have in our internal models that we watch and monitor.

Yes. We've had a view for a while that demographics were going to be a support for the labor market. And then you throw on top of that some of the immigration policies and the impact that it's had on the immigration into the labor force. And every year now, we're talking about a new record of people turning 65 years old, and we've already hit a peak of 18-year-olds.

And so we think that the labor force will likely remain tight for some time, which that should help some of the lower-income consumers as they're able to spend or able to continue to maintain employment so that they can spend. And the people that are driving all the spending in the country, asset owners, like the equity markets, what's happened from a home price perspective, it's hard to see anything but a dramatic pullback in the equity markets that would be the only thing that would likely slow them down from a spending perspective.

So the market continues to feel somewhat stable on that. Now medium term, if AI disrupts a bunch of white-collar workers, that is obviously something that is a risk that's out there that we're thinking about. But broadly speaking, right now, it does still feel somewhat productive and that the consumers that are the most impacted aren't the consumers that are borrowers of the banking industry.

I guess from the AI impact on white-collar workers, I guess that's a risk we're all thinking about, but is there a way to embed it into underwriting standards? Is that something you're thinking about right now?

Yes. We're absolutely trying to -- and I'll actually let Kristof go into a little bit more detail on this one. We're actually trying to figure out how do you actually bring AI risk into underwriting today, and it's something that will continue -- we'll have to continue to evolve our thinking as we see those trends. But...

As far as the -- it's -- because of the nature of it, it's so hard to predict when it will happen. So it's this like unquantifiable risk right now. It'd be really hard to add it as an element to underwriting and be precise on it. You'll either misprice or you'll avoid a risk that you probably should have taken.

So we're not to the point where it would cause us to materially change how we're approaching doing things, but it's definitely something we're thinking about. We're trying to run them through all the various scenarios that we think about. There would be really tail risks that we would try to manage more like with a recession kind of playbook or something like that, that would be more hands-on active risk management than it would be on the passive side of things.

All right. That's great color. Let's move over to the Comerica integration. I think you did your first full MAC conversion this quarter. Can you talk about how that went, what some of your learnings have been? And I think you're doing the full systems conversion on Labor Day weekend.

Labor Day weekend.

So how is that going?

Yes, and we have 2 more mocks to go. So MAC1 went really well. I'm a person that loves to use sports analogies. And for me, it's a lot like when I used to play football, any sport where you have set pieces. The coach basically drew up to play on the board and then you're out on the field to run it the first time. You know you're going to have problems. You know you're going to have players running into each other. You know you're going to have issues like figuring out the real timing. So that was exactly what we expected to occur in MAC1, and we got all of the learnings that we expected to get out of it.

We found the gaps where we thought we would find them from a data perspective. Like one of the big ones, Comerica didn't have a master customer file. So we've had to go through a process of building a master customer file for them. And so then testing whether we had it comprehensive enough. The other component is a lot of learnings around sequencing. When you think about ultimately what is hydration of this data all through your systems and making sure that you're sequencing them in a particular way to make sure that systems are running accurately, but also running timely.

Our commercial loan system processing nCino, like there was a learning that we had on nCino where we needed to refine some things in its sequencing. So all of those things worked very, very well in terms of identifying the spots where we need to refine the playbook. The things that we thought were going to be issues that we said, hey, these are things that we're going to need to learn. We learned what we needed to learn.

MAC2, what is interesting is that will be the first time. As part of this process, we are having to build some new capabilities. There are some things that Comerica offered its customers, whether in the consumer bank and the commercial bank where there's some product enhancements. MAC2 will be about testing all of those product enhancements and ensuring that the fixes that we've put in post MAC1 for all the data things and sequencing work effectively.

And then MAC3 is that real dry run to make sure that we can deliver it within the time line that we'd expect. So MAC2 and 3, obviously, are 2 big events for us, but we feel very good about what we're seeing from a progress perspective.

And then, Kristof, you've been helping lead the credit risk management effort at Fifth Third, obviously. And what are your thoughts on the credit culture at Comerica relative to Fifth Third?

Yes. I mean, look, culture is foundational to everything we do, right? It's not something we can compromise on, and it's how we take risk. And what we saw in diligence was -- and what we expected to see was a very credit-centric, client-focused culture, and that has panned out since legal day 1. I think about culture as the -- how you train what you do and how you talk, right?

So Comerica had a robust credit training program. I think they did a great job training their bankers and their credit professionals in the fundamentals. What they do? They were very client-focused and relationship-based, very similar to us. I think one of the things that was very apparent after we all started meeting each other and spending time together is that we have a lot more -- we're a lot more alike than we are dissimilar.

But where we are different, maybe in process management and things like that, our RWA focus and things more around optimizing the business, we're being very deliberate about being transparent and consistent in the messaging so we can translate. And at times, where there might be a disconnect, we're offering escalation to get to the right decisions very quickly. And we think that, that will then refocus and reinforce the one team, one standard approach that we've had across the company that will really homogenize the 2 cultures into one that I think will be better together. So...

Yes. We're more convicted today about the cultural alignment, the credit alignment and the opportunity in front of us. The things that we expect it to be strong at Comerica, their middle market franchise, their ability to deliver expertise to their clients is proving out to be true. The expertise that they bring in some of their specialty verticals is very strong. We're excited about the opportunity in their dealer finance business.

Environmental Services working very well as well. The tech and life sciences business is one we've talked about a fair amount. We're excited about the quality of the team and the relationships that they're bringing as well. And there's real opportunity in their commercial real estate business. They had a very similar mentality to us from a commercial real estate perspective, and they have some very strong relationships that we think we're going to be able to leverage. And we're excited about what it means for our platform.

And as you think about the 2 teams coming together on the commercial side, and you spoke about the middle market bankers at Comerica. When you think about Fifth Third's balance sheet and product set and the ability to offer that, how is that coming along as you think about the integration?

Yes. It's -- and again, another thing that just as we've been very, very happy with what we're seeing from a collaboration perspective on that front as well. The incremental product sets that we bring, just things as simple as an ABL capability with Comerica's customer set, it's a product that works very, very well. And we just bring a different level of capability on that front. What we can do from a capital markets perspective, what we can bring from a treasury management perspective. There's a lot of excitement within the sales force and as well as in the customer base on the things that we can do to serve them with that broader suite of products.

Now it will take getting through system conversion to unlock all of that. Basically, the remainder of the second quarter and first couple of months of the third quarter, there's going to be a lot of handholding to get the customers through system conversion, especially the treasury management customers. And that is job #1 to make sure that we deliver that. But once we get through Labor Day weekend, that's when we're really going to be able to unlock the power of the combined franchise.

Got it. And one of the things that people typically look at when there's an acquisition is if there's parts of the portfolio that the acquiring bank does want to run off. Are there any portions of the Comerica portfolio that you're looking to run off, anything material that we should be thinking about there?

No. In fact, one of the businesses that we acquired through this deal was the National Dealer Services business. We were in that business before. It was pretty small, and we exited to recycle the capital into things that we had more interest in doing that have more scale. But we're back in that business. In fact, we've had clients asked to come back prior to integration day because they're excited to hear that we're back in the business. So no, we're not looking to run any of the businesses off.

In fact, there are a few of them we think we could really lever into being growth catalysts for the next leg of our journey as a company, including the tech and life sciences business, Bryan mentioned that -- there's a lot of buzz about the innovation economy, and there's a lot of new things happening in there. We think our product suite and capabilities overlap really nicely with that client base, and we believe we can bring more value to the table there, over there.

And that's a very deposit-centric business as well. Traditionally, that's a 3x to 4x deposits to loan business. And like when we think about deposit growth opportunities, and you'll hear -- we talk so much about deposits because to us, deposits are the lifeblood of the bank, right? This is how we generate differentiated outcomes as being great at deposits.

We think the tech and life science business represents another $10 billion growth opportunity for us over the next couple of years as we bring back and grow the relationships in the TLS business, some that Comerica lost, but some that have ended up in other places because of the disruption that happened to all the banks to service that industry in 2023.

So I think that feeds in nicely into the synergies that you expect from the acquisition. So can you just remind us about the revenue and the expense synergies that you're thinking about here and the time line for that?

Yes. Expense synergies, we've talked about we're $850 million of run rate expense synergies. We will hit that run rate in the fourth quarter of this year. So highly confident in our ability to deliver that. Trajectory is good. And we actually believe that we're going to be able to outperform that number, but we actually are looking to basically use any outperformance to accelerate growth investments, whether it's continued marketing, whether it's potentially looking at branch build accelerations, whether it's looking at digital marketing in new ways, like we want to invest to grow the company.

Ultimately, when we think about what is going to create the most value for shareholders over time, we're basically at the top of our peer group, near the top of the industry from a return on capital perspective. Once we get to the fourth quarter, we want to be in a position to compound book value growth faster because we think that is what's ultimately going to deliver the best outcome for our shareholders. So we feel really good from an expense perspective and the revenue synergies.

It's the opportunity in the incremental products that we've talked about, whether it's the balance sheet products like ABL, whether it's balance sheet capacity because we actually have the liquidity and the capital to deploy into our customers at a heavier level. Comerica was having to ration balance sheet capacity. And imagine as an investor, if you weren't able to follow your best winning investments, like that was the position that Comerica was in. So we now have an opportunity to follow those customers as they're successful.

So we do think there's opportunity to grow the balance sheet as a result of that. The capabilities in the fee businesses, both on capital markets, wealth and asset management as well as in payments, all of those areas, our product capabilities, our ability to invest in sales force and distribution are just at a different level that are going to drive great outcomes for us over time.

In the consumer business, it's the investment in the branches, it's the investment in the deposit growth that's working today. So we're excited on that front. And then throw on top of that, the product partners and actually being able to bring a whole consumer franchise to that customer base, bringing mortgage originators, bringing investment professionals at a different level than what Comerica was able to support. That is what's feeding when we talk about $500 million of cumulative expense -- cumulative revenue opportunities over the next 3 to 5 years, like that is the kind of opportunity that we're looking at. And none of that is embedded in the profitability guidance that we've given for 2027.

So things are going well with more room for upside.

Yes.

Yes. All right. Perfect. So let's talk about capital return. We spoke about capital deployment. You're targeting a CET1 ratio of about 10% to 10.5%. And I think you mentioned that there'll likely be some buybacks in the second half of the year. Any updated thoughts there or how you're thinking about capital return as we get further into 2026?

No. I mean it's -- our capital priorities remain the same, which is we're going to pay and maintain a stable and strong dividend. We're going to fund organic growth next. We do think from a returns perspective that why do we bias towards organic growth? Organic growth gives us an opportunity to outperform our cost of capital and then share repurchases next. Share repurchases are our last because ultimately, what it represents is a delivery of our cost of capital back to our shareholders.

And we use that as a mechanism to manage excess capital because excess capital and undeployed capital is a cost to our shareholders. So we do want to manage that over time. But our bias right now is for organic growth. We think there's enough opportunity out there, and we think that the platform that we have today, the markets that we cover today, we're in the best markets in the country -- in the best markets from a population growth perspective, the best markets from an investment perspective and where do we think the investment in the country is going to go over the next decade. We want to lean into that because we think there is real opportunity to create some differentiated outcomes on that.

So as you get some of this growth, is that 10% to 10.5% CET1 the right governor? Or are there like TC to TA ratios or rating agency actions or anything else to think about?

Capital is always a relative game. I don't think regionals are going to be able to get too far away from the largest banks. So I do think that will be one governor. I do think that rating agencies will have a point of view. That's not been something that has been a binding constraint for Fifth Third. I think 10% to 10.5% right now is a good spot to be on a fully phased-in perspective that is what puts -- we'll be around 9%, and that puts us on a trajectory to be in what was probably a 9.5% to 10% range from a long-term perspective.

That was where we had historically talked about running the bank was between 9.5% and 10% -- or was around 9%, 9.5% add, say, 50 to 75 basis points to that for AOCI volatility with the changing capital rules. So we're kind of thinking that 9.5%, 10% is probably the long-term range where you might run the bank. But I also think that TCE is a real binding constraint for the industry today. And I don't think many people are going to want to run with a TCE below 7%. So I think that's going to be another factor that people look at when they're managing capital.

Got it. All right. Perfect. So Bryan, I want to end with a discussion around AI. We always look forward to Tim's shareholder letter and AI was a clear focus area there. Tim mentioned that the ways that you're applying AI to software engineering, 30% of new quote is AI generated, more than half of your employees are using AI tools. Can you elaborate on how you see AI use cases evolving over time at Fifth Third and where the greatest opportunities are there?

We're very excited about the opportunity that's in front of us from an AI perspective. We think it has a real ability to change how we deliver products and experiences to our customers and how -- for us, an ability to deliver it on a more efficient and more productive way. We think it really is a game changer. Out of the gate, right, there's been obviously a lot of discussion around the cyber risk associated with AI. It really gives you an opportunity to identify weaknesses and vulnerabilities that you have in your -- basically your cyber ecosystem today.

And like that is something that out of the gate, the industry is now starting to see benefits from. We were invited into Project Glass Wing over the last several weeks. We think it was a reflection of just the role we play in the payments ecosystem in the country today, whether it's the Direct Express business, some of the processing that we do for U.S. customs as well as just the magnitude of payroll processing that we do for the country.

Those things -- there have been real learnings that have come from that, and we're excited about what the future represents and our ability to address vulnerabilities today. The idea that basically across the global economy that these capabilities are allowing people to identify vulnerabilities that have been existence for 20 years, like there is real opportunity to enhance the security for our customers today, and we're seeing those benefits today.

And then what we're thinking, what it's going to be able to allow us to deliver from a productivity perspective. The company and Tim is obviously very excited about what it means for us. Matt and I spend a lot of time with Tim as he's trying to build his own agent to basically be agentic Tim to help with all of the public comments that he makes, like he sees it. And having a CEO that is focused on actually going through and testing and experimenting on his own gives a mentality to our company around just the excitement of what this represents. And if you're going to work at Fifth Third, you've got to lean into AI because it is the future.

We look forward to hearing that. Okay. Maybe I'll wrap up with a question that's been coming up a lot recently around Agentic AI, cash sweeping, the impact on deposit costs over time. Can you give us your quick views there?

Yes. I mean there is no doubt that agentic commerce and agentic financial services is going to be part of the future. Like we think there is real value in creating agents to do the jobs for our customers. We think that the AI is going to impact the financial system and the economy in ways that no one is expecting today and that you've got to be always forward thinking to make sure you take advantage of those opportunities.

We also think that this conversation around deposit sorting is potentially a little bit in front of the actual realities of the economics of the situation. I mean the median deposit account in the consumer business is less than $5,000. And so the idea that a customer picking up 100 to 200 basis points, which equates to $50 to $100 a year that they're actually going to do a lot of work to create complexity in their financial lives. Like we just -- we don't think that, that is quite the narrative that's out in the market right now.

And it's also forgetting that we sell on a lot more than just rate with our customers. We're providing a lot of services and capabilities and security and trust for our customers. And I think that's one of the things that's missing from that argument. It doesn't mean that we're not paying attention, and we're not trying to understand where the market is going or trying to lead what our customers need. We just don't think that, that is the biggest risk today.

We're -- honestly, we're more concerned around how do you think about marketing to an agent. We know how to digitally market to through paid search with Google. We know how to do mail campaigns. But how do you actually think about marketing when a customer searches by asking an AI agent. So those are the things that we're trying to test today to figure out how to be better.

All right. Lots more to discuss. I'm sure we'll have an interesting discussion on that on the next earnings call. But I really appreciate the time. Bryan, Kristof, thanks very much.

Thanks a lot.

Thanks.

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2026 Fifth Third Bancorp Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to [ Matt Curoe ], Director of Investor Relations. Please go ahead.

Good morning, everyone. Welcome to Fifth Third's First Quarter 2026 Earnings Call. This morning, our Chairman, CEO and President, Tim Spence; and CFO, Bryan Preston will provide an overview of our first quarter results and outlook. Please review the cautionary statements in our materials, which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward-looking statements about Fifth Third's performance. These statements speak only as of April 17, 2026, and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Bryan, we will open up the call for questions. With that, let me turn it over to Tim.

Good morning, everyone, and thanks for joining us today. At Fifth Third, we believe great bank distinguish themselves based on how they perform in uncertain environments, not in benign ones. We prioritize stability, profitability and growth in that order. We deliver them by finding ways to get 1% better every day while investing meaningfully in the future.

Today, we reported earnings per share of $0.15 or $0.83 excluding certain items outlined on Page 2 of the release. Results reflect the February 1 closing of the Chimeric acquisition. Revenue was $2.9 billion, up 33% year-over-year and adjusted net income was $734 million, up 38%. Credit performance was in line with expectations with net charge-offs at 37 basis points. Both NPAs and criticized assets improved modestly.

In the quarter, we closed the largest M&A transaction in Fifth Third's history. We delivered an adjusted return on assets of 1.12% and an adjusted return on tangible common equity of 13.7%. Our tangible common equity ratio rose to 7.3% and tangible book value per share increased 1%. We are the only bank among our peers who have reported to date to increase both of these key metrics during the quarter.

Fifth Third's legacy strategies are continuing to produce broad-based growth while we execute the [ Comerica ] integration on plan and on schedule. In commercial, legacy Fifth Third C&I loan balances grew 6% year-over-year. Production remained healthy with the strongest activity in manufacturing and construction supported by reshoring and infrastructure investments. [indiscernible] acquisition more than doubled, led by our Southeast markets, and 35% of new clients were fee led with no extension of credit. Importantly, our commercial loan growth continues to come from relationship-based lending and knock from nonrelationship sources.

In commercial payments, Newline continue to scale with revenue up 30% and deposits up $2.7 billion year-over-year. During the quarter, [indiscernible] launched a new payment product built on Newline, joining other marquee clients like Stripe and Circle and we advanced preparations for the second quarter launch of the new Direct Express platform.

In Consumer, the legacy Fifth Third franchise delivered 3% household growth and 4% DDA balance growth. Southeast households grew 8%, led by Georgia and the Carolinas, and we opened 10 additional branches in the region during the quarter. Consumer and small business loans grew 7%, led by auto, home equity and our Provide fintech platform.

Now turning to Comerica. Thanks to timely regulatory approvals, we closed earlier and originally expected on February 1 and have continued to make progress at an accelerated pace. Our top priority is our people, and we're working hard to become 1 team. Since Legal Day 1, leaders have been on the ground in Comerica's major markets nearly every week, and we visited every branch in the Comerica network. We've also hosted product showcases to highlight the breadth of our combined capabilities.

Organizational design and leadership decisions are complete, and I'm very excited about caliber of our combined team. On technology, we remain on track to convert all systems over Labor Day weekend with our first full [indiscernible] conversion later this month. As a result, we remain confident that we will deliver $360 million of net cost savings this year and reached an $850 million annual run rate by the fourth quarter. We're also already building a strong pipeline of revenue synergies.

In commercial, we're seeing early wins by bringing capital markets, payments and specialty lending to existing relationships. In the first 60 days, our capital markets team completed fuels and metals commodity hedges and executed an accelerated share repurchase for Comerica clients. We also booked our first Comerica to Fifth Third loan win in asset-based lending while Fifth Third referrals helped to build the largest ever pipeline in Comerica's National Dealer Services business. Commercial Payments has presented our managed services solutions to over 100 Comerica clients with 65 of them interested in moving forward.

In Consumer, we launched our first Comerica branded deposit campaign in Texas in February. Response rates and average opening balances were broadly consistent with the results that we generate in our legacy Fifth Third markets, and nearly half of new savings customers also opened to checking account. We've hired more than half of the mortgage loan officers and auto dealer representatives that we plan to add this year in Comerica's footprint and pipelines in each of those businesses [indiscernible] build. We'll open our first Fifth Third branded branches in Dallas and Fresno this month, and we now have letters of intent in place or in progress for 81 of our targeted 150 de novo branches in Texas.

As I wrote in our annual letter to shareholders, the global economy is a complex adaptive system and such systems react to change in unexpected ways. We're closely evaluating the direct impact of the [indiscernible] on the energy and other commodities as well as the implications for prices, interest rates and customer activity. In an environment where we may not see the macro tailwinds that many expected at the start of the year, the Comerica merger expands Fifth Third's organic opportunity set, and we do not need a perfect backdrop to deliver on our commitments.

Before I turn it over to Bryan, I want to take a moment to say thank you to our colleagues. Earlier this month, we surpassed $300 million in total assets for the first time an important milestone that reflects the work we do together to serve customers, support communities and show up for one another. I know many of you are putting an extra effort to support the integration, whether it adds helping customers, learning new products, meeting new teammates or navigating change. Your commitment to getting 1% better every day and your dedication to our clients and to each other is what gives me confidence in what we're building and the opportunities ahead.

With that, Bryan will provide more detail on the quarter and the outlook.

Thanks, Tim, and good morning. Our first quarter results reflect the strength of what we have built and the discipline with which we are executing. Results exceeded our March expectations, driven by stronger NII, disciplined expense management and integration execution on plan.

Adjusted ROA was 1.12% and adjusted ROTCE excluding AOCI was 13.7%. The Comerica acquisition closed without tangible book value dilution and and TBV per share grew 1% sequentially and 15% year-over-year. The earnings power of the combined company is intact, and the integration is on track. Given the magnitude of the acquisition, standard year-over-year and sequential comparisons obscure more than they revealed this quarter.

What matters is how we exit, a larger, more granular loan portfolio, a lower cost deposit base and larger diversified fee income businesses. Each of those is a deliberate outcome and each positions us to generate stronger and more durable returns as the integration delivers.

Now diving further into the income statement, starting with NII and the balance sheet. Net interest income was $1.94 billion for the quarter, above our March expectations. Net interest margin expanded 17 basis points to 330 basis points, driven by the impacts of the Chimeric acquisition. That includes 7 basis points from securities portfolio marks and repositioning basis points from cash flow hedge termination and 2 basis points from purchase accounting accretion on the loan portfolio. A full quarter of these impacts will benefit NIM by a few additional basis points in the second quarter. End-of-period loans were $178 billion, up 2% sequentially from pro forma combined year-end balances.

Average total loans were $158 billion, reflecting the February 1 close. The growth was broad-based, strong middle market production, a rebound in line utilization and continued momentum in home equity, auto and our Provide fintech platform. In commercial, line utilization ended the quarter at 40.7%, up approximately 120 basis points from the pro forma combined year-end level and notably held steady throughout the volatility in March. Clients are cautious, but active.

On a legacy Fifth Third basis, commercial loans grew 6% year-over-year. Combined with the Comerica addition, shared national credits now represent only 26% of total loans, a deliberate and ongoing reduction in concentration risk. On the consumer side, first quarter auto originations were the highest in 2 years with average indirect secured balances up 10% year-over-year. Home equity balances grew substantially, supported by both the acquisition and strong underlying production. We achieved the #1 HELOC origination market share in our legacy Fifth Third branch footprint.

With an average portfolio of FICO of 773 and average loan-to-value of 64%, the production strength is real, and the credit discipline behind it is equally real. Turning to deposits. Average core deposits were $207 million, and the end-of-period core deposits were $231 billion. Noninterest-bearing balances comprised 28% of core deposits at quarter end, up from 25% at the same point last year.

That improvement reflects the combined benefit of Comerica's commercial DDA franchise and our continued organic consumer DDA growth. The household growth can strip is showing up directly in our funding costs. On a legacy third basis, consumer household growth of 3% over last year, supported 4% consumer DDA growth. Total deposit costs, including the benefit of noninterest-bearing balances were 158 basis points in the first quarter, a funding cost profile that compares favorably across the peer group. Interest-bearing deposit costs were 215 basis points, down 27 basis points year-over-year, reflecting both that organic deposit mix improvement and the benefit of the Comerica balance sheet.

Despite the larger balance sheet, our approach to balance sheet management is unchanged. We prioritize granular insured deposit funding over large wholesale holds. We maintain strong liquidity buffers, and we proactively manage the overall cost of funds. That discipline showed up again this quarter. Average wholesale funding declined 3% year-over-year, even with Comerica balances included. That favorable mix shift lowered the cost of interest-bearing liabilities by 36 basis points. We also maintained full Category 1 LCR compliance at 109% and a loan-to-core deposit ratio of 76%.

Now turning to fees. Adjusted noninterest income, excluding securities losses and the other items listed on Page 4 of our release was $921 million, slightly above the midpoint of our March expectations. The most significant milestone here is that both wealth and commercial payments are now generating fee income at the run rate necessary to deliver $1 billion each in annualized noninterest income. That outcome reflects years of consistent, disciplined investment in both businesses and the recurring nature of the revenue.

Looking further at wealth, fees were $233 million and total AUM ended the quarter at $119 billion. Legacy Fifth Third AUM trends remained strong, up $10 billion or 15% over last year. Fifth Third Securities delivered strong retail brokerage results, with revenue up 15% year-over-year. These are businesses that we have been consistently investing in and the returns are compounding. Commercial payment fees totaled $218 million for the quarter. Direct Express contributed $14 million in fees for the quarter and approximately $3.7 billion in average deposits for the month of March. New line continues to drive strong fee growth of 30% year-over-year and related deposits reached $5.5 billion, up $2.7 billion from last year.

Capital markets fees were $134 million, up 11% sequentially. Increased hedging activities and commodities and FX and strong bond underwriting fees combined with 2 months of [indiscernible] activity were the primary drivers of this growth. Turning to expenses.

Page 5 of our release details certain items that had a larger impact on the noninterest expense this quarter, primarily $635 million in merger-related expenses. Adjusted noninterest expense was $1.77 billion, consistent with our guidance. The adjusted efficiency ratio was 61.9%, which reflects the addition of Comerica and normal first quarter seasonality associated with the timing of compensation awards and payroll taxes.

On the synergy front, we remain confident in our ability to achieve the $850 million of annualized run rate cost savings in the fourth quarter of this year. Integration activities are progressing as planned against our established milestones and savings are being realized. The expense benefit will build steadily over the first 3 quarters of this year with a more significant increase in the fourth quarter. Once the system conversion and branch consolidations are completed in early September.

Shifting to credit. The net charge-off ratio was 37 basis points for the quarter, in line with our expectations and the lowest level in 2 years. The NPA ratio was 57 basis points compared to 65 basis points last quarter. Commercial net charge-offs were 26 basis points, also a 2-year low with stable trends across industries and geographies.

Consumer net charge-offs were 58 basis points, down 5 basis points from last year. The consumer portfolio remains healthy with nonaccrual and over 90 delinquency rates relatively stable across all loan categories. We have been deliberate about where we choose to grow. Our exposure to nondepository financial institutions represents only 7% of our total loan portfolio, well below the industry average.

Our 3 largest categories are subscription lines supporting capital call facilities, corporate credit facilities to traditional institutions such as payment processors, insurance companies and brokerage firms, and secured lending to residential mortgage-related entities. These are long-standing portfolios. We have deep underwriting expertise in each of them, strong collateral visibility and structural protections where needed, including borrowing base requirements and advance rates that provide significant loss absorption before we would recognize $1 of loss.

On private credit, we have chosen not to participate meaningfully in lending to private credit vehicles and business development companies, which combined represent less than 1% of total loans. That was a deliberate decision, not a missed opportunity. The structural complexity embedded in these exposures introduces risks that are harder to assess through a cycle. We would rather grow in categories where we have more transparency to the collateral and have direct relationships with the underlying borrowers.

On software and data center lending, we have maintained that same disciplined posture. We believe in the long-term demand for AI infrastructure, but we have also seen how quickly these build cycles can overshoot. We have remained selective and our exposure is intentionally limited. Software-related exposures is less than 1% of total loans, with the portfolio performing in line with expectations with no material migration in the quarter. ACL as a percentage of portfolio loans and leases decreased to 1.79%, primarily reflecting the [indiscernible] acquisition. The ACL as a percentage of nonperforming assets increased to 316%.

Provision expense included $83 million for merger-related day 1 ACL build. Our baseline and downside cases assume unemployment reaching 4.5% and 8.5%, respectively, in 2027. We made no changes to our macroeconomic scenario weightings during the quarter. though a qualitative adjustment was applied to reflect the direct impacts of the elevated energy and commodity costs as well as the broader implications for economic growth, inflation and unemployment in the current geopolitical environment.

Moving to capital. CET1 ended at 10% and reflecting the impact of the Comerica transaction and strong RWA growth. Under the proposed capital rule, our estimated fully phased-in pro forma CET1 ratio is 9.6%. The RWA benefit to capital ratios associated with the new rule is nearly a 100 basis point improvement, primarily due to credit risk RWA reduction. The proposed rule recognizes the granular, well-secured and relationship-based nature of our loan portfolio. The same portfolio characteristics we have been deliberately building toward over the past several years.

The [indiscernible] should expand the ability of the banking industry to support the economy through increased lending capacity. Additionally, our tangible common equity ratio, including the impact of AOCI and the Comerica acquisition increased to 7.3%. Over the last 12 months, the impact of unrealized losses included in the regulatory capital under the proposed rule has decreased by 16%, a 25 basis point improvement to the pro forma capital ratios despite an 11 basis point increase in the 10-year treasury rate. That is the direct result of our strategy to concentrate our AFS portfolio and securities that return principle on a known schedule, which represents approximately 55% of the fixed rate holdings within our AFS portfolio. We expect continued improvement in the unrealized losses as the securities [indiscernible].

Moving to our current outlook. Our outlook reflects the forward curve at the end of March, which assumes no rate cuts or hikes in 2026. Given the updated rate outlook and our more asset-sensitive balance sheet, we are updating our full year NII outlook to a range between $8.7 billion and $8.8 billion. We will continue to take actions to move the balance sheet to a more neutral rate risk position over time. which could include investment portfolio and/or other hedging actions.

Our outlook for full year average total loans remains in the mid $170 billion range. Full year noninterest income is expected to be between $4.0 billion and $4.2 billion, reflecting continued revenue growth in commercial payments, capital markets and wealth and asset management. Full year noninterest expense is expected to be $7.2 billion to $7.3 billion, including the impact of $210 million of CDI amortization and $360 million of net expense synergies in 2026. This outlook excludes acquisition-related charges.

In total, our guide implies full year adjusted PPNR, including CDI amortization, up approximately 40% over 2025. We remain on track to exit 2026 at or near the profitability and efficiency levels consistent with our 2027 targets. For credit, we expect full year net charge-offs between 30 and 40 basis points. Turning to capital. With the release of the proposed capital rule, we are updating our CET1 operating target to a range of 10% to 10.5%. We expect to resume regular quarterly share repurchases in the second half of 2026 with the amount and timing dependent on the balance sheet growth and the timing of the remaining merger-related charges. Our capital return priorities are unchanged, pay a strong dividend, support organic growth and then share repurchases.

For the second quarter, we expect average loans of $178 million to $179 million, driven by growth in C&I, home equity and auto, is projected to be $2.2 billion to $2.25 billion with NIM expanding another 3 to 5 basis points. Noninterest income is expected to be $1 billion to $1.06 billion, and noninterest expense is expected to be $1.87 billion to $1.89 billion. Finally, net charge-offs are expected to be 30 to 35 basis points. The first quarter established the foundation. NII above expectations, tangible book value per share growth intact credit at a 2-year low integration on track and early revenue synergies beginning to show. Those results matter, not just for what they are, but for what they signal.

The core business is performing. The integration is delivering. And as we move through the year, the financial profile of Fifth Third will continue to improve in ways that are visible, measurable and consistent with everything we have committed to when we announced this combination. We have the balance sheet, the business mix and the team to get there. With that, let me turn it over to Matt to open up the call for Q&A.

Thanks, Bryan. Before we start Q&A, given the time we have this morning, we ask that you limit yourself to 1 question and 1 follow-up and then return to the queue if you have additional questions. Operator, please open the call for Q&A.

[Operator Instructions] We'll go to our first question from Mike Mayo at Wells Fargo.

As you highlighted, this is the biggest acquisition in your firm's history. And it sounds like it's on track from your prior guidance with the Labor Day integration, $850 million run rate savings by the end of fourth quarter. I think we kind of knew that already, but what's incremental in the last 3 months or since your last presentation that you think is maybe going better than expected? Is that any of that higher NII guide due to the expansion in Texas and the promotions? And also, where are you seeing some of the snags? There's always issues with these things, what do you need to make sure you work out and doesn't kind of let down the progress?

Yes. Mike, it's Tim. I'll take an initial crack at that one, and then I'll let Bryan clean it up. So yes, I mean, we think we did a pretty good job of summarizing the past. As you know, when it comes to these large transactions, the absence of any surprises is a positive, right? So getting 1 quarter closer to a point where we're operating on a single common platform is an important milestone unto itself. In terms of just the core integration, I think things have gone really well. There really haven't been big surprises. We have all the -- we completed the Walk-the-Wall planning exercise that we run all the customer day when deliverables have been locked. I think there are 46 new to Fifth Third applications, which, as we mentioned, from a technology perspective previously primarily support the Tech and Life Sciences business and the Dealer Services business. plus a couple of things in payments. I think the data strategy and the data conversion, that work is completed. All the risk-based process reviews we needed to get done which are essentially the click down from the work that got done in diligence have been completed, and we know where the product gaps are that need to get filled. The org charts are done, as I mentioned in my remarks, and we've selected the key leaders. I'm pleased it's very early days. So this is not by any stretch of the imagination declaration of success. But that sort of employee attrition is actually running a little bit below the historical levels. So we're not seeing any sort of elevation in attrition. I think the positive surprise is actually what is happening in Texas and then even more broadly across the Southeast, is it related to promotional activity. We got a lot of questions after we announced the deal about whether the playbook that's worked so well for Fifth Third and the Southeast would work in Texas and in the Southwest more broadly. So that initial mailing that I referenced in my prepared remarks was a test, right? It was the test and learn process so that we could reground our targeting and expected balance models on empirical data in Texas. We mailed 700,000 households. Response rates were good. The fact that more than half of customers open checking even in an environment where there are still -- all the legacy tech limitations that Comerica had are still in place. I think is very good. But maybe the more exciting thing is that having regrounded the models, we dropped the subsequent mailing on the 10 to 11 of this month to 6 million people and the very early results there are super positive. Like with the sort of reground of the analytic models, like we're getting 3x the response rate that we see at this stage in a campaign packets. And we actually expect that campaign alone to generate $1 billion in deposits across Texas, Arizona and California, which would be great. Now that is all incorporated in the guide to be clear. That's not above and beyond the guide. But it just speaks to a, the fact that the tactics that we are using in the Southeast are going to work in the Southwest and B, the fact that Comerica had not run any sort of external consumer marketing in 13 years. means it's a relatively unsaturated market for us. And therefore, if anything, I think my optimism about our ability to gain share there has improved. Then in terms of what what's not working. We got a little bit of an internal civil war here between people who like their Chile with beans, no beans or on spaghetti. So that we're going to have to solve before we can truly say we're one company.

All right. That's kind of like my weakness as I work too hard. But okay, I'll [indiscernible] so just I guess is just interesting, like you guys said had very old last century, all these mailings and stuff, but 6 million mailings it sounds like you're getting $1 billion of deposits that will pay off. But how does -- this is all America accounts right now, right? And so after Labor Day, they're all going to become the third accounts. And so seems like that transition has some risk too, going from America to actually branded Fifth Third. How do you manage that transition?

Yes. I mean the tech conversion, as you know, right, is the single largest point of risk in a transaction because I think we've got a very good employee value proposition here. we've got, on a combined basis, more capability than either company had to serve clients and those things are good for people that the Code Red event that could occur would be if you made a mistake on the tech conversion and either people couldn't access their accounts or you had service issues or processing issues or otherwise. So we're definitely always mindful of that. Assuming that we execute the conversion well, the way that we did with MD as an example, then I actually think the tech conversion is a positive. There'll be a bake-in period where people will need to learn to navigate new interfaces, whether that's the consumer mobile app or the commercial portals and otherwise. But the capabilities that are [indiscernible] in Fifth Third digital channels are much broader than exist inside Comerica's current channels. The point I made about the managed services, like those are software solutions that we offer in commercial payments. The fact that we've shown those things to 100 Comerica clients, we have 2/3 of them as qualified leads in the sales pipeline sort of speaks to the tech quality. What the conversion will allow us to unlock though, is all the digital marketing channels. Like the reason we're not doing digital marketing to support the Southwest markets today is because Comerica can't open consumer deposit accounts digitally. And therefore, there's no sense in using them. once we're under the Fifth Third brand and on the Fifth Third tax stack, the 50% of our direct marketing that gets done via digital today, all of a sudden then becomes viable in the Southwest and all the household growth tactics that we use in addition to the deposit growth tactics and the Southeast become viable as well.

We'll move to our next question from Scott Siefers of Piper Sandler.

Maybe Bryan hoping to start with you something you can speak to some of the underlying drivers in the core margin. I think I know you suggested the reported level should expand another few basis points in the second quarter due to the full quarter's impact of Comerica. But maybe you could sort of speak to dynamics such as overall rate positioning, which I think you touched on, but maybe competitive dynamics on the loan and pricing side, just those kinds of things that you're seeing?

Yes. Absolutely, Scott. Thanks for the question. As I mentioned in my prepared remarks, we are asset sensitive today. That is certainly a factor that we are focused on as we think about trying to move to a more neutral position over time. We feel very good about how we're positioned, and that's obviously one of the things that's gone well for us with. The current volatility in interest rates, it's given us some opportunity to do some things in the investment portfolio and put a few positions on in the quarter at pretty attractive levels. So we do feel good about that. From a driver perspective, we do expect some additional improvement from fixed rate asset repricing over the remainder of the year. From a magnitude perspective, it's a little bit less impactful than it has been because 1/3 of our balance sheet was effectively repriced on the with the Chimeric acquisition. So we are still seeing some good trends there. on the legacy Fifth Third portfolio. But obviously, that's just a smaller percentage of the balance sheet now. That's probably 1 basis point, 1.5 basis points kind of pick up each quarter through the end of the year and feeling good about trajectory that gets us approaching to exiting the year closer to 340 from a NIM perspective. So a lot of things going well from a net trajectory perspective. The environment, obviously, it's competitive, we're in an industry that is always competitive, both on the lending side and on the deposit side. I would tell you that it is competitive but not irrational right now. Loan spreads have come in a little bit, but aren't crushing at this point. And we are just seeing normal deposit competition with the Midwest continues to be the most competitive deposit market that we're seeing from a consumer perspective, more competitive than the Southeast, and we're still trying to get a better sense of what Southwest looks like, but it does not look like it's going to be an outlier relative to other markets.

Okay. Perfect. And then maybe a higher level question here. You all talked about the fourth quarter of this year, representing sort of the time when we really see the full run rate accretion, returns, efficiency. Basically, all the benefits from the Comerica transaction. Basically, all your numbers are going to be at or near best-in-class. As we start to look to a post sort of post Comerica time like into next year when those benefits have really become realized how will you sort of think about balancing additional improvement in profitability, returns, efficiency? Or will those at that point represent sort of steadier states as you do things like invest to just ensure that the levels you reach remain durable over time?

Yes, that's a good one. And we've been getting a variant to that Scott, over the last, call it, 90 days about, hey, are the synergies durable? Or do they need to be reinvested? I have been telling people if you have to spend it in some other way, that's not an expense synergy. It's a capital application play. So we absolutely believe we can sustain the level of profitability that we expect to achieve in the fourth quarter and continue to improve it. I grew up in the cradle of distance runners and Nike posters as [indiscernible] on my wall going up. So the view here is like there's no finish line, right? We just have -- we've so much in front of us, right? So you want to generate a strong return on equity under any circumstances. But then you want to make the decision at the margin. So if we're at 19%, and we've got a 53% efficiency ratio, the decision on the margin should always be do we utilize continued strength in operating performance to drive higher profitability and boost the TBV the TBV multiple -- or do we focus on growing tangible book value per share or doing a little bit of both of those. I just think we're going to have the ability to continue to do both. Like when I got here 11 years ago, under [indiscernible] 1/4 of the U.S. population lives in our footprint. Today, more than half of the U.S. population does as Bryan mentioned in his remarks, 17 of the 20 fastest growing large metro areas in the U.S. are now in the footprint, and we have a credible as the top 5 market share in all of them. I think we have the freshest branch network. If you just look at it by age of any of the [indiscernible] 3 or 4 banks and maybe any of the LFI banks. We've got this payments business now that's benefiting when nonbanks actually take share from banks, which is great. And we have this huge influx of bankers from Comerica who have the shackles off of them, right, in terms of not being capital or liquidity constrained. And I'm proud of the track record we have for tech innovation. So we will continue always to invest in the core business with the expectation that at 19 -- like 19% ROTCE is great. And if we run out of ideas, then we'll focus on getting 19 to be 20 or 21 or 22. And otherwise, it will be about growing book value per share.

Next, we'll go to Gerard Cassidy at RBC Capital Markets.

Tim, did you have a [indiscernible] poster too with Steve's poster?

I had Steve and Dick [indiscernible] At my height my lack of foot speed, you had to go with the field athletes as well. So [indiscernible]

Got it. Good for you. When I look at your utilization trends that you gave us, and you touched on it in your prepared remarks, in the appendix, I think it was -- it jumped up nicely from 34.9% in the fourth quarter to 40.7%, and then you give it ex Comerica. Can you give us some color in 2 areas: one, legacy Fifth Third, what you're seeing there? And then also legacy Comerica what are they seeing?

Yes. From a utilization perspective, Gerard, I would tell you, it's fairly consistent what we're seeing across the Fifth Third Platform and the Comerica platform. which is middle market customers, we're starting to see use a little bit more activity there. We also saw a nice rebound from a corporate bank perspective. I do think part of it was some of the activity that we were seeing from a capital markets perspective because we did see less pay down this quarter from a capital markets payoff perspective. But it was really a -- and we think it was the rebound that we were expecting associated with some of the tax bill benefits coming through, where we just saw some more active spending happening as customers were working through the environment. And then obviously, later in the quarter, obviously, some impacts associated with the situation in the Middle East.

Yes. Maybe the one thing I'd add there, that is at least based on the cursory read I did other banks that have reported thus far as one thing we didn't see that a lot of other people size. We didn't get a lot of the loan growth from private equity or price capital. So if you look at the growth in loans, less than 10% of it, in our case, came from private equity or private capital. And my quick read through it may be as high as 80% of a lot of other places. One of the things that's comforting about the Comerica portfolio is, they're a lot like Fifth Third in the sense that we bank [indiscernible] businesses, right, primarily privately real economy businesses. People make things or move them or warehouse them or sell them or core services like health care. And otherwise, between the 2 of us, we were both on the low end of the as a percentage of total commercial loans tables. And it just hasn't been a growth focus for us. I think the other thing I might flag there since I know it's come up as we have less than $100 million of funded exposure to data centers, what we definitely have been on the more skeptical end of the spectrum on that front. We talk internally about the fact that we wouldn't underwrite an energy loan without a petroleum engineer looking at the projections. And I don't think there are a lot of us employing AI researchers the cost that they are to help underwrite data center facilities. It's just there's such a long history of overbuilding tech infrastructure anytime there's a platform shift. And the obligors are a little less clear than we personally would prefer. So that is where the growth wasn't coming from in our case.

Very good. And then just one follow-up on the credit quality, which brand you pointed out, the guide for [indiscernible] is very good in the numbers in the quarter are good. One question in the commercial side of the portfolio. And I know this number moves around because of the nature of it. But the 30 to 89 delinquency numbers, even though low. When you look at the commercial and industrial going to 38 basis points of the CRE going up, any -- is it -- anything there that we should just keep an eye on? Or is it just because of the combination of the 2 companies and people maybe didn't know where to send payments. I know that sounds kind of strange, but any color there?

Yes. It's not quite as basic as they didn't know where to send payments, but the majority of the increase there, Gerard, was 2 credits, and the payments got made on April 1. So if we could have reported all of this as of April 2, you wouldn't have seen the jump that materialize there.

Our next question comes from Ebrahim Poonawala at Bank of America.

I had a question first just on deposits. As we go through all these updates does feel like funding is a much bigger constraint for banks as we move forward than capital. Just talk to us around this Southeast strategy what seems like an intense environment. How we -- how are you converting clients acquired through promotions into core checking accounts. Is that happening? Just kind of remind us on where that stands? And maybe tied to the -- one of the previous questions, Tim, when you think about opening these branches in Texas 3 to 5 years from now, just a degree of confidence that branches will still be as relevant 5 years from now as a client acquisition tool as there today?

Yes, good question. So Yes. I think your point is an important one, your ability to convert relationships into essentially new clients, right, whether you attract them through rate or cash bonus or because of the new branch opening or otherwise, in the primary long-tenured relationships. That's effectively the seed corn for everything that we do because we have an acquirer once and then maximize wallet share strategy. That's the reason we keep disclosing the household growth rates in the Southeast, like those are primary households. If accounts going active, they get washed out of that number. And so you could trust that the 3% overall and in this case, the in household growth in the Southeast, the sort of 7%, 8% range we've been running at as a real number. It's active accounts in 1 period divided by active accounts in the same period the year before, minus 1, right?

So the population growth in the Southeast is 1.5% to 2% per year in any given market. Our growth rates have been 7% to 8%. So we're generating 3 to 4x the growth on a net basis that the market is experiencing on a net basis. which I think should be the sort of best proof point you can rely on that we're making the conversion. Savings promotions don't count in that number. anything we do with loan products, home equity, et cetera, that doesn't count in the number that's primary checking customers. In the Southwest and in Texas, that we have 81 or 82 of these properties locked up. We're going to have branches opening next year, not in 3 to 5 years, just to be clear. And I think the measure of their importance, like I actually like to think about branches, if you don't think about them as stand-alone mechanisms to generate new account growth, the other way to think about them is attributes, which boost response rates to direct marketing, whether that's digital or male. And there is a nonlinear decay function in response rates and expected value. The further you get away from a Fifth Third branch by drive time in our models today. It's 1 of the more powerful variables in dictating who gets a digital offer, like the IP range or the ZIP code in the case of a mailer actually drive whether or not you see Fifth Third promotions. And as long as that decay function exists, the branches are playing a role in driving our ability to grow the franchise. And I just don't expect human behavior to change that quickly. it certainly hasn't ever in the past.

Got it. And just one quick follow-up. You mentioned this a few times in terms of do you mean anything between NBFI growth versus non-NBFI. One, like do you see -- like why do you not -- like do you see the embedded risks in that lending that you don't like? Just give us a sense of like when you evaluate why is it attractive for so many of your peers and not so much when you assess that for Fifth Third.

Yes. I mean I'm not making a call on private credit and viability. I don't personally believe it's going to go away as a category. I think our view generally has been that the private credit industry is going to be much smaller in the future than people were worrying about like their 2 strategies for growth were retail money, which was always a bad idea and which has been demonstrated again to be a bad idea and by promising returns of 8% to 9%. And which we just viewed as being unrealistic, right? Banks run at like 8 to 10x leverage to get a 15% return. And we have loan revenue, deposit revenue, fee revenue in the mix. the idea that private credit could deliver 8% to 9% with, call it, 2x to 3x leverage with loan-only revenue, just always felt like it was unrealistic. So is there a place in the investment spectrum or on the efficient frontier for something that offers a return between corporate bonds and equities, like absolutely. It just doesn't feel like it's going to be anywhere near the size. Now we're not a very big player in this market. Comerica and Fifth Third together had somewhere around $1 billion of private credit or BDC activity. So I can't speak to the leverage points a lot of others are. The reason we avoided is because we couldn't figure out what total leverage was in these structures between the portfolio companies the back leverage and the NAV lending and the lending to the companies that were doing the NAV lending and the capital call and all the rest. And we don't like things that we don't understand. I think for me, at least, though, the bigger reason to avoid it is it's -- that is not an industry that like lending to is not a place where banks are going to build competitive barriers, which means the return profile is just eventually will gravitate to cost of capital. And we want to generate returns in excess of cost of capital. So when you let your line of business, get too addicted to getting growth from something that's going to be a cost of capital hurdle. It distracts them from focusing on the things that could generate excess returns like primary relationship lending, like managing wallet share, like establishing lead-left positions -- and so that is where we want to get the growth from. It's stuff that can generate a 19-plus percent return over time, not something that's going to generate 11%, 12%, 13%, 14% return over time.

We'll move next to Manan Gosalia at Morgan Stanley.

I think in the prepared remarks, you mentioned that the proposed rules recognize granular, say, for well-collateralized loans. So I think you were pointing to opting into ERB. So first, I just wanted to clarify that. And then my main question, Tim, when you think about EBA given that it would allow banks to hold less capital against higher quality loans. Do you think it creates some sort of disincentive or negative credit selection for banks that don't opt in?

It's Bryan. At this point, we're still evaluating whether or not we will opt in to era. It's not necessarily the driver of creating the big benefit for us. [indiscernible] is probably an incremental 10 or so basis points relative to the numbers that I quoted. And then obviously, there's some complexities associated with data and models and systems in place necessary to do some of the calculations. So that's something that we're still evaluating. There is always some regulatory arbitrage out there, whether it's within the existing capital rules and use of securitization style structures from just general lines or how private credit participates in in the regulatory landscape as well. So there is always that aspect of competition and ultimately, how you think about capital allocation across I don't think it will have ultimately [indiscernible] would have a really big impact ultimately on competitiveness across the industry and between the banks that opt in and those that don't.

Yes. And I guess the only thing I'd just add there is it sort of depends on how you underwrite like not every bank, just at least 15 years ago when I was a consultant -- not every bank underwrote to the same binding constraints. Not every bank thought the same way about how they calculate returns. The binding constraint here. Obviously, we think about Red Cap and the return on Red Cap in terms of the performance of the company as a whole. But when we look at individual credits, we look at into the amount of economic capital that those credits should attract given the way that we risk rate the credits both in terms of default probability and loss given default. So if all you were looking at was the same capital charge for every loan you underwrite like in a non-urban environment. I think you run into that risk. But certainly the way that we approach it. The decision to opt in or out is going to get made at the macro level. and the individual underwriting decisions and the return calculations get done at an individual company level.

Got it. That's really helpful. And then now that we have the proposals for capital I think the focus has been turning to the liquidity rules. I guess the question for you is, what would you like to see there on the liquidity side? And is there something that you want to see that would cause you to manage your liquidity differently from what you're doing?

Yes. I think the most valuable thing for the industry is some credit and the liquidity rules associated with your secured lending capacity at at places where you know the liquidity is going to be there. Think about your FHLB borrowing capacity against your securities, discount window or repo facilities like those will be areas where getting some credit associated with that off-balance sheet liquidity would be very valuable for the industry. That is probably one of the more significant. We would also like a little bit more rationality on deposit outflow assumptions. That is an area where there has been significant pressure on the industry across the old horizontal liquidity exams that were occurring. And I just think we've ended up in a spot where the assumptions that are embedded in most liquidity stress tests today are just absurdly high relative to some of the core banking relationships, in particular, the operational deposits that are attached to treasury management services.

We'll go next to Chris McGratty at KBW.

Tim, I want to come back to the comment about the Midwest being more competitive in the Southeast. It seems somewhat contrary to where all the capital is being allocated from a lot of the banks. Can you unpack that a bit?

Yes. I mean Chris, this has been true. It's like one of the interesting factors that just been true for a very long time. I think you had 2 dynamics in the Midwest that are a little bit unique relative to the rest of the country. One, historically, you've had a lot more regional banks headquartered in the Midwest, right, and less in the way of trillionaire market share and less consolidated markets tend to be more competitive. That's just -- that's not a blinding insight on my part. That's just economics 101. The second factor is credit unions play a much more prominent role in a lot of the Midwestern markets than they do other places elsewhere in the country. And credit unions tend to be optimizing for very different factors like do not help do a profit mandate and therefore, they tend to be optimizing around just absolute levels of liquidity needed or otherwise. And so the sort of combination of more fragmented markets and an actor that's optimizing around a different set of goals just produces higher levels of deposit competition. That, I think, for us has been 1 of the interesting things as we moved into the Southeast as we have this double benefit of both having a small existing share and, therefore, a low cannibalization cost of any new marketing campaign that we run, right, which is a little bit like Judo you're using your opponent's weight against them. And the fact that at the margin, the marginal dollar in the Southeast is still a little bit cheaper to raise than the marginal dollar in the Midwest. It means we can be more aggressive and still have a very nice impact on the franchise overall.

Great. Yes, definitely, with the Chicago being one of the more competitive markets and fragmented.

I don't know that there's another state with 3 regional banks headquartered in it either the way that Ohio has [indiscernible] Fifth Third and [indiscernible].

Sure. And then, Bryan, just on the full synergies, the cost saves mapping out, can you I guess, help with exit run rate on efficiencies. It feels like low 50s in this year and you kind of go into next year from a pretty good position. But just could you find in that for me?

Yes. I mean we're -- the expectation is -- that we talked about as being in that 53% range in 2027. Our fourth quarter efficiency ratio is always our lowest efficiency ratio for the year. So I would expect us to be a good point, 2 points below that 53% in the fourth quarter.

We'll go next to Peter Winter at D.A. Davidson.

I was just wondering -- when you first announced the Comerica acquisition, you were targeting a 27% EPS of 4.89. But now that you spent more time with the company, you're getting some early wins on the revenue synergy side, do you see upside to that number because it did not include any revenue synergies?

Yes. I mean, obviously, that's something that's part of the deal that we would not contemplate any revenue synergies. So anything that we are seeing would be upside. So we do feel good about kind of the progress there. I think we will be striving to outperform what is there? Obviously, 2027 is a long time away and the environment, the rate environment and a lot of other things can change. But we certainly are more positive today about the opportunity in front of us, even though we were incredibly positive at the time of the acquisition. So a lot of things are going well, and we feel good about the trajectory of the company.

Okay. And then if I could just follow up, just -- if I think about Fifth Third, one of the strengths has been managing the balance sheet in different interest rate environments. But Bryan, where are you in the process of repositioning Comerica's balance sheet? You mentioned it's you're asset sensitive now, but how quickly do you want to get back to neutral? Or would you slow walk it just given the higher for longer rate environment?

The higher for longer rate environment and our outlook and like we are very cautious around what could happen out the curve. So we are trying to make sure that we're balancing capital risk as well with a downrate risk. And all the things that's happened even over the last month or so when you think about what it's going to do to inflation and what is honestly still a fairly reasonably strong economic activity that we're seeing. We just see that there is more bias right now for the higher for longer outlook. So with that, we're probably moving a little bit slower. But as that outlook changes, we would have an ability to accelerate. There's probably in the neighborhood of $30 billion to $40 billion of kind of notional exposure that we could move out the curve as our rate environment out changes. That gives us a lot of flexibility as we navigate this environment. And we think even if you were to start to see some more significant cuts again that what you're likely to see is some amount of steepening that gives you some opportunity for us to deploy and maintain and even grow NII even in a falling rate environment.

And next, we'll go to Erika Najarian at UBS.

Just one question because I know we're pushing the limits of length of time. But Bryan, given that there's no cuts in the curve, could Fifth Third maintain deposit costs even if there are no cuts Tim, your ears must be burning because even your money center peers are talking about your competitiveness in their markets. So just wondering what the deposit cost outlook is in an environment where the Fed is not cutting.

Yes. We absolutely think we can maintain deposit costs even in an environment where the Fed is not cutting. The real wildcard there is ultimately what the balance sheet needs from a growth perspective. If we see a more aggressive loan growth environment, that is an environment that would put a little bit more pressure on deposit costs, but in a fairly rational kind of normalized growth environment, we think we could -- we think we have a lot of optionality to be able to maintain deposit costs where they are.

And next, we'll move to John Pancari at Evercore.

This is [indiscernible] on for John. Just one on the fee side. Solid results in the quarter, healthy guide despite the volatility in headlines if this subsided at all, you see this driving much upside from the billion quarterly run rate. I think our wealth and capital markets like you mentioned, I think about how much conservative might be baked in the guidance now again versus potential upside?

Yes. I mean there's always a little bit of conservatism we put in place relative to capital markets. which we've been talking about hoping for a kind of more stable productive environment now in the hedging environment for a couple of years. So we do think there's opportunity for that as a more stabilized environment to come out. Obviously, that will be helpful from an M&A perspective as well. The rest of the few businesses have been doing fairly well without or even with the uncertainty that we've been facing. So we feel like the tailwinds there and the investments we've been making from a sales force and a production perspective, positions those businesses to continue to grow as well as the investments from a payments perspective and just the categories that we're attached to. So certainly, we think that there is opportunity from a fee perspective to continue to see good outcomes.

We'll take our next question from Ken Usdin at Autonomous Research.

Just one question, just given that it's a partial close quarter. I just wanted to understand the moving parts a little bit. Can you help us understand the dollars of purchase accounting accretion that we're in what you're expecting for 2Q and just how that cascades in terms of the schedule?

Yes. If you look at the -- we tried to lay that out in our slide deck and our NIM walk. So if you see, there was about $12 million of purchase accounting accretion associated with the loan portfolio in the first quarter. And I think the easiest way to think about that is it's really just 2 months of activity. And it will burn down relatively gradually over the next few years. Most of that is associated with combination of commercial portfolio. So that has a little bit shorter tail on it than if it were residential mortgage exposures. That is kind of the main piece from a purchase accounting accretion perspective. the securities, kind of what was embedded from a securities perspective is basically bringing those securities to current market rates. So the assumption there should there should just be based off of how you think about where market yields are going through the securities.

Okay. So basically, that if that's one line that you mentioned in your prepared remarks that [indiscernible] becomes a little bit more in the second quarter. So it's really just that 12% kind of run rating. Is that the only -- I just want to like understand the magnitude of how much of help that is going forward?

Yes. Well, basically the 12 becoming probably closer to mid-teens when you think about adding a note [indiscernible] for next quarter.

Okay. And then just a real quick one. You mentioned also in your prepared remarks that you might get back into the buyback in the second half. Your CET1 with AOCI still on the lower end of peers. Any way to think about like what that looks like when you get to that point?

Yes. I think in the normalized -- I think in a normalized environment, we would be talking about kind of $200 million to $300 million of buybacks is what our quarter was what our historical run rate has been. Obviously, it's going to be very dependent upon how much we need to support organic growth because being able to lean into lending is an area that is obviously a priority for us always because we'd rather deploy the capital. And earn a higher return, as Tim was talking about, our ability to attract customers and generate high-teens returns is we think, is the best outcome for shareholders. For this year, it's probably going to be a little -- it's going to be less than that as we get into the second half, but we still think there's going to be some opportunity to restart buybacks.

Next, we'll move to David Chiaverini at Jefferies.

Question on dividend finance. It looks like the deceleration you anticipated is starting to come through in the related uptick in NCOs there is beginning to occur as well. How high should we expect this NCO rate to trend so that we're not surprised given the slowdown is fully anticipated.

Yes. I think -- it's a good question, and it's one that we think the range we're in right now is probably a reasonable range to expect for a period of time. Obviously, this is an industry that is facing a significant amount of disruption as a result of the tax bill and basically creating a war the leasing product is economically advantaged relative to the lending product. That was not an environment that when we did the original acquisition that we were expecting. We're having a -- we're working through it, and it's obviously not a growth asset for us anymore. But I think the range we're in right now from a charge-off ratio perspective is probably where [indiscernible].

Very helpful. And then shifting over to HELOC. The HELOC growth is off to a very strong start in the first quarter, and more than offsetting that headwind on dividend finance. What's driving the strong growth in HELOC? Is it Fifth Third's pricing? Or is it grassroots loan demand from customers? And what is the outlook for this business?

Yes. The first quarter benefit some from the [indiscernible] acquisition as well. This -- of their consumer lending categories, HELOC was one of the categories that had some loan balance. So that is a driver of probably about half of the first quarter growth. But beyond that, what we're seeing is actually just good grassroots activities. We've made a lot of improvements to that business. and the customer experience in that business over the last couple of years. So it's put us in a spot where we have a really nice engine that's running right now. We're seeing good activity from a branch perspective. The improvements that we've made from a technology and underwriting experience perspective has made it a product that is easier for the bankers to sell. It has just been something that we're seeing a lot of good activity on, and we've also been able to actually lean in to a little bit of marketing in the space as well. And customer acquisition tactics. And honestly, when you just take a step back and think about the dynamics of the amount of home equity that is out there in the market right now and the lack of housing turnover that's occurring. It's just -- it's an area that we think you're going to continue to see significant growth in for some time. I mean we're 2 years -- 2-plus years in now seeing consistent growth equity perspective.

Yes. The 1 thing I'd just add there is, I think, as Bryan said in his remarks, #1 in market share in our footprint in home equity originations and in the bottom half in terms of pricing. And there's very good pricing data available through aggregators. So we are not competing on lice. It's great originations volume effectively at better spreads than others.

And we'll take our final question today from Christopher Marinac at Brean Capital Research.

I want to ask you and Bryan about the NBFI reserve allocation. Would that number necessarily not go up much this year because you're avoiding some of the higher-risk, lower-return pieces of [indiscernible]

Yes. We're not seeing anything in our [indiscernible] portfolio that would cause us to have any need to build significant reserves related to what we're doing very well secured, very well performing, just not an area where we're seeing in [indiscernible].

Yes, absolutely. Before we wrap it, I just quickly want to say congratulations to Keith Horwitz on his retirement and on his 30 years in the community. -- my sense is that he's going to prove out the adage that old [indiscernible] never die. They just stop updating their outlook. So we appreciate Keith for all the years of coverage here and wish him the best in the next phase.

And that concludes our question-and-answer session. I will turn the conference back over to Matt for closing remarks.

Thank you, Audra, and thanks, everyone, for your interest in Fifth Third. Please contact the Investor Relations department if you have any follow-up questions. Audra, you may now disconnect the call.

Thank you. And this concludes today's conference call. We thank you for your participation. You may now disconnect.

Currently, we have Fifth Third Bancorp. With us today is Bryan Preston, Executive Vice President and Chief Financial Officer. Prior to this role, which he assumed back in January of '24, he served as Treasurer for Fifth Third for about 4 years. And to my immediate left is Kevin Khanna, who is the Executive Vice President and Head of the Commercial Bank at Fifth Third, a position that he assumed back in 2025 and heads up the commercial bank for the company.

And as many of you know, Fifth Third is about $215 billion in total assets. That's as of the fourth quarter. Obviously, the CMA numbers will boost that up. And then also, it's got a market cap of just about $31 billion. We'll start off with some opening comments from Bryan, and then we'll go into a discussion, take it away.

About $290 billion in assets about $45 billion in market cap, depending on where the market is today. Yes. Thank you, Gerard, and good morning, everyone. This morning, we published a slide presentation on our Investor Relations website, which I'll reference in my prepared remarks. And afterwards, Kevin and I will be happy to answer any questions you may have.

At Fifth Third, we prioritize stability, profitability and growth in that order. That discipline guides how we manage the balance sheet, how we allocate capital and how we think about delivering long-term value for shareholders. Since we announced Comerica, one question keeps coming up, what's next? Often, what people mean is, should we expect another acquisition?

Growing up playing a lot of sports, I'm reminded of a lesson from coaches through the years. Don't chase, let the game come to you and be ready to move fast when it does. In banking, this means you stay disciplined, you stay in the details and you execute on what's in front of you. And what's in front of us right now is clear: deliver the Comerica integration.

Today, I want to focus on 3 things. First, why Comerica is so important to Fifth Third's long-term growth. Second, how deliberately we are executing the integration; and third, the savings we are already realizing and expect to further realize over the remainder of the year. Let me start with the strategic importance of Comerica. This transaction is not about adding scale for scale's sake. It is about accelerating a growth strategy that was already working and improving the granularity and durability of Fifth Third.

Comerica brings one of the strongest middle market franchises among regional banks built over decades around deep relationship-driven client engagement. Their platform is anchored by long-tenured bankers and high-quality relationships in a segment of the industry that can drive strong economics. The middle market brings full relationship value. In addition to granular loans, we generate treasury management, payments, wealth and capital markets opportunities.

This aligns with our strategy of building deposit-led fee-rich relationships and not relying on balance sheet growth alone. Comerica also accelerates the most important strategic shift at Fifth Third over the past decade, the transformation of our footprint. 10 years ago, our deposit and commercial banking presence was concentrated in slower growth Midwest markets. Today, inclusive of Comerica and our Southeast and Texas expansion, we operate in 17 of the 20 fastest-growing large U.S. metropolitan areas.

Texas is obviously the clearest new opportunity for Fifth Third. Comerica deepens our retail and middle market presence in a state where population growth, business formation and investment trends remain compelling. And in banking, 2 things matter most than most people appreciate, density and talent, and Comerica strengthens both. Just as important as where we are is how much runway remains. A meaningful portion of our branch network, particularly in the Southeast and soon to be in Texas, will be early in its life cycle.

And our de novo branches have a track record of strong growth, gathering over $50 million of deposits per branch during their first 5 years, well ahead of peers. When you combine that kind of retail deposit runway with a scaled middle market franchise, you create embedded growth that is hard to replicate. Finally, growth only matters if it's durable. Relative to peers, we have a high proportion of sticky relationship deposits as part of our core funding, and they continue to grow.

Our deposits are increasingly tied to primary households, commercial operating accounts and payments linked services, relationship attributes that drive stability. Turning to integration. Execution determines whether a transaction creates value. From day 1, we structured this integration around discipline and sequencing, not speed alone. We deliberately separated the process into 2 major milestones: Legal day 1 completed on February 1 and customer day 1 scheduled for the day after Labor Day.

This structure is intentional. Legal day 1 was about governance, balance sheet control, financial and regulatory reporting and risk management. Customer day 1 is about experience, and every customer deserves a perfect conversion. From a people standpoint, we have not seen elevated turnover among key employees. Leadership teams from both banks are deeply engaged in readiness, communication and change management. This matters because we are protecting the franchise while integrating at pace.

We took a details first approach to legal day 1. Before close, we completed more than 120 deep dive process reviews, mapped more than 95% of Comerica's applications for conversion or retirement and conducted legal day 1 dress rehearsals across all major work streams. Between now and September, we are running full-scale mock conversions, including end-to-end data migrations, system load testing and customer journey simulations. Each mock is designed to increase in scope and intensity, so we can find issues early, fix them and compress execution into a clean conversion weekend. This is repetitive testing, not a big bang approach. It is how you reduce risk in a complex conversion.

Now let me turn to expense synergies. From a financial perspective, we are managing this integration with the same discipline we apply to the core business. We have clear line of sight to at least $400 million of expense savings in 2026, ahead of the original plan of $320 million. As we discussed on the earnings call, we expect to reinvest about half of this incremental savings into growth initiatives such as more direct marketing or accelerating sales headcount additions.

We manage the details. We track synergy realization methodically, separating timing benefits from durable run-rate savings, and we measure progress against defined milestones with accountability embedded at the business line level. This level of transparency is how we deliver on commitments. Clear owners, clear milestones, no surprises. As we move through the year, our focus will shift from integration savings to how to further improve the run rate cost of the business. That discipline is what positions us to deliver peer-leading efficiency in 2027 and beyond.

Turning to the outlook. This past month has been a reminder of the volatile and unpredictable nature of the macro and geopolitical environment. We still expect the tax bill to add to economic growth, but the return of tariff uncertainty and the global unrest may offset some of these benefits. As a reminder, our first quarter results will only include 2 months of Comerica activity. We expect first quarter average loans of $158 billion to $159 billion, with growth driven by production and commercial line utilization returning to more normalized levels.

Net interest income is expected to be around $1.93 billion. The benefits from purchase accounting and securities portfolio actions, combined with the termination of Comerica's cash flow hedges will be partially offset by 2 fewer days in the quarter. We expect fee income to be between $0.9 billion and $0.93 billion and noninterest expenses are expected to be between $1.76 billion and $1.78 billion. As is typical, first quarter expenses include seasonal items tied to compensation timing and payroll taxes, which add over $100 million of expense for the quarter above the remaining 3 quarter run rate.

Our expense guide also includes core deposit intangible amortization of $40 million and increased marketing expense, offset by early synergy realization and other efficiencies. Moving to credit. Net charge-offs for the quarter are expected to be between 35 and 40 basis points. For the full year, we are tightening our guidance ranges. These updated ranges also reflect minor netting within fees and expenses to conform Comerica and Fifth Third accounting conventions.

Our PPNR outlook remains consistent with our January guidance. Our net interest income remains between $8.6 billion and $8.8 billion. Noninterest income -- the noninterest income range is updated to $4.0 billion to $4.2 billion, and the noninterest expense range is now $7.2 billion to $7.3 billion and includes approximately $220 million of CDI amortization. Our net charge-off outlook remains between 30 and 40 basis points for the full year.

We continue to expect the fourth quarter to provide a clean view of the combined company's performance going forward. Given the normal seasonal strength of the quarter, we expect our fourth quarter efficiency ratio to be below 53%, which positions us well to achieve the 53% efficiency ratio and 19% ROTCE targets we originally set for the full year 2027.

Let me close where I started. We're asked what's next? We understand why, but our mindset is consistent. We don't chase what's next. We execute on what's in front of us. And right now, what's next is the integration, a seamless conversion in customer day 1, realizing the synergies and protecting the core franchise while we do it. Beyond integration, what's next is compounding returns. Our investments build capabilities, these capabilities drive better outcomes, and those outcomes create more capacity to invest.

Comerica increases our growth runway and earnings durability. Integration is how we convert that into results. And once we do, the playbook does not change. Invest consistently in a limited number of large opportunities, build density where we compete and keep delivering peer-leading returns through the cycle. Stability first, then profitability, then growth.

With that, Kevin and I look forward to your questions.

Thank you, Bryan. A follow-up on one of your comments about the cost savings for this year. I think you did $400 million versus originally $320 -- at the time of the announcement, I think you guys said 30% of Comerica's costs could be taken out. Any update to that number? Or are you more confident 30% you're going to reach?

We are very confident in our ability to deliver the $850 million run rate savings. And that the fourth quarter, we will see the $212 million, $213 million achieved for the full fourth quarter to deliver that run rate savings. I would tell you that we do think there's a lot of opportunity to continue to optimize. And the trade-off for us is that we just think that there is so much capacity for us to continue to grow that excess performance, we're probably going to reinvest in or at least some portion of it in the growth initiatives to position us to continue to gain share.

And maybe, Kevin, shifting over on the commercial side. Comerica, of course, was well known as a commercial bank and not a consumer bank. What have you seen as you've integrated or started to integrate the commercial loan officers from Comerica into the Fifth Third way of doing business?

Yes. I mean we've seen a lot of different aspects. One is they care about their clients the same way we do. Culturally, we're very similar in terms of putting the client at the center, being highly specialized and providing the right underlying support. They're also in sectors that we're in, and we were in the same footprint from a region standpoint. And so we have a lot in common in terms of how we approach the market, how we approach national industry sectors, how do we treat our clients. There are some good synergistic relationships from areas of overlap like commercial real estate or traditional energy. And there's the ability to get into businesses that we like and find attractive like Dealer Services and Innovation Banking and our Tech Life Science platform.

Can you also share with us the expense, as Bryan just pointed out, the expense savings, deals sometimes offer revenue synergies, but they're generally -- we got to be careful because it's not as easy as getting the expense savings. But with your plethora of products, is there better opportunities for revenue synergies than maybe other deals?

Yes. I would say just looking at this transaction, there is a tremendous amount of opportunity for revenue synergies. There's certainly low-hanging fruit as we would put it. If you look at our ABL practice and our equipment finance practice, those are 2 products Comerica didn't have. And so our ability to bring those into their clients is -- there's been a plethora of opportunities that have already come up. The cross-selling of, for example, our new line offering into the PortCos and the Tech Life Science business, the number of people that have brought opportunities to the National Dealer Service business. So there really are between the product offerings, geography and the technology products that we have, there's a lot we can bring to bear.

Yes. And coming back to deposits, can you guys share with us both from the Comerica side, but your organic growth in the Southeast, what are you seeing in deposit competition? It hasn't really been a real risk to the banks for the last 2, 3 years because loan growth has been modest. But if loan growth from the H8 data is picking up, what are you guys seeing for deposit competition throughout your combined franchises?

Yes. I mean, loan growth is definitely picking up. January and February were very strong months from both a production and a utilization perspective, we are shifting back to more normalized utilization, and that is leading to a little bit more deposit competition. I would tell you that both across consumer and commercial, it is getting more price competitive. It is not irrational, but it is certainly getting tighter. The Midwest from a consumer perspective is the most competitive market by far. Right now, what we're seeing in our data is the Southeast is actually the least competitive. So it is one of the things where we like the mix of our footprint and our ability to be able to pivot across markets as we work through cost optimization as we're trying to raise deposits.

When we take a look at the shifts in the regulatory outlook, and we're all expecting in the next couple of weeks, the Basel III endgame proposal. How does that -- it's always a focus on the large money center banks. But when you guys look at it, how are you thinking about the benefits that could accrue to a company like Fifth Third from the Basel?

Getting long-term clarity around the rules is obviously incredibly valuable. There's a huge -- taking the risk off of the table of a meaningful increase in capital ratios, which we're all worried about a few years ago. There is real value to that and getting more rational capital that is risk-based where it's refined, I think its going to be helpful for the industry on better allocation of capital based off of the risk profile. I don't expect a huge reduction in industry capital ratios.

I think whether it's equity analysts and other observers that are focused on TCE or the rating agencies, there is going to continue to be some pressure to maintain capital. But being in a position where you have a little bit more flexible regulatory capital framework would be helpful and having it established that hopefully, this is the long-term structure that we're going to manage to.

Correct. Speaking of capital, Bryan, I know at the time of the deal, Fifth Third indicated, obviously, the buyback was suspended until the deal was closed. You want to build up the capital ratios. Can you kind of walk through for us the path of getting back to a more robust share repurchase program when that may take place?

Yes. It's getting through and realizing the savings from an efficiency perspective. That is really the key. Basically, we're combining a 55% efficiency ratio company with a 70% efficiency ratio company, and we're going to get to where we're turning it into a 53%. And it takes a little bit of time for us to get there. And then throw on top of that all the purchase accounting and merger charges that we know are coming. Once we're through the majority of those, we will be then back on the path from an organic capital generation perspective.

You think about -- and it's always interesting how the math tends to work out this way. But our priorities are always -- we're going to pay a strong and stable dividend. And for us, that has typically meant try to maintain a low 40s, high 30s dividend payout ratio, support organic growth because the organic deployment of capital is our best use of capital to drive long-term shareholder value.

And what that is -- and that typically takes if you're trying to target a GDP plus a point or 2 loan growth. That typically takes about 1/3 of our capital as well. And then that leaves about 1/3 of capital generation that's excess. And post all of the integration work and when we're at the new run rate, that's probably a $300 million, $400 million, $500 million a quarter type range that people should be thinking about for share repurchases.

Kevin, Bryan touched on the retention of some key employees at Comerica. How about from the commercial customer standpoint, what are you seeing versus your expectations when you went into this? And what type of attrition you might see with some commercial customers or your competitors being more aggressive as you guys go through this integration, trying to pick off some of the commercial customers?

Yes. I'd say it starts with the retention of commercial bankers, right? And then that flows into the retention of the commercial customer. And I'd say we've seen very little outflow thus far. Part of it is if you're a commercial banker coming from Comerica, you're excited about the platform, right? The product offering, how we're positioned as a bank, our cost of funds, everything is a plus for them, and they're sharing that with their clients. If you're a client, what you want to know is you're going to have a consistent experience on the transition. We've done a lot of work in communicating both with the commercial RMs at Fifth Third and Comerica about what the transition is going to be like for the client, therefore, enabling them to communicate to the client. So far, so good on that front.

If you look at the attrition, you look at the conversations we're having, -- we've also done a lot to get the groups together, the groups that have been combined into one large industry vertical, the groups that are part of the same region have had get togethers in their local areas. We've had the full management committee together in Cincinnati, Ohio. And that message spreads, right? And as that spreads, that gives a lot of reassurance to the employees on a combined basis. And again, reassurance to the clients that we have. So we've seen very, very little attrition so far.

Yes. Obviously, your -- part of your day is now integrating Comerica, but you also have to run the bank the rig. Kevin, can you share with us just how -- Bryan already touched on January, February utilization rates ticking up a little bit. Where are you guys seeing commercial growth geographically? Is it from Tennessee? Or is it Ohio? -- of the franchise?

Yes. I'd say on both areas of commercial, we're seeing overall positive growth just about everywhere, right? And where you have high areas of GDP growth, right, the Southeast, which we've always talked about or large -- significantly large portions of GDP as a country, right, Texas, California, we're seeing areas of growth. And then nationally, if you look at our industry areas, right, a lot of them are actually relatively immune from some of the concerns, the thematic concerns that people have been talking about, right?

They're heavy on asset, they're low on AI vulnerability. And it could be a restaurant franchise, it could be environmental services, it could be aerospace and defense. And so we're seeing a lot of activity and growth in those areas. And probably the only area of softness is that technology area, right, that's mostly software focused. Other than that, if you look at the geographic region, our footprint and if you look at the national areas, as Bryan mentioned before, both from a utilization, but also from hitting kind of our planned organic production growth, we're looking quite active.

Yes. Bryan, coming back to the Southeast expansion that you guys, of course, have executed on, more banks seem to be following that path that you guys have paved into the Southeast of opening up branches down there. When you think back to the early days of that growth, -- now I would assume there's more competitors, have you seen any change in how quickly the deposit growth is for new branches today versus 5 years ago?

It's actually been accelerating, -- like every new vintage has been doing better. So '23 was better than '22, '24 is better than '23, '25 has been our best vintage ever. So we're actually seeing a nice pace. And some of that is we're just continuing to learn how to do this the right way, whether it's site selection, how we support it with marketing, the -- how we think about from a hiring plan perspective, I mean, it is an integrated system. It is not a build a branch and the deposits show up. There is a science and art around executing the right way.

And our team, especially the retail team, they have really optimized how to deliver the best performance out of these investments. And I don't see the performance slowing down anytime soon. The sites that we're getting are -- today are -- we would tell you are better sites than what we've had in the last 5 years from a weighted average kind of quality perspective because of all the learnings that we've had on the last 200 that we've built. These next 200 and the branches we're building in Texas, we're really excited about.

So the branches are not the Field of Dreams, build it, they will come.

They are definitely not the Field of Dreams, but the presence is necessary, right? It's -- there's -- they are billboards. They do attract -- you have to have the relevant amount of density and presence in the market for a customer to consider you. But consideration is just the first step. You still have to get them to pick you. And I think that's what we've done a good job of being where we need to be and knowing how to drive customers to the branch to acquire them.

Yes. There's been some disruption recently in the private credit markets. We're all obviously well aware of it. First of all, what's your guys' read on that? And then second, what kind of loss content could there be in this private credit markets and the impact to the economy?

Yes. I mean my read is -- and I know you had some people here yesterday pretty crowded. So there's clearly curiosity around that topic. I mean there's clearly challenges happening in that space, right? The first word gives away part of the opaqueness of it, right? It is private and so figuring out to what extent. I think what I would say is I don't think there's contagion in the credit market, right? And that's good news. I think there's a lot to -- when you look at the structures, the leverage points, the lack of covenant that they have in a lot of those transactions, that's creating a big part of the challenge.

To what extent, I think time is going to tell us a little bit more about to what extent that is a problem. And it's clear that it's not just software related. It's clear that there's other sectors that are going to be impacted in the private credit markets. I would tell you, I think if you look at banks in general and particularly ours, of course, as well, we're not impacted in the same way, right? We have a different leverage point for a lot of those same sectors. We have different covenants that we have in place to track cash flow and how it gets deployed. So I think it's hard to draw a line from private credit to bank lending.

And it's hard to really decipher at this point to what extent the problem is going to be for those private credit lenders because a lot of them are very large and have a lot of capital and can do some of their own working out. But I think everyone has their version of channel checking, whether folks are familiar with that, I know in the audience. But if you talk to some of the lawyers that are involved with these private credit funds that are particularly focused on restructuring, they seem pretty busy.

Yes, no doubt. And just speaking of credit overall, Bryan, you gave us the charge-off outlook for the year, of course. But what trends are you guys seeing? I've been called [indiscernible] trying to look around the corners and the outlook looks pretty darn good for you in the industry, obviously, separate from this geopolitical development. But what are you guys seeing on the credit front, both consumer and commercial real estate, et cetera?

Yes. If we have been -- we were talking 3 weeks ago, I would tell you, we are feeling really good about what we're seeing from a credit perspective. We -- we're pretty productive on the economy this year. We think that there are real tailwinds that are helping consumers. We've actually seen some inflection points on -- in the deposit accounts for some of our lowest deciles of the consumer portfolio that they are seeing stability and even some growth from an average deposit perspective. And you think larger tax refunds, you think withholding tables that were changed at the beginning of this year, like there was real money that was hitting people's pockets immediately.

And so those were all very good trends. Today, we're obviously cautious about what does persistent $100 oil potentially mean because those are -- some of those segments are the ones that would be potentially more at risk. But from a broad big picture perspective, the portfolio continues to be healthy. We're not seeing any broad-based industry weaknesses. And everyone seems like they've done a lot to better position themselves. And you've seen continued strength in this post COVID both excess government stimulus world that has been retained both on corporate and on consumer balance sheets now for some time.

Yes. One of the trends we're seeing, and we heard from some of your peers that commercial real estate mortgage is inflecting. Are you guys seeing that yet? Or is that just not a priority and it's more C&I lending, which I know that's a dominant part of the portfolio.

From an origination perspective...

Yes, correct. So the balances will start to grow in the commercial mortgage area.

Yes. I would say -- I would agree with that statement that there's an inflection. It's a relative term, right, about where we've been. But I would say there's some degree of optimism there about the origination that's occurring in that space.

Yes. And before we wrap up because we're running out of time, Bryan, can you touch on payments because that's one of the areas that differentiates you from your peers, embedded finance, in particular. How is that going in winning new customers and new businesses and share with us some of the color in that business.

Yes. It continues to go really well. And we talked about payments for us is going to be a -- it's a $1 billion fee caption for us now going forward. Comerica brings real capabilities for us to continue to grow in the space. They've got some relationships that were priorities that we're going to continue to deepen on. We continue to attract good players to our platform. And what we like about it is. One, we're attaching ourselves to companies that are growing at a faster natural pace. So we're getting the benefit of their growth.

And two, our capabilities in our product offering and how they access like Tim talked about our MCP server and being one of the first banks to do that. I'm not going to pretend that I fully understand everything there. But what it really means, though, is that we're giving our customers in this space who are the most innovative customers in the payment space, the ability to build new product on our platform.

So not only our ability to grow with them at their faster customer acquisition pace, but our ability to benefit from their innovation in the space as they continue to grow and take share. And that has been a key theme to the strategy. And the fact that we have more customers of these high-end payments, these prestigious payments names that want to be on our platform, it makes us feel good about the technology that we have and that we're going to continue to invest in it so that we will be the bank of choice to grow with them.

Yes. And in fact, can you follow on with -- is it Direct Express? How is that -- it gets overshadowed by the company.

Yes, it does. It gets way overshadow. A great opportunity. I mean it's -- it's nearly $4 billion of DDA. It's a program that continues to grow when you think about it from a demographic perspective. And the Comerica acquisition actually allows us to simplify the customer conversion because now we don't have to change the account numbers for the cards, which is so helpful for the customers. So it is continuing to progress, and we will be transitioning to our new processor later this year.

Got it. And then we're pretty much run out of time. But maybe just to wrap up, what's the message you want to leave with investors today from this fireside chat?

Yes. I mean the main message that we want to make sure that everybody understands is that there is so much embedded growth in our platform today. The franchise we are today is so different than we were 10 years ago, and we are positioned to execute against it.

And part of that is what's going to be a big driver for us to continue to deliver long-term returns for shareholders. We are focused on delivering for the shareholders that stick fire side in good times and bad and deliver those long-term outcomes and compounding book value at a faster pace today because the capacity that our platform now has for organic growth.

With that, please join me in a round of applause for Bryan and Kevin...

Next up with us, we have Fifth Third Bancorp. From Fifth Third, we have Jamie Leonard, Chief Operating Officer. And joining Jamie, we have Brennen Willingham who is the Treasurer of Fifth Third. So thank you, both of you for joining us.

Thank you.

And I believe, Jamie has some prepared remarks for us. So I hand it over to Jamie, first.

Thank you, Ebrahim. And good afternoon. Thanks for joining us today. It is a pleasure to be out of the Cincinnati snow to discuss in Florida, why the Comerica acquisition represents such an important milestone for Fifth Third. How we are executing on the integration. And why we believe this transaction positions us for stronger, more resilient performance in the years ahead.

When we evaluated this transaction, we focused on one question. Will this combination create a meaningfully better bank? The answer is unequivocally yes, strategically, financially and operationally. This acquisition strengthens our competitive position, expands our capabilities and support superior long-term returns. It creates a more durable, more efficient and better growth-oriented franchise, not just a larger one. The financial logic is also compelling. There's no tangible book dilution at close, with expected tangible book value per share accretion each quarter this year, achievable cost synergies and a long runway for sustainable growth.

This is a disciplined acquisition, aligned with our long-standing commitment to through-the-cycle value creation. As you know, while it's important that the numbers look good on paper, execution in the real world is ultimately where value is created. Our integration activities build on what worked particularly well in the MB Financial transaction and the lessons we learned from what could have worked better. Today, we are fortunate that almost all of our integration team members from our MB conversion are still here to successfully handle the Comerica integration.

Ever since we were asked to bid on First Republic in March of 2023, we have been preparing for the potential for a large-scale bank integration. We've been stressing our systems and automating processes so that we could double the size of the bank without compromising stability. While Comerica does not double our size, it does represent a significantly larger integration effort than MB. We have already made substantial progress on data mapping, technology alignment and operational readiness. Compared to the MB integration as well as our initial targets for Comerica, we are meaningfully further ahead, enabling us to accelerate customer conversion to Labor Day rather than mid-October.

This earlier conversion will provide a clean view of the company's financial performance in the fourth quarter of 2026, performance we expect will already reflect the return and efficiency levels we had originally targeted for full year 2027. While systems create stability, people and culture create value. Retaining the clients and colleagues is central to our integration strategy. Several senior Comerica leaders are joining Fifth Third in meaningful roles, reinforcing continuity and stability across our markets.

Steve Davis, a 33-year Comerica veteran is the Regional President of our expanded Michigan presence, Cynthia Jordan with 28 years of Comerica experience as our Regional President of Southern California, and Brian Enzler is the Regional President of our North Texas region with over 19 years of Comerica. In Corporate Banking, Joe Ursuy brings over 27 years of Comerica experience as the Group Head of Environmental Services. David Whiting will be the Group Head of the Tech & Life Sciences segment bringing deep experience from his work in a similar role at Comerica. Michael [ Van ] joins us as the Head of Dealer Services, continuing the strong leadership he demonstrated as Director of that Business at Comerica. Our integration approach is anchored in the core principle of customer first. We are proactively engaging Comerica's top relationships to highlight the expanded benefits they will receive from our broader product suite through our digital capabilities and advisory expertise. Comerica's treasury clients will receive white glove onboarding with many converted before September. This deliberate methodical approach protects relationships and positions us for long-term growth.

By bringing our teams together and strengthening client trust, we are laying the groundwork for the rest of the integration to succeed. Cultural alignment and financial discipline are not separate efforts. They reinforce one another. When people are supported and clients feel confident the organization can move faster, execute with precision and capture the financial benefits of the merger more effectively.

With that foundation in place, let me turn to the financial impact of the transaction. We expect $850 million in annual pretax expense synergies or roughly 35% of Comerica's expense base. These savings will come from consolidating duplicative functions, optimizing facilities and vendors, aligning overlapping systems and creating a more efficient end-to-end operating model. We are confident that we will achieve our cost savings goals, while improving both the scale and density of the company. We originally anticipated recognizing approximately $320 million of these savings in 2026.

With the earlier legal day one, we now expect an additional $80 million of savings with half of that dropping to the bottom line and half reinvested for growth. Achieving these targets strengthens returns, enhances capital generation and gives us the flexibility to reinvest for the long term. The most exciting part of this merger is the growth potential it unlocks. We see more than $500 million in identifiable revenue synergies over the next 5 years, grounded in capabilities already proven inside of Fifth Third.

We are bringing Comerica Markets a modern consumer strategy built on analytics-driven marketing, segmentation tools, digital onboarding and an award-winning mobile experience. Comerica will see its first major consumer deposit campaign in more than a decade with roughly 1 million direct pieces -- of direct mail being dropped in over $13 million over 2026. Direct mail remains one of the highest performing tools in our customer acquisition tool; kit, particularly ahead of digital account opening enablement, which will take place post conversion.

Before we complete the full systems conversion, we intend to introduce our provide Fintech lending platform to small businesses across the legacy Comerica footprint. Provide delivers a meaningfully better end-to-end customer experience. And since becoming Fifth Third's small business lending engine, it has helped us rise to a top 15 national SBA lender and are in the #2 ranking in J.D. Power's 2025 National Small Business Banking Satisfaction Study ahead of every other regional bank. These results give us tremendous confidence in the value provide will bring to our new markets.

In the medium term, we are positioning Fifth Third for high-quality growth in Texas, one of country's most attractive banking markets. We will open 150 new financial centers across Texas in 2027 through 2029, supplementing Comerica's existing statewide presence and accelerating Fifth Third's ability to scale quickly in Dallas, Houston and Austin. We have already secured more than 1/4 of those sites in the past few months, reflecting the strength of our de novo capabilities and the power of the data-driven tools we use to select and activate new locations. This is the same playbook that has delivered outperformance for us across the Southeast, and now we're bringing that formula to Texas at scale.

With these 150 new branches, we are positioned to achieve top 4 branch share in Dallas, Houston and Austin by the end of the decade. As a result, more than half of our retail network will be concentrated across the Southeast, Texas, Arizona and California. This expansion not only strengthens our distribution advantage in high-growth markets, but also supports durable, granular deposit growth that enhances long-term funding stability and earnings power.

In commercial, we expect meaningful lift from existing Comerica clients. We are already reviewing Comerica's commercial relationships, name by name, to identify opportunities where Fifth Third's broader balance sheet, expanded product capabilities, such as ABL, leasing and treasury services, and technology investments can immediately strengthen and grow these relationships.

Many Comerica clients have been constrained by technology limitations or balance sheet caps and that changed last week with Fifth Third. Looking ahead, one of the most exciting opportunities is the combined innovation platform. Comerica's Tech & Life Science vertical is highly respected and Fifth Third's Newline platform is one of the most differentiated embedded payments offerings in the industry. Together, these strengths position us to build a scaled innovation economy franchise without introducing concentration risk by uniting balance sheet capacity, API-driven payments infrastructure, treasury capabilities and deep sector specialization.

This final opportunity captures the essence of what this merger enables, stronger capabilities, deeper client relationships and a more innovative foundation for growth. With that in mind, let me close by reiterating the core message. The Comerica acquisition strengthens our franchise in meaningful ways. It expands our capabilities, deepens our market presence, enhances our earnings profile and gives us a long runway for further sustainable growth. We recognize that investors measure, not only strategy, but also execution. Our approach is designed to ensure success on both fronts.

We have a clear integration plan, a disciplined financial framework and a proven track record of executing transactions successfully. In the road ahead, I'm confident that this combination positions the new Fifth Third and our shareholders for a stronger, more resilient future.

Thank you. And with that, Brennen and I look forward to your questions.

Thank you for that. Thanks for the update. I guess maybe since you brought it up, and when we think about just the MB Financial and having the experience of integrating that. Just maybe Jamie spend a minute about what worked with MB, what did not work and how that's informing how you'll go about sort of integrating Comerica?

Yes. I think the thing that worked the best with MB was the fact that we were able to keep the right leaders in the right roles. And so you look back the MB financial integration, with Mitch Feiger, as the CEO staying on and then ultimately moving to our Board, where he is an active Board member today, followed by then Mark Hoppe as our President of Chicago, and then today, Mark Heckler, who's an MB veteran also hitting up Chicago. I think when you keep the right leaders, from the franchise you've acquired, you ultimately do a better job with both RM retention and, therefore, customer retention.

So that was a positive. And I think that was one of the messages here today. As you look at the Comerica positions for the regional presidents, we're really proud and excited about what they will bring to the franchise. I think there are also lessons that could be learned the hard way. We learned that with -- one example would be consumer data, where with cell phones and information, how that data when you lift and shift information does not yet populate all of your fraud rules and some of your analytics-driven internal controls.

That is something we will not make a similar mistake on where we will populate hydrate the fraud and internal control analytics such that a Comerica experience wouldn't be viewed as, hey, I'm a new customer on day one after conversion. But rather, hey, I've been here all along, and this is a normal pattern for me. And therefore, my Zelle limits and fraud control are therefore in place. So I think we've learned a few things. I think the team is excited about showing what we could do with this integration. And I'm confident this will go very well.

Got it. And maybe just talk about like whenever we have banks go through a merger or a large transaction, I think the question is, will management be spread too thin, et cetera, does it take the focus away from organic growth. You had a distinctive organic growth strategy in the Southeast. I would say, over the last 5 years. Just talk to us, you're sort of in command of all of this in your seat. How has your sort of time allocation shifted from the Southeast expansion branch openings to integrating Comerica?

The Southeast story is one that is really an exceptional organic growth story. And it's one of those stories that is better and better every year, each vintage of de novo builds that we have done in the Southeast, each one has gotten better, and it has performed so well that the 2024 vintage was actually 200% of its deposit goal. In this year 2025's vintage is over 213% of their deposit goal. The total of all of the branches we've opened since 2018 are 130-plus percent over their deposit goals.

So to your point, it has been a very successful strategy. We know what we're doing, but we're also humble enough to learn from our mistakes. And so each vintage, we are tweaking things. We're getting better partners. We're focused on opening these branches where people live, work or shop, and that's really what we're focused on. So the Southeast now that all 200 sites have been locked in. We've opened 50 last year. We'll open 55 this year. The rest of it I want to say, is sort of on the autopilot. Our teams know what they're doing.

So it has enabled us to lift out one of our best leaders in the company who's been handling the Southeast retail build-out and now focus him on Southwest because that opportunity is every bit is great and getting the Comerica branches to perform at a level that a Fifth Third branch would be expected to perform. So we're spending a lot of time now on the Southwest on site location. And now that we're past legal day one, really working on the people and the sales culture and then the tools, products, process will all come post-Labor Day.

And just on the branch vintages, you mentioned like if you go back a few years ago, what is it that you're doing today in terms of these -- like my sense is you have this down to an exact science in how your opening branches. So what are you doing today that you weren't doing early on, which has improved the productivity of these branches?

So our site selection tools, we continue to refine. We use Placer.ai data as just one input into identifying the movement that people have throughout their day or week. So that has helped inform the model, and we've talked a lot about how we break the country down into an 8th of a mile, 16th of a mile to determine where best to put that. So I think that is fine. But where we really improved the performance has been in a couple of areas.

One, is the outparcels of grocery stores and being with the right partner in those grocery stores has been a very impactful item for us. And starting and continuing the de novo support from a marketing perspective, ahead of opening and for a year or 2 post opening has also been something that has helped. And then ultimately, in this business, you win with people. And we've done a very nice job of building, recruiting, training and development program that gives the employees the ability to really service customers and then that growth and that success just feeds on itself.

And maybe one more on the Southeast. I remember when you first moved into the role, you talked about like winning helps like seeing like for your employees, like seeing that you're winning the Southeast kind of feeds on itself. When we think about the growth in the Southeast, I think the general perception is super competitive markets, big banks are opening branches, a lot of small banks want to grow there. How in that backdrop, do you create sticky client relationships and household acquisitions?

Yes. I think our approach has proven out over time, and I would summarize it as getting somebody in the door is just the beginning. And not bring them in open account and leave it alone. Our sales process is highly interactive with the customer. We follow what we call a 222 process. You are getting a phone call from a banker 2 days, 2 weeks and 2 months after the opening of your account to help drive primacy. I think we've removed friction from the account opening process where you can have your direct deposit switch, account open in just minutes, whereas we know from Comerica, that could be a much longer experience.

So with frictionless and then with the right products, over time, the customer then starts to experience the service, convenience and location benefits of being a part of the Fifth Third customer base, and that is ultimately what leads to the stickiness is that customer relationship with the bankers in the branch. And so it's our job to bring the best of Fifth Third to get the customer into the branch and then it's the branch's job why their reward system is based on managing their book of business and driving primacy. And I think that has worked out very well for us.

Got it. I guess maybe shifting to Comerica. My sense and just talking to investors, I think a lot of people expect you had a franchise that was sort of underutilized. I think the bullish view around this transaction would be there's just a lot more that Fifth Third can do with that franchise. You talked about a couple of like lending verticals. But just more holistically, is that the right way to think about it? But just there should be significant runway. I don't want to call it low-hanging fruit, but to monetize that franchise.

Yes. I'll start on the consumer side and Brennen can chime in on payments and commercial. On the consumer side, Comerica's franchise is a very interesting one because it is a barbelled franchise, where Michigan, the average deposits per branch are roughly $80 million per branch, which is a very nice level and very competitive to what Fifth Third does in the state of Michigan. However, the Southwest franchise is operating at just $30 million per branch. So it is a very underpenetrated customer base surrounding the branch. And yet the branches are in great locations, in great markets with a population growth that when we're finished with our Southeast, Southwest expansion plans, we are going to have the second best population growth rate in our retail footprint of any other regional banks.

So that's what we had included in the slide deck that, that population growth is over 4%. So just by waking up, we ought to be able to grow households at a very nice clip. We just need to bring the Fifth Third process, technology, products, in marketing to the Comerica branch. I think the Comerica people are great. We've visited a lot of branches. They're very excited about the opportunity ahead, but we've got to get them from being a $30 million per branch franchise to being a $70 million, $80 million per branch franchise, and that's one of the big deposit opportunities ahead of us.

Yes. And there's tremendous opportunity in the middle market space. And that's the crown jewel of the franchise. We've talked a whole lot about the value of the Comerica Middle market piece. And they're bringing with it a lot of expertise in Texas and California and certain verticals that they're bringing to the table. Jamie talked about the Tech & Life Science vertical. But it's really a business that's been a little bit handcuffed by balance sheet availability of the Comerica franchise, particularly post Silicon Valley crisis in 2023. So coming on to Fifth Third, we have a lot of different liquidity position, obviously, robust capital position, more diversified balance sheet.

So we could unlock a lot of that value in the middle market space. And I think their bankers are very excited to hear that. We've put a lot of fact packs in front of the bankers to get familiar with Fifth Third, so they could get out and running with their clients. And one of the things that's resonated immediately with their clients is the ratings upgrade that they're going to get simply through the acquisition. So that changes things from a [ holding ] perspective on deposit opportunities. And so right off the bat, we should be able to get a lot of benefit from the middle market franchise and win very quickly there.

Are there any aspects the way Comerica ran the middle market franchise, which you mentioned was a crown jewel that you can sort of import into Fifth Third. .

I mean I think it's just the overlap of the expertise. I think we were already in some of those markets that they're operating in, but now we're deepening in those markets using their expertise with the middle market channels. And a lot of the things that they're doing today are things that we do, they just do it exceptionally well in the markets that they're represented in. And so I think that's just going to add value back to our middle market franchise. There's another opportunities within capital markets space as well, just the products and services that we have.

We've already converted over their swap dealer. And so as they're bringing deals to market already, they're bringing it over all to Fifth Third platforms, and that's quick wins right out of the gate for us.

I think from a culture perspective, they're very proud of their credit college. They have great credit results as a result of everyone going through that program. So that is something we intend to bring to Fifth Third.

Maybe I think just pivoting a little bit to the operating environment and as we think about just the organic growth outlook. Talk to us in terms of your level of confidence in organic growth for the year, are sort of what you're hearing from clients, what are you hearing from your bankers, is all sort of directionally positive? And what could go wrong, I guess.

Yes. The environment I would say is a very productive environment right now. We came out of the fourth quarter on a commercial perspective with very strong middle market production. We were up 20% year-over-year on loan production, which was a multiyear high for us. So the middle market and that production environment continues to be positive. What has really changed for us, thus far, out of the gate, in 2026, is that the corporate bank had experienced a fair bit of paydowns and decline in line utilization. That has since rebounded so that we're off to a fast start on C&I balances. Tim mentioned that on the earnings call, I think we're up $1 billion or so through the month of January.

So that's a nice start to what is a productive environment. And on the consumer side, the consumer continues to perform well. Deposit balances have actually shown a little bit of a rebound in that lower FICO banded deposit customer, we don't do the subprime lending on the asset side, but we do monitor that cohort in the deposit book. And so we've seen a little bit of an uptick there. I think you've heard that essentially throughout the day at this conference about the health of the consumer. So home equity lending, auto lending continues to go well for us. And so we're excited about how the year has gotten off to a very nice start. And with that said, we affirm our guide for the year. No changes there. Things are tracking nicely.

I think we heard from another bank too in terms of January had started out well on loan -- actually from multiple banks all day today. Does that indicate that finally, this whole uncertainty over the last 18 months around tariffs, Fed policy, all of that businesses are kind of now done with it and sort of leaning in, investing?

Yes. That's what it sounds like. Just talking to our customers, there was a whole lot of wait and see last year. Just a lot of noise and a lot of uncertainty. And as you get into this year, it feels like the environment is a little set up for growth. Our customers are feeling a little bit better about putting capital work. So I mean, that appears to be the reason why we're off to a fast start and why everyone is a bit more constructive on loan growth this year. So as I look at -- Jamie mentioned the loan growth that we've had since the start of the year, I mean, it's been driven by our corporate verticals, but we're having good production in the middle market, the pipelines are very robust.

And when we look across the corporate banking verticals, it's been pretty broad success. I think almost all of our verticals are up year-to-date with the exception of maybe a couple, call them flattish. And then the middle market segments, the Southeast is doing really well to Carolinas, Georgia, which also includes our Alabama team. So things are looking pretty positive at the start of the year. And it appears that customers feel pretty good about putting capital to work right now.

Got it. And how do you characterize deposit pricing environment, means it's always competitive. I'm just wondering, is it getting worse?

I wouldn't say it's worse. I would say the cycle has been interesting. I know the Fed has reduced rates, it's still been firm. And I think I've said it's rational, but it's firm. And that continues to be what we see. And everybody is going after the same pool of deposits, but it has stayed rational for the most part, consumer is going to be competitive in the Midwest and the Southeast. Those markets have always been competitive and will continue to be competitive. And we continue to see a lot of competition in the middle market space for operational deposits. I mean that's the crown jewel of commercial banking as operational deposits. So we'll continue to see that competition, I think, particularly as people are more constructive on the loan growth substory.

I guess a former CFO or Treasurer on the stage, so I would be remiss not to ask about NII and ALCO and interest rate risk management. So just -- so you obviously have your NII guidance out there. As you think about the puts and takes, my sense is better balance sheet growth or loan growth would be a positive to that outlook. But just talk to us in terms of -- are there other factors that could drive a better NII for the year? And then what are the risks? Is it -- what the Fed does? Is it the yield curve? Like how do you sort of think about the risks, down side risks.

Yes. Don't forget Jamie was also a former Treasurer, too. So he could answer all of these questions. I would say it was his most important job, but that's just me. No, I think Jamie reiterated the guide, I think the obvious driver there is going to be loan growth. I think if you look at our NII guide, it is sort of set within the guide of loan 5% to 7% loan growth guide. If we hit the upper end of that range, it's going coincide with that upper end of NII. But there would be some benefit if we see some changes in the yield curve shape, obviously, a little bit more slope in the yield curve is a positive for us. We have a lot of optionality with our investment portfolio.

We've talked for a couple of years now about our fixed asset repricing benefit. And while that's not as big of a driver as what it was maybe last year because certain portfolios like auto have have repriced over now, there's still marginal benefit and the steepness of the yield curve to be had and the deployment of the securities portfolio. So that, I think, would be another benefit outside of just the loan growth.

It's funny if you go back a few years when I was in the CFO chair, I think I had said if we got a Fed funds rate around 350 with a nice slope to the curve, that would be an incredible position for our balance sheet to be positioned, and looks like that's the type of scenario we're going to see play out here. So we had record NII last year and obviously going to blow through that this year.

And anything as we think about so, you closed the Comerica merger a few weeks back, as we think about closing of the transaction, like anything from a balance sheet standpoint that we should be sort of thinking about any -- on the securities book or on the loan book that might be getting restructured or run off or any of that? .

Yes. We're going to -- we talked about on the earnings call, doing some restructuring of the investment portfolio. So that's been underway. And so really just looking for some opportunities with the entry points on the portfolio. Like I said, we've stayed pretty short. We've taken some actions on the Comerica portfolio. A lot of that right now is in cash that we're able to deploy at -- when we see the right entry points. And hopefully, we'll see a little bit more steepness in the yield curve that will help us out there a little bit. But nothing really major on the loan side of the balance sheet to reconstruct. It's mainly just the investment portfolio actions, yes.

And maybe last on this one, when we think about just organic expense growth investments. Just maybe talk to us about where the efficiency opportunities are like where are the savings coming from? And then outside of branches, like what are the 1 or 2 top areas of investment spend?

The expense synergies from the transaction will predominantly be people just given that's the nature of how bank mergers go, we're tracking very well, actually ahead of pace, which is why we had said we'll reinvest some of that excess in order to pull forward the revenue synergy opportunities such that we'll deliver $400 million or so of expense synergies this year, but we would expect to spend about $40 million. And that $40 million of investment, though the largest portion of that would be on marketing in order to fulfill the direct mail campaign that will be focused more on raising deposit dollars and a test and learn to see how the Southwest markets react to our approach to direct mail.

And then post-conversion, that will then transition the traditional Fifth Third marketing with digital offers, checking and really be focused on primacy and household growth. So marketing would be a large portion of the investment. But additionally, we're already hiring mortgage loan originators in order to have those mortgage loan originators reside in a Comerica branch because Comerica doesn't have a branch presence or mortgage. They would be on Fifth Third systems and technology, but would be able to fulfill mortgage lending starting in a month or so. So we're excited about that opportunity. And then there's always hiring additional middle-market RMs, treasury management officers and continuing to invest in their verticals. And so we're excited about the revenue opportunities. And I think I said in my prepared remarks, probably the most exciting part. It's no fun going through the expense cuts. But now that I think we've got the worst of that behind us, now it's looking forward to the future, and I think the teams are excited about what you take the 12th largest bank and the 22nd largest bank in the country, and now we've got the ninth largest bank, and that is a great platform for us to springboard a lot of exciting things.

You're almost a national bank. But I did want to touch upon Newline and the Embedded Payments business, I think it is a unique business for Fifth Third. Just talk about client acquisition the sales what independently in terms of like winning clients for the payments business and then the cross-sell opportunity that business creates in the Southeast and maybe as you integrate Comerica?

Yes. I mean Jamie, mentioned in his prepared remarks, I mean, the crossover between the Tech & Life Science vertical and Newline. I think there's a natural synergy there between the underlying customer base in terms of what the Newline can do for them from a payments perspective and from a deposit perspective. And I think we've done a really good job of going out and landing some very bannered clients on the Newline platform that are very well-known names like Stripe, Trustly growing at a pretty rapid rate, the adoption of embedded payments, instant payment platforms continues to scale. And as they scale and grow, we get to grow with them. And the beauty of Newline is, is it's capital light, right? We're not having to necessarily extend the balance sheet, used to establish a relationship with a customer where you got a deposit reoccurring fee revenue, it used to be you needed to lead the balance sheet and capital. With Newline, we're leading with a product and a service that's fairly unique. And I think that from a treasurer's perspective, bringing with it a deposit and reoccurring fee revenue that adds to the PPNR stability of the bank without extension of credit, it is a huge positive. So I do think that there is -- continues to be a massive opportunity with Newline, high-growth segment with high-growth clients and natural crossover with what Comerica is already doing. So it can be very interesting for us. We just got to get our arms around like Tech & Life Science vertical in terms of what it could mean for Newline.

I guess pivoting to just regulation on capital. On the regulatory front, I think there is expectation we hosted a panel earlier today just in terms of maybe getting some proposals from the Fed around the Basel end game and other priorities. What are you looking for? Like what would be the most impactful as we think about Fifth Third on the regulatory agenda that could move the needle?

I was waiting for queue to answer the question. The Basel end game just finally be out there, so we know what rules we're playing by. I mean, it's our expectation that whether or not you have the inclusion or exclusion of AOCI and the formal capital rules has kind of been a game changer in terms of how people evaluate capital. And so we're going to continue to evaluate ourselves based on a March capital basis. And obviously, TCE matters. The threshold moves, I think, are interesting and impactful for the industry as a whole. If they were to move the Category 3 threshold up, and we would still be in Category 4 bank, there would certainly be some incremental benefit for some of the more prescriptive regulations that are out there.

But I think that there's still some things that we'll just continue to do. That's just good hygiene for being a bigger bank, whether that's continued adaptation of our risk platforms to make sure that we have more timely and accurate reporting around some of the shortened timing requirements that categories is up under but also to just building out the infrastructure around our modeling capabilities and the robustness of our framework. So there's a lot of meat there. So I don't know that there's anything that's just like one magic like this would be like a home run for Fifth Third, but there would be just things on the margin that I think would be impactful.

Yes. It seems like the environment, the tone is certainly helpful. The fact that we were able to get a transaction approved in 99 days versus 273 days with MB. That is certainly helpful. But for the most part, it's not the regulations that are dictating what we do and how we manage the company. To Brennen's point, with -- even though LCR was no longer a requirement, we still do a daily LCR calculation. We still do semiannual capital stress testing the SCB change, it doesn't matter because it's -- the fact they're holding everybody constant. It doesn't matter because that's not how we're managing the capital of our company. So for the most part, it's going to be the ability for us to do the right things and manage the risks facing us.

I guess one last question. I think going back to you, Jamie, when we think about the Southeast, the debate around what's the right scale, can the regional banks compete. One, in your mind, is there a certain asset size or density that really tips that scale? Maybe it's $100 billion, maybe it's $200 billion. And you have a lot of experience competing with national banks, regional banks, small banks across the Southeast. Like is there any reason to believe a bank of your size, ninth largest bank, $300 billion in assets. Is there any competitive disadvantage that you face?

I don't think there's a competitive disadvantage. I think the density that we have been able to achieve in market is absolutely critical to our success. And one of the main reason why the de novo program has been as successful as it has been is we are focused on density where we compete and not scale and breadth and then forsaking density. And that's part of why the why the Comerica transaction was so helpful to Fifth Third was you had density in Michigan, and it's adding and expanding to the perimeter of the company that gives us a growth trajectory for the next 10 years that we can pursue organically. So I think the profile of the Southeast is one that we're in a great position where regulation back to your earlier question, where regulation could impact somebody, we're well past this point. But if you're approaching the $100 billion mark, it is an expensive hurdle to jump. And we see that as companies have to build out a 3 line of defense. It's $125 million to $150 million price tag to build out those risk functions. For us, we've already done it. We're good. We're excited about a 53% efficiency ratio in 2026. It's brand appropriate. So we like that, and we're excited about the Southeast.

With that, thank you both.

Thank you.

Thank you for standing by, and welcome to the Fifth Third Bancorp Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the call over to Matt Curoe, Senior Director of Investor Relations. You may begin.

Good morning, everyone. Welcome to Fifth Third's Fourth Quarter 2025 Earnings Call. This morning, our Chairman and CEO and President, Tim Spence; and CFO, Bryan Preston will provide an overview of our fourth quarter results and outlook. Please review the cautionary statements in our materials, which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward-looking statements about Fifth Third's performance. These statements speak only as of January 20, 2026 and Fifth Third undertakes no obligation to update them.

Following prepared remarks by Tim and Bryan, we will open up the call for questions. With that, let me turn it over to Tim.

Good morning, everyone, and thank you for joining us today. The Fifth Third, we believe great bank distinguish themselves not by how they perform in benign environments but rather by how they navigate uncertain ones. Our priorities are stability, profitability and growth in that order, which we achieved by obsessing over the details in our day-to-day operations, while consistently investing for the long term. This disciplined approach has delivered shareholder returns that rank among the best in our peer group over the last 3-, 5-, 7- and 10-year time frames.

Today, we reported earnings per share of $1.04 or $1.08, excluding certain items outlined on Page 2 of the release. We achieved an adjusted return on equity of 14.5% and adjusted return on assets of 1.41% and an adjusted efficiency ratio of 54.3%, all among the best of all banks regardless of size who have reported thus far. Adjusted fourth quarter revenues rose 5% year-over-year, driven by 6% growth in net interest income, 8% growth in commercial payments fees and 13% growth in wealth and asset management fees.

Fourth quarter average loans increased 5% year-over-year, driven by 7% growth in consumer loans and 7% growth in middle market and business banking C&I loans. Average core deposits grew 1% year-over-year, driven by 5% growth in consumer DDA and 3% growth in commercial DDA. Net charge-offs were 40 basis points for the quarter, the lowest level in the past 7 quarters and nonperforming assets decreased for the third consecutive quarter.

Our CET1 ratio increased to 10.8% and tangible book value per share grew 21% year-over-year, thanks to strong earnings performance and the continued pull part of our AFS portfolio.

The fourth quarter capped a year of milestones for Fifth Third. In the Southeast, we opened 50 new branches, including our 200th branch in Florida and our 100th branch in the Carolinas. To put this in context, if Fifth Third [indiscernible] were a stand-alone bank, it would have the 44th largest branch network in the U.S. and Fifth Third Carolinas would have the [ 78th ] largest. Our de novo branches continue to deliver deposit growth that is 45% higher than peer de novo branches. Net new consumer households grew 2.5% year-over-year with the Southeast growing households by 7%, highlighted by 10% growth in Georgia and 9% in the Carolinas.

Our sustained investments in digital transformation continue to set Fifth Third apart as well. In 2025, our consumer mobile app was recognized by J.D. Power as the top mobile banking app for user satisfaction among regional banks. We shipped over 400 updates to the app during the year, including features such as direct deposit switching, a financial wellness hub with cash flow insights and spending analysis and free estate planning capabilities through our partnership with fintech [indiscernible].

In small business, a little over a year ago, we asked our fintech Provide to lead all of small business for Fifth Third. Since then, Fifth Third has become a top 20 national SBA lender for the first time anyone can remember and finished #2 in J.D. Power's 2025 National Small Business banking satisfaction study ahead of all other regional banks.

In commercial payments, our software-enabled managed services Big Data Healthcare, Expert AR and AP and DTS Connect and our embedded payments platform, Newline, continued to grow rapidly. One in every 3 commercial clients we added in 2025 was a payments-only client with no credit extension.

Newline revenues more than doubled compared to the fourth quarter of last year, and deposits increased by $1.4 billion. Newline's product team also finished the year strong, launching a model context protocol server to enable secure standardized access to our API and documentation to AI agents. This is a key building block to support future agentic commerce applications and a first among U.S. banks.

In commercial, we delivered new quality relationships, granular loan growth and recurring fee revenue in the middle market as we continue to add our talent in strategic growth markets and to benefit from hiring in prior years.

New client acquisition increased 40% across all regions compared to 2024. Our emphasis on the Southeast Texas and California markets led to a 12% increase in RMs, producing 14% growth in C&I loans. In Wealth and Asset Management, fourth quarter wealth fees increased 13% and assets under management reached $80 billion for the quarter. The strong performance was broad-based.

Fifth Third Wealth Advisors AUM and fees increased 50% from a year ago. Fifth Third Securities generated record fees and our Private Bank had its second highest level of gross AUM flows in recorded history. We continue to deploy technology and apply lean manufacturing principles to drive savings and enhance scalability. In 2025, our value streams approach $200 million in annualized run rate savings. Cross-functional teams continue to be focused on reducing waste and improving quality which strengthens our execution and provides funding for continued investment in our growth strategies.

We are excited about our momentum as we enter 2026 or as our partners at [indiscernible] like to say, there's a lot of action at the fraction. As we announced last week, we have received all material regulatory and shareholder approvals to complete our merger with Comerica. 99.7% of Fifth Third votes and 97% of Comerica votes cast were in favor of the merger, an overwhelmingly positive result and a recognition of the value this combination will create. We expect to close on February 1.

2026 will be a busy year as we focus on successful conversion and delivering $850 million in expense synergies. Looking ahead, I am even more confident in our ability to realize the benefits of the combination, which will support continued peer-leading returns and efficiency in 2027 and beyond.

I'm also excited to get to work delivering more than $0.5 billion in revenue synergies over the next 5 years across 4 areas of focus: first, scaling Comerica's middle market platform and vertical expertise; second, deepening Comerica's commercial and wealth management line relationships to reach Fifth Third levels of client wallet share; third, building out Comerica's retail banking business with the Fifth Third playbook and 150 Texas de novo branches; and fourth, creating a differentiated innovation banking business by combining Comerica's Tech and Life Sciences vertical and Fifth Third Newline platform.

Before I turn it over to Bryan, I want to say thank you to our team, both at Fifth Third and our new Comerica colleagues, for the way you support our customers and our communities and for your commitment to getting 1% better every day. I'm grateful to everyone who will work so hard in the coming months to ensure that 2026 is a success for the bank and its clients.

I also want to say thank you to those individuals from both companies whose hard work brought us to this point, but who will not be continuing with us on this journey. All of you combined are what has made our company the special place that it is.

With that, I'll turn it over to Bryan, who will provide more detail on the quarter and on our outlook for 2026.

Thanks, Tim, and good morning. Our results show what disciplined execution delivers in an uncertain environment, record full year NII of $6 billion and $9 billion in total revenue, improving asset quality and top quartile returns and efficiency. With a resilient balance sheet and an operating model built to deliver repeatable organic growth and scale benefits, we are positioned to generate growth and shareholder value as we integrate Comerica.

Diving into our fourth quarter performance. We achieved an adjusted return on assets of 1.41%, our highest level since 2022, and a return on average tangible common equity, excluding AOCI, of 16.2%. Disciplined expense management resulted in an adjusted efficiency ratio of 54.3%, a 50 basis point improvement from the fourth quarter of 2024. Adjusted PPNR for the quarter was over $1 billion, a 6% increase from the prior year.

Our strong profitability enabled us to return $1.6 billion of capital to our shareholders in 2025, while also growing our tangible book value per share, including the impact of AOCI, 21% compared to the previous year.

Looking at the balance sheet and NII. Net interest income was $1.5 billion for the quarter, a 6% increase over last year as net interest margin expanded 16 basis points, finishing the year at 3.13%. Loan growth, proactive liability management and repricing benefits on fixed rate assets contributed to the strong NII performance throughout the year. Average loans grew 5% year-over-year. In commercial, average loans grew 4% and excluding CRE categories, increased 5% year-over-year. Improving the granularity of our loan portfolio remains a priority.

In middle market, we continue to add relationship managers in high-growth markets, which contributed to the 7% year-over-year increase in average middle market loans. In small business, we have extended the technology of provide to all of small business lending. This expansion, combined with its core practice finance activities drove a $1 billion increase in balances over last year. While on a sequential basis, commercial average balances were flat due to a decrease in utilization, commercial production accelerated during the fourth quarter, rising 20% sequentially to a multiyear high.

Indiana and the Carolina has led regional growth. And in our verticals, production was strongest in technology, health care and metals material and construction. The utilization decrease coincided with the government shutdown during October and November, but stabilized in December at 35%, down from 36.7% in the third quarter. Corporate banking and CRE were the primary drivers of this decrease in utilization.

Industry loan growth continues to be concentrated [indiscernible] to nondepository financial institutions which represented approximately 60% of total industry loan growth and virtually all non-real estate and nonconsumer related loan growth in the second half of 2025. We continue to prioritize granular relationship-based middle-market and small business lending.

Shifting to consumer. Loans grew by 6% on an average basis compared to last year. Auto and home equity lending accelerated in 2025, growing 11% and 16%, respectively. In the fourth quarter, we achieved the #2 origination market share in HELOC within our footprint, up from #4 in the prior year, driven by improved branch performance and digital engagement. We expect home equity production to remain robust due to the strength of home prices lower front-end interest rates and low housing turnover.

Turning to deposits. Average core deposits increased 1% over last year, driven by 4% DDA growth, partially offset by slower growth in interest-bearing products as we managed funding costs in 2025. Interest-bearing deposit costs were 2.28% in the fourth quarter, down 40 basis points year-over-year, representing a 50% beta during 2025. As I mentioned on last quarter's call, we are focused on strong deposit growth as we prepare for the close of the Comerica merger. This resulted in a 3% sequential increase in average transaction deposits due to our growth bias and normal seasonality. As Tim highlighted, consumer household growth remained robust at 2.5% and continues to translate into strong consumer DDA performance, which increased 5% in 2025.

Our proactive balance sheet management has enabled us to maintain a strong liquidity position and reduce overall funding costs as we prepare to integrate Comerica's balance sheet, which has a lower concentration of retail deposits. Growth in granular insured deposits provided flexibility to reduce wholesale funding, which declined 14% sequentially. This favorable mix shift lowered the cost of interest-bearing liabilities by 17 basis points.

Our Southeast de novo investments continue to deliver high-quality, low-cost retail deposits. Southeast consumer deposits increased by 4% sequentially, accounting for over 50% of the total consumer deposit growth for the quarter. Overall, our total cost of deposits in the Southeast is below 2% and generates a spread of more than 175 basis points relative to the Fed funds rate.

We opened 50 Southeast branches in 2025, including 27 branches in the fourth quarter. Additionally, we have now secured all locations for our Southeast de novo program. We also have 43 locations in Texas with letters of intent either complete or in process as we begin to transition our de novo program to these new high-growth markets. We ended the quarter with full Category 1 LCR compliance at 123% and our loan to core deposit ratio was 72%, down 3% from the prior quarter.

Now on to fees. Adjusted noninterest income, excluding security gains and the other items listed on Page 4 of our release, grew 3% sequentially and year-over-year. Wealth fees increased by 13% over last year, driven by $11 billion in AUM growth and strong retail brokerage activity. Capital market fees increased 5% sequentially, reflecting seasonal strength in M&A advisory. Commercial payment fees increased 8% year-over-year and 6% sequentially. This fee performance was driven by core treasury management activity and new line related fees. New line-related deposits reached $4.3 billion, up $1.4 billion from a year ago. The securities losses of $5 million were from the mark-to-market impact of our nonqualified deferred compensation plan which is offset in compensation expense.

Moving to expenses. Page 5 of our release details certain items that had a larger impact on our noninterest expenses this quarter, including a $50 million contribution to the Fifth Third Foundation, $13 million in merger-related expenses and a $25 million benefit from the adjustment to the FDIC special assessment during the fourth quarter. The larger contribution to the foundation this year relates to increased community investments we will make as part of the Comerica merger and tax planning in response to tax law changes impacting 2026.

Adjusting for these items, noninterest expense increased 4% compared to the year ago quarter and 2% sequentially, reflecting ongoing strategic investments in technology, branches, marketing and sales personnel. Savings from our value stream programs through automation and process redesign continue to help fund these investments.

As Tim mentioned, our value streams reached $200 million in annualized run rate savings. Our normal course daily focus on these operating disciplines has resulted in a 54.3% adjusted efficiency ratio in the fourth quarter and a 55.9% efficiency ratio for the full year while still investing for growth and maintaining strong regulatory standing.

Shifting to credit. The net charge-off ratio was 40 basis points for the quarter, in line with our expectations and an improvement of 6 basis points from the fourth quarter of last year. Portfolio NPAs were down $4 million sequentially and the NPA ratio remained at 65 basis points. Since the first quarter of last year, portfolio NPAs are down 20% and commercial NPLs are down 30%, consistent with our expectations from early 2025.

Commercial charge-offs were 27 basis points, down 5 basis points from the prior year. Overall, we are seeing stable trends across industries and geographies in our commercial portfolio. Consumer charge-offs were 59 basis points, down 9 basis points from the prior year with improvements across nearly all asset classes. The overall consumer portfolio remains healthy with nonaccrual and over 90 delinquency rates stable to improving across all loan categories.

ACL as a percentage of portfolio loans and leases remained at 1.96% and the ACL as a percentage of nonperforming assets was also stable at 302%. Provision expense included a $6 million reduction in our allowance for credit losses primarily reflecting the small decrease in end-of-period loan balances. Our baseline and downside cases assume unemployment reaching 4.7% and 8.4% in 2026. We made no changes to our scenario weightings during the quarter.

Moving to capital. CET1 ended at 10.8%, up 20 basis points reflecting the strength of our capital generation and our decision to pause share repurchases until the Comerica transaction closes. The pro forma CET1 ratio, including the AOCI impact of the securities portfolio, stands at 9.1%. Since the first quarter, our unrealized loss on the AFS portfolio has decreased by 20% despite only a 4 basis point decrease in the 10-year treasury rate. This outcome is the result of our strategy to invest in bullet or lockout structures, which represent 60% of the fixed rate securities in our AFS portfolio. We expect continued improvement in the unrealized losses given the high degree of certainty to our principal cash flow expectations as a result of our investment portfolio strategy.

While 2025 was a more eventful year from a macroeconomic and policy uncertainty perspective than we expected, we are pleased with our disciplined operating performance and our ability to deliver on our financial commitments. Our full year net interest income of $6 billion is 2.5% above our prior record. And our full year operating leverage of 230 basis points is above the range we projected entering the year. We opened 2026 with strong business momentum and a clear focus on the critical actions necessary to deliver a successful integration of Comerica.

Now moving to our current outlook. As we announced last week, we expect to close the Comerica transaction on February 1 with systems conversion anticipated around the end of the third quarter. Additionally, our outlook uses the forward curve at the start of January which assumes 25 basis point rate cuts in March and July. We expect full year NII to range between $8.6 billion and $8.8 billion. As part of the integration, we expect to take actions to better position the combined balance sheet within our rate risk appetite, including investment portfolio and hedge repositioning. We do not expect material onetime charges related to these actions.

Based on the current rate outlook and our planned balance sheet actions, we expect NIM to increase approximately 15 basis points upon the close of the transaction. That increase is driven by 4 to 5 basis points of pickup from discount accretion on marked investment securities we will retain, another 4 to 5 basis points from repositioning the remaining securities with new positions and 3 to 4 basis points from cash flow hedge repositioning. The remaining 2 to 3 basis points of improvement is driven by a combination of funding synergies and balance sheet mix.

We also aim to accelerate retail deposit growth with targeted analytical marketing in the legacy Comerica branches to improve the combined company's funding profile. We expect full year average total loans to be in the mid $170 billion range. This increase is primarily driven by broad-based improvement in C&I. Our outlook assumes that commercial revolver utilization remains relatively stable throughout 2026.

Full year adjusted noninterest income is expected to be between $4 billion and $4.4 billion, reflecting continued revenue growth in commercial payments, capital markets and wealth and asset management. We expect full year noninterest expense to be between $7 billion and $7.3 billion, excluding the impact of anticipated CDI amortization and the $1.3 billion in estimated acquisition-related charges. This guidance assumes the realization of 37.5% of the $850 million of annualized run rate expense synergies in 2026.

In total, our guide implies full year adjusted revenue and adjusted PPNR, excluding CDI amortization, to be up 40% to 45% over 2025 and another 100 to 200 basis points of positive operating leverage. We expect to exit 2026 at or near the profitability and efficiency levels consistent with the 2027 targets we announced with the acquisition.

Moving to credit. We expect 2026 net charge-offs to range between 30 and 40 basis points reflecting ongoing normalization of credit trends and the impact of the incorporation of Comerica's loan portfolio.

Finally, turning to capital. We currently expect CET1 capital post close of the Comerica acquisition to remain near our 10.5% target, subject to final purchase accounting marks and the timing of onetime merger-related charges. We continue to believe 10.5% is an appropriate target for our CET1 ratio for the combined company. Our capital return priorities remain paying a strong, stable dividend, organic growth and then share repurchases. We expect to resume regular quarterly share repurchases in the second half of 2026, with the amount and timing dependent on balance sheet growth, final purchase accounting marks and the timing of merger-related charges. Given the magnitude of the impact of the merger on the first quarter, we are not providing first quarter guidance at this time. We will provide our customary outlook on our first quarter results in early March.

In summary, we are excited about the opportunities to drive growth and profitability in 2026 as we continue our strategic investments and successfully integrate Comerica. These actions position us to deliver best-in-class performance in 2027 and beyond, creating lasting value for our shareholders and our clients.

With that, let me turn it over to Matt to open up the call for Q&A.

Thanks, Bryan. Before we start Q&A, given the time we have this morning, we ask that you limit yourself to one question and one follow-up and then return to the few if you have additional questions. Operator, please open the call for Q&A.

[Operator Instructions] Your first question today comes from the line of Ebrahim Poonawala from Bank of America.

I guess, Tim, maybe just going back to Comerica. From the outside in, it feels like there are 3 or 4 areas of optionality for Fifth Third and you can choose to answer whatever you think is most impactful. But when we stack rank being able to do more with Comerica clients, the Texas expansion and then leaning into their tech and life science practice, just give us a sense of where the biggest opportunity, what's more near term versus longer term?

Yes. Great question, Ebrahim, and thanks for it. I think you have to think about these things in terms of time frames, right? Because what I would say the most immediate near-term opportunity is going to come from some of the things we can do tactically in both leaning into Comerica's existing customer base as well as what our deposit marketing, analytically driven deposit marketing and product strategies will allow us to do in Comerica's branch network followed by the sort of medium-term opportunity here, which is the build-out of the Texas markets from a retail distribution perspective.

And then what I'll say is a medium- to long-term opportunity, but a very exciting one, which is the ramp-up of the innovation, banking business. So I have the opportunity in the fourth quarter to do 5 different in-person town halls with [indiscernible]. And at those town halls, we saw probably 1/4 of Comerica's total employees. And then Kurt, and Peter [indiscernible] and the other business leaders were kind enough to make certain that I have the opportunity to meet several of the top client coverage people in each of the markets.

And I will tell you, in every conversation, there was an example of a place where either funding constraints or competition for investment dollars on the technology front or otherwise have inhibited the ability of Comerica to get the sort of natural growth that they're capable of generating. You actually see that. When you look back at the period prior to March Madness, they were generating pretty solid top line growth and C&I balance growth when they were not in a period where they were making some of these investments to get to be a category for bank or in a position where they were making hard trade-offs is it related to balance sheet size and margin and otherwise.

So day one, when we get -- when we get through a legal day one on February 1, we are literally doing a bottoms-up review name by name to say where are the places that broader balance sheet capacity or the ABL and equipment leasing and product capabilities will allow Comerica to lean more. Where are there places where there are investment committee policies [indiscernible] clients that were inhibiting the amount of corporate cash that could come on to the balance sheet or there are places where there were technology investments that Fifth Third have been able to make that support commercial payments that we'll be able to get near-term growth.

And as we go through that first annual renewal cycle, that's sort of a natural renewal cycle that happens in C&I, I expect we'll see that unlock.

Second thing, the branch distribution is an important part of the strategy at Fifth Third, obviously, but it's one of 3 legs of the stool. The other 2 being disrupted product offerings that we have and the digital marketing -- digital and direct marketing, excuse me, because [indiscernible] continues to play a prominent role in what we do.

We're going to drop 1 million pieces of [indiscernible] within the first 2 weeks of legal day one to support consumer deposit marketing across Comerica's western markets. And it will be the first 1 million of what will probably be 13 million or 14 million pieces of [indiscernible] that will go out over the course of the year. That will be the first consumer deposit marketing campaign that the Comerica branches have seen in more than a decade, okay?

And we've demonstrated the ability that we have to use rate as a mechanism to drive early connectivity with new households and then to be able to manage margin over time across the Southeast. And that is going to happen quickly.

I think the third thing I just would highlight here is the point Bryan made in his script, which is we have over 40 of the 150 locations we intend to build already secured because the development partners who have been such a big part of the Southeast build-out, people who are doing the strip center developments that are anchored by grocers like Publix, as an example, are also doing the new strip centers that are being anchored by high-end grocers like HEB and others across Texas. And because of the success we've had with them in the Southeast, they came to us after the announcement and gave us a lot of early opportunities.

So that the brick-and-mortar will actually come out of the ground faster in Texas than it did when we started the Southeast expansion. And it's all the same model, the same selection criteria, the same discipline around what we're willing to pay relative to what we think we can generate over the first 5 to 6 years that the branches are open that are driving all of those decisions. So that's going to be the early stuff.

But blue sky opportunity here is innovation banking because that will continue, whether it's technology, AI, software, the things that are coming out of the valley or life sciences and the transformation that's going to go on in health care over the course of the next decade, those sectors really are the driver of the American economy. We think we have a unique value proposition there because of the payments capabilities. And the broader balance sheet is going to allow us to grow that business without creating a concentration risk issue. So I wouldn't be surprised to see that business become materially larger than it is today. We just have a little bit of work that we've got to do to ensure that we have the right guardrails around it, the right product offerings and the right level of coverage.

Your next question comes from the line of Gerard Cassidy from RBC.

Tim, following up on your Comerica comments. Can you give us an update on the integration? How is it progressing? And when will the customer conversion occur now that the legal closing has occurred, I think it was 2 months ahead of schedule. Just what the time line is?

Yes. Great question. Thanks, Gerard. We are way ahead of where I think we had hoped to be at this stage. And frankly, way ahead of where we were at the same time with [indiscernible]. The big driver here, obviously, is that will we receive all the critical regulatory approvals less than 70 days after filing our applications? So that is what is making it possible for us to get to legal day one at the beginning of February. There really haven't been any surprises that have come out, which I think is -- you would hope that given the thoroughness of the diligence that was done but we feel really good on that.

And then the other thing that I don't know that I appreciated would have the impact that it's had, the First Republic process was a sobering one for us because it came together so quickly. And when First Republic didn't work out for Fifth Third, we decided we were going to make sure that in the event that another opportunity materialize that we'd be ready. So we did some work on what we call [indiscernible], which focused on both systems capacity but also manual processes with the real question being with anything break if the bank doubled in size. And then also just started the work to close the gap assessment that we have done on Category 3 readiness.

And obviously, Comerica doesn't double us, but it's a big step larger. And the things that we needed to make sure that we got done in order to support that, and we're already done. So that's a long way of saying we're going to get closed earlier. We're in a good position from a systems and processes perspective. I think we're going to move the conversion up to Labor Day from what would have otherwise been in mid-October time frame. That's going to be super -- a, it's important because we just want to be able to get the benefit of all Fifth Third's technology in both revenue and [indiscernible] but it's also, I think, going to be really useful for you all because the same way that the fourth quarter of '25 was like the last clean look that you were going to get at what the old Fifth Third was capable of delivering.

The fourth quarter of '26 should give you a very clear look at what the new Fifth Third is capable of delivering. And in fact, as Bryan referenced, I think we're confident we can hit the return targets that we laid out in the deal model for full year '27 in the fourth quarter of '26 in terms of the return on tangible common equity of 19% and an efficiency ratio that was 53-ish percent or maybe a little better given seasonality.

[indiscernible] more perspective, I think the only thing that Jamie is more excited about [indiscernible] basketball being undefeated in the top 25 of the progress that we've been making on the integration -- things are going really well.

That's good to hear. Good. And then as a follow-up, maybe going back to the existing business, Tim, you guys talked about the success you're having in the middle market commercial area, hiring new managers in growth markets, new technology. You also pointed out, I think you said one out of 3 of the payments customers, the commercial customers don't have commercial lines of credit with them. Can you give us a view on the C&I loan growth? I think you said also that the average balances were flat in the quarter due to decreased utilization. What do you see -- when does the utilization turn more favorable? And what do you see for the C&I loan growth?

Yes, that's right. There are sort of the puts and the takes in this one, right? The good news is production has been great. And middle market utilization dip during the government shutdown, but rebounded nicely through the end of the quarter. I consider the fact that people are actively seeking to take us out of CRE exposure to be a market strength. It's just reflective of the quality of what we've originated there. The big decline in utilization, as Bryan mentioned, came from the corporate banking portfolio.

What we're hearing anecdotally, which is supported by the sort of early returns this year, is that a lot of that was cleaning up balance sheets in an effort to get into a position where you could get -- our corporate banking clients could get borrowing costs down in anticipation of either making big capital investments this year because of the tax reform or even more prominently to be able to support M&A activity. So -- and it's probably worth mentioning in the first couple of weeks here. We've seen C&I loan balances come up, call it, $800 million or $900 million already since January 1, which really is being driven by utilization and some of the fourth quarter production funding up.

The wildcard here at the end of the day is going to be what, for lack of a better term, we're calling chronic postponement syndrome internally, which is the tendency for our clients to postpone really large capital investments in the face of uncertainty. So they all feel, I think, on balance, I don't -- they feel the same or better, about '26 than they did about '25. And I think they're all excited about tax reform.

Rates have been helpful, but they really have been sort of a south to the accumulated increase in costs. more than anything else in terms of the business. But they want to believe that they're making multiyear investments into an environment where the rules of the road are going to be stable. And so the question really is going to be, do they feel like they have that stability? Or do they feel like there's a risk that the window closes to make those investments? Or do we just continue to deal with this chronic postponement syndrome as a drag on broader utilization and C&I activity. So that's sort of where we are.

And you didn't ask it, but normally you do. I think the other drag for us [indiscernible] balances were actually down a $600 million or $700 million in the fourth quarter where they were the principal driver of growth for C&I across the banking sector. So we started with low exposure actually declined as opposed to getting growth from that category.

Your next question comes from the line of Scott Siefers from Piper Sandler.

Bryan, thank you for all the detail on the actions you're going to be taking with the balance sheet at the close. Maybe could you talk about what the company's rate sensitivity is going to look like after you complete those actions you discussed around the close? And then I guess, just to follow up, will those immediate post-close actions kind of gets you to 100% of where you'd like the balance sheet to be? Or would it take a little more time from there just given the need to more fully kind of transform Comerica's deposit base? In other words, how does that all evolve in your brand?

Yes. Thanks, Scott. We're always targeting to be relatively rate neutral, especially in the normal environment. We're just not in a position where we feel like we want to make big bets. Certainly, the balance sheet becomes -- the natural balance sheet becomes a lot more asset sensitive given the merger, you think about our C&I loans, we're going to go from about 2/3 of our C&I portfolio floating rate to closer to 80% of our commercial portfolio floating rate. So we are going to take some actions through some swaps and some hedges. We'll probably still be a little bit asset sensitive when all is said and done. But we'll be in a good manageable position that will be in line with our rate outlook. The work clearly won't be done at that point.

We've talked a lot about the balance sheet mix that we've been striving for over the last couple of years. We talked about 60-40 commercial-to-consumer mix from a loan perspective and a 60-40 consumer to commercial mix perspective on the deposit front. Both of those areas are going to continue to take a lot of investment to get us back to those levels. And that will be a multiyear journey for us. And that's part of the reason you hear us talking in particular on the deposit front around the investments in marketing and in the build out of the Texas franchise because those will be big drivers for us. Today, the Southeast is contributing to almost half of our consumer deposit growth. And we are confident that Texas is going to be able to deliver a lot of long-term consumer deposit growth for the franchise. And so we feel good about the positioning, the balance sheet is going to continue to grow. And put us in a stable position that gives us a lot of optionality to manage the rate environment.

Bryan and I were talking before the call, like our expectation going in is we're going to grow Texas households at north of 10% on an annualized basis. It may take a couple of quarters to post conversion to get the ramp, but there is no reason why we can't grow Texas and at least the rate that we've grown in the Southeast given the starting points are remarkably similar, if you look back in time at where Fifth Third started. So there's the power of the DDA growth in our company between the Southeast and Texas and Direct Express and what we can get done on commercial payments is going to be huge in terms of managing the balance sheet for strong, strong profitability.

Your next question comes from the line of John Pancari from Evercore ISI.

Just on the deal, I just wanted to see if there -- have you made any changes to your initial assumptions tied to the Comerica transaction outside of timing, but any changes to the assumptions that you provided at the announcement, the cost save expectations, the restructuring charges or the related mark or P&L impacts?

Yes. No material changes to any of the assumptions inherent in the transaction. I'd say the only major items was the timing of close, pulling forward the conversion date. We do think that ultimately, we're going to likely be able to deliver a little bit better than the 37.5% of the [ 850 ] in 2026, given some of those timing changes. But we also do intend to invest a little bit more in growth as well. So we might be approaching $400 million of in-year expense saves in '26, if all goes well, but we're hoping to reinvest maybe $40 million of that. The original expectation was going to be around $320 million of expense saves in 2026. So we're obviously very -- feeling very good about what we're seeing from a progress perspective on the integration. And beyond that, the loan marks and the balance sheet marks are all very similar from what we have expected.

Got it. All right. And then separately, on the loan growth side, I appreciate the color you gave on the decline in the line utilization in the quarter. That decline [ seems ] more pronounced than many of your peers. And I hear [indiscernible] the shutdown and some of the balance sheet cleanup. But anything company specific that you'd say that exacerbated that? And then just separately also on the loan growth front, if you could maybe give us a little more color around the greatest drivers of growth that you see in the commercial portfolio after the combination is completed with Comerica?

Yes. Good question. I mean, John, it's got to be a little bit idiosyncratic and a little bit compositional, right? Because at this time last year, we had a big uptick in line utilization in the fourth quarter when other people didn't have it. And we tried to talk down enthusiasm on what that meant for '25. And we gave back a little bit of the utilization in the first quarter and other people kind of got it. .

I think there are 2 visible things: one, NBFI as a percentage of total commercial loans is way lower here than it is for most of our peers. And the NBFI loans tend to fund and stay funded at a level that's higher than what standard working capital revolving lines of credit, that would be -- secondarily, leverage lending here has continued to decline over time. And that's funded term debt principally over most of the industry and a smaller share of the overall balance sheet.

And then I think lastly, and we've talked about this, but we're -- clearly, we're believers in the value of technology to transform the business. It's transformed the way Fifth Third operated. But we're also very aware of the fact that there's literally never been attack infrastructure build-out, where there was an over building, whether it was cell towers or fiber or e-commerce distribution centers during COVID. And so we've been a little bit more cautious about just how broadly we were willing to play in data center and data center linked activity. And there, again, that step that's funded up pretty quickly in places where the loans are being made. So I think there's a possibility, there's some of that.

But one way or the other, utilization is not a thing we control. What we can control is originating high-quality credit and making sure we have the right team on the field. So that's the thing that we've been focused on.

And then John -- and yes, as we think about the where do we see the growth coming from with the Comerica acquisition, it really is an extension of the middle market play that has been driving success for us for the last couple of years. We've been growing middle market loans consistently. And even this year, grew middle market, 7%, as we highlighted in our prepared remarks, and we just see so much opportunity there as well as leaning into the specialty verticals where Comerica has just had so much success historically. There's just some great synergies there between their core business and our core business on the things that we're good at. That's going to create a lot of opportunity for us as we think about what loan growth could look like going forward from here.

Your next question comes from the line of Mike Mayo from Wells Fargo.

So it sounds like you're all built up on your merger prospects. Now it's just a matter executing, I guess. But just to clarify, you said you look to get your 2027 targets in the fourth quarter of '26 now? Is that right?

Yes. Yes.

Okay. So you have earlier closing, earlier targeted conversion, earlier metrics. So is there any change in your targeted EPS accretion for this year? I think you just said kind of maybe just a little bit accretive and then you get the big accretion in 2027. Any changes to those numbers, it would seem like that would be implied to go higher? .

It would be. It would basically be achieving the accretion earlier. So we are expecting -- we talked about 9% EPS accretion in 2027. We would expect to be able to deliver 9% EPS accretion from the deal in the fourth quarter of 2026.

Okay. And then I'm just -- it's maybe your middle name is Tim Digital Spence. Tim, I think of you as like the digital banker but I hear you talk about 13 million pieces of mail. I mean that sounds very last century of you. You have billboards too, and it sounds very old school. So does that still work, it's just kind of intrigued?

There may be a billboard or 2 out there, Mike. The benefit of direct mail is that you can literally pick down to the individual household who receives the offer and who doesn't, right? Whereas in a digital environment, you have a lot more data on the folks, but you are still at the end of the day, optimizing around the segments of the population and to some extent, some path dependency around traffic. So we actually have JV that we have been running with one of the leading digital marketing firms to us think through the way that we deliver a best-in-class digital acquisition funnel. It's a significant share of new household origination. Like if you look at marketing linked household origination, it's probably 50-50 digital and direct mill today.

But when it comes to rate offers, you want to basically get in front of the people that you want to communicate with and not necessarily just the rate shoppers which is what you tend to find at the affiliate marketing websites when you're leading purely rate and not a broader value proposition. And we can't, frankly, go digital until we get through conversion with Comerica because they don't have the ability to open digital accounts online. So there's nothing we can do with the Comerica brand until we get there.

But mail still works. It works in credit cards. It works in checking. It's the reason that you see the JPMorgans of the world, continuing to use it in addition to folks like Fifth Third. And there may be a billboard or 2 somewhere, but I promise you if we have one, it will be a digital billboard. How about that?

No, I mean, whatever works. I mean, I guess you're saying it's mail, it's digital, it's branches. So for the last 110 branches that you need to secure, it seems like you kind of telegraphed that and maybe I don't know -- how long will that take to get your other 110 or the 150 de novo branches?

It's the opposite of slowly but suddenly. I think in this case, it's suddenly and then slowly because what we -- the benefit we have here is we have been building for so long in the Southeast with strip center developers who are also doing a lot of building in Texas, that we were going to see a lot of the low-hanging fruit fast because we have these development partners who saw the announcement and picked up the phone and said, hey, I'm doing 4 of these in Dallas and 2 in Austin and one in Houston and otherwise. And you guys want the [indiscernible]. So they know our specifications. They know what we expect from a zoning perspective. They know how well we perform as a strip center tenant and what we expect in our contracts for ground leases or purchases. And therefore, we were always going to get more locations earlier.

We're not going to compromise the selectivity. And as we fill in hot spots on the map, by definition, it just takes a little bit longer to get the last handful of these locations. But it's a robust market. It's just stunning to think that [indiscernible] the size of Dallas or Houston could be growing at the rates that they are. And all that new development creates lots of opportunities like to build branches where you would want to have them today versus when they were built 30 years ago.

I look forward to the Investor Day in Dallas in a year or 2.

Your next question comes from the line of Erika Najarian from UBS Financial.

Just one follow-up question for me. And I really want to know what Jamie's middle name is if you were his Digital Tim.

Right now, its Red Hawk [indiscernible].

So Bryan, I'll make your's Liquidity then. And speaking of -- we heard a lot about longer-term and medium-term deposit plans. But just wondering what -- how we should think about average deposits that's underpinning your net interest income outlook for the year and how we should think about given Tim's comments about targeted rate offers, how we should think about deposit costs underpinning the 2026 outlook?

Yes. I would tell you that 2026 is really going to be a remixing year for the combined company. I think you're going to see something that looks very similar to what we've been able to deliver on the Fifth Third franchise, which is targeted growth from a DDA and an IBT perspective, in particular, consumer IBT. And what we'll be looking to do is balance sheet optimization, funding cost optimization from the Comerica balance sheet as it comes on. There's a number of things that they've had to do since March 2023 when they had more significant liquidity stress that we will be looking to clean up as it comes on board.

For us, on a stand-alone basis, what it's going to mean is a continuation of what we saw in fourth quarter, which is our betas look a little bit lower for the kind of Fifth Third legacy markets than it would have been in the past as we're more balanced oriented. But what it's going to do is bring down overall funding costs for the combined franchise as we put the things together. So we do think as I touched on in my NIM discussion that there's a couple of basis points of NIM pickup, that's just going to be attributable to the funding synergies as well as some overall balance sheet mix changes.

Your next question comes from the line of Ken Usdin from Autonomous Research.

I know this is going to get cleaned up over the course of time. But just on the overall guidance, you gave the PAA in the revenue side? Can you just -- if you have it, can you give us what the CDI add from the deal is on the Comerica side, so we can kind of just square the total overall?

Yes, sure, Ken. It should be about $20 million a month in 2026 when the deal closes. And then it will be a sum of the year digit approach. So you should expect to see a $20 million to $30 million reduction as you roll into year 2 of the amortization.

Perfect. And just to step back question also. I know it's all kind of in the total guide, but how would -- if you step back before you look at pro forma, how would you think just like stand-alone Fifth Third momentum is as you just think about last year's results on the stand-alone side versus kind of the momentum on the stand-alone Fifth Third side and whatever way you can kind of put it into context, revenue momentum, loan deposit momentum, et cetera?

Yes, absolutely. We continue to feel good about what we were seeing from the core Fifth Third franchise. We would have been talking about mid-single-digit loan growth. If you were to look fourth quarter '26, fourth quarter '25 comparison in terms of what our core business is driving and really a continuation of continued strength in middle market that would drive mid-single-digit C&I growth as well as continued strength out of the home equity in the auto businesses being big drivers from the loan front. We would have still been talking about revenue growth in that mid-single digit, mid- to upper single-digit growth rate perspective and another 100 to 200 basis points of positive operating leverage, which would have taken our efficiency ratio down into the low 55s on a full year basis. So overall, I feel very good about what the core trend is for our company, which was already one of the more -- one of the most profitable amongst the peers. And as Tim highlighted, amongst basically banks of any size this quarter, so we felt really strongly about that momentum.

And then on top of that now, the 200 basis points of pickup that we were expecting from an ROTCE perspective, an efficiency ratio perspective, we're going to deliver those balance even faster now given the timing being able to pull forward the close and the conversion associated with the Comerica transaction. So a lot of things that are stacking up that are really going to drive a nice financial outcome for 2026 and beyond.

Your next question comes from the line of Manan Gosalia from Morgan Stanley.

I wanted to ask about the 19% plus ROTCE target. I mean it looks like you're already at 19.6% as of 4Q. Are there any areas that you think you're over earning here? It seems that the core business is delivering nicely. The Comerica acquisition should be accretive in you're going to resume buybacks in the second half of this year. At this stage, it looks like you can come in nicely above that 19% plus number in 2027, but just wanted to see if there's any offsets that we should be thinking about?

Yes. The 2 things that I would point out is just; one, the normal seasonality of our profitability. So one, the first quarter tends to be a seasonally low quarter for us from a profitability perspective because of seasonal compensation items. And the fourth quarter tends to be a seasonally high quarter for us from a profitability perspective. So that's just one thing to keep in mind as you're looking at those numbers.

And the second component was we did have a small release this quarter from an ACL perspective. in a normal environment where we would expect to see continued loan growth, we would expect to see a little bit of a build every quarter. So those 2 items have an impact on that comparison that you're looking at.

All right. Perfect. And then just on Direct Express, can you tell us what's in the numbers for Direct Express in 2026? And does that hit full run rate by the fourth quarter? Or is there more growth that you expect as you get out into 2027?

Given the merger, the full run rate is in our numbers and is in the guide then for the fourth quarter, just given that we're assuming that we're maintaining the business as we do the merger. The only thing that's missing right now is one month of activity for the month of January. So Comerica stand-alone activity in the month of January is the only thing that would not be in our 2026 numbers. And that's -- that continues to operate in that $3.6 billion, $3.7 billion deposit range as well as $100-ish million a year in expenses and fees. That's a continuation of that is what's resident in the guide that we provided other than the month of January activity.

Yes. The upside there as we get into '27 and beyond, Manan, is like in my head, I associate the Direct Express program with social security payments because it's the super majority of the funds that are loaded onto those cards. But the Direct Express program is the Bureau of Fiscal Services mechanism to help all government agencies get off paper checks in places where customers do not have a bank account that they are registering for ACH deposits.

So the President signed an executive order directing agencies across the government to eliminate paper check distributions for the sake of reducing fraud. And we do believe that as we get on to our tech platform as we broaden the functionality that's available to Direct Express participants that we're going to be able to play a little bit of offense here and actually work with the Bureau of Fiscal services to the agency to agency and help them understand how they can make use of Direct Express as a mechanism to fulfill the executive order. And there is where we're going to find more meaningful upside out of that program in terms of growing it.

Got it. Is there a time frame in which you can do that? Or is that [indiscernible].

We got to get the conversion done and the feature builds that job one is to take care of existing program participants. So that will be the majority of that work this year because we will be moving on to a different tech platform and that is being developed with Fifth Third and Fiserv. And once we're there, and we've got the existing program converted, we'll focus on how we expand the program.

And your final question today comes from the line of Chris McGratty from KBW.

Tim, going back to capital, I noticed in your prepared remarks, you talked dividend, organic growth, buybacks. I didn't hear anything about inorganic growth. I'm wondering if the timing, the sooner closed conversion changes at all about your timing about when you would consider another bank acquisition, although I know you've been clear about getting this one right first?

Yes. That is the last thing on my mind right now for what that's worth. The upside opportunity here is really significant, and there's a lot of work in front of us. So the focus -- it doesn't change the timing in terms of how we would think about it. The focus really is on making sure that we get the Comerica customers converted and taken care of, that we make the company from an employee perspective, feel like one company and that we get the expanded capabilities that both Fifth Third -- legacy Fifth Third customers and Comerica customers are going to benefit from to market that -- we've got plenty to work on as it is.

Okay. Very clear. And then the follow-up would be just on investments. You talked about, I think, $40 million going back into the business with the sooner cost takeout. Can you just help us with tech spend pro forma rate of growth, what you're spending, how you measure it? I think some of your peers have been walking that number up. But just interested in your thoughts on tech spend broadly.

Yes. I mean -- we have grown for several years now tech spend in the sort of high single-digit to low double-digit range, right, call it, 7% to 10% on an annualized basis. I anticipate we're going to continue to do it. What we've been artful about here is we've been able to fund the franchise investments about half of them, right, through other cost reductions. Like the number itself that you'll see in our disclosures on FTE is a good example of this.

Like if you look year-over-year from December '25 back to '24, that head count was flat at Fifth Third. But underneath the surface, line of business and engineering resources and tech actually grew 2%. And then the staff roles came down and operations roles came down 3% as the investments we've made in automation and the value streams and otherwise actually play their way through. So we will continue to make those investments.

I think it was one of our fellow Category 3 banks who made the comment in their call that you're either on offense or defense, and we are on offense here and tend to continue to be on offense for the foreseeable future.

And we have reached the end of our question-and-answer session. I will now turn the call back over to Matt Curoe for closing remarks.

Yes. Just one last thing before I hand it over to Matt -- to the 1,000 Fifth Third employees in Indiana, who's [indiscernible].

Thanks, Tim, and thank you, Rob, and thanks, everyone, for your interest in Fifth Third. Please contact the Investor Relations department if you have any follow-up questions. Rob, you may now disconnect the call.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Right. Kicking off the second day, we are pleased to have Fifth Third joining us once again. Fifth Third has continued to execute on its strategy, including building out its Southeast footprint, growing fees faster than the balance sheet, maintaining excellent cost control. More recently, it announced its intention to by Comerica Bank, just its second bank acquisition in the last 20 years.

Here to tell us more about the path ahead is Chairman and CEO, Tim Spence. Tim is going to walk us through some slides, and then we will have a Q&A session.

Great. Thank you for having us, Ryan. With Marc Rowan next door, I thought this might be an empty room and may be reading into the record here like I was in Congress.

Good morning, everyone. As Ryan said, last night, we published a slide presentation on our Investor Relations website, which I will reference a little bit in the prepared remarks. And after that, as Ryan said, I'm happy to take your questions.

So Fifth Third, we've been clear that we believe great banks distinguish themselves not by how they perform in benign environments but rather how they navigate challenging ones. And while I would characterize 2025 as a benign environment, it's also one that has been defined by uncertainty and policy changes that affected overall market activity. Despite that, we expect Fifth Third will deliver full year record NII and over 200 basis points of positive operating leverage, just as we said we would, at this conference last year.

For the fourth quarter, we're reaffirming the PPNR outlook we provided in October as some softness in capital markets activity related to the impact of government shutdown will be offset by lower expenses. And we also continue to expect credit losses to be around 40 basis points. In 2025, we reached several milestones in our long-term growth strategies. In the Southeast, last week, we announced the opening of the 200th branch in Florida and our 100th branch in the Carolinas.

To put this in context, if Fifth Third Florida was a stand-alone bank, it would have the 44th largest branch network in the U.S. Fifth Third Carolinas would be the 78th and Fifth Third Tennessee, Georgia and Alabama would be the 91st. Our de novo branches continue to deliver deposit growth that is 45% better than new peer branches and consumer household growth of 3 to 4x the rate of Southeast markets. Driven by the middle market, RM and wealth advisers we have continued to add, the Southeast and California and Texas expansion markets will have contributed nearly half of total middle market C&I loan production and nearly half of all private bank net flows in AUM in 2025.

Our sustained investments in digital transformation have also created real competitive differentiation across business lines. In Consumer, we shipped over 400 updates to our J.D. Power award-winning mobile app over the course of the year, including Direct Deposit Switch, a financial wellness hub that provides cash flow insights and spending analysis and free estate planning capabilities through our partnership with Fintech Trust & Will.

In Small Business, a little over a year ago, we asked our fintech provide to extend their technology and leadership to all of Small Business for Fifth Third. Since then, we have moved up 36 positions in national market rank for SBA lending and finished #2 in J.D. Power's 2025 National Small Business Banking Satisfaction Study. In Commercial Payments, our acquisition of DTS Connex in August added a software layer to our managed services offering in retail and financial institutions verticals. And our new line embedded payments platform added marquee clients, including Circle and the federal government's Direct Express program.

The strategic partnership we announced yesterday with Brex transforms our undifferentiated commercial card offering into an AI-powered global spend platform that automates expense reporting, simplifies manager approvals and reduces fraud. Brex is an acknowledged market leader in product and innovation and results from the pilot that we launched with Brex in early 2025 have me very optimistic about the long-term potential for this partnership, as I mentioned on CNBC yesterday.

Last but certainly not least, on the strategic front, we also announced the acquisition of Mechanics Bank's Fannie Mae DUS platform yesterday, including $1.8 billion of DUS multifamily servicing UPB. This capability has been a notable gap in our commercial real estate capital markets offering, and we expect it to generate strong fees, some incremental loan growth and stable deposit balances as we build the platform out over time.

Under normal circumstances, this would be my place in my scripted remarks where I'd be pleased to share that Fifth Third's existing franchise will deliver another year of record NII, mid-single-digit revenue growth and an additional 100 to 200 basis points of positive operating leverage in 2026. But this is obviously not a normal year for Fifth Third. Instead, I'm happy to provide a little bit of additional detail on our plans for our pending acquisition of Comerica.

When we announced the acquisition in October, we highlighted the fact that it was a rare combination that worked on all time horizons. No dilution to TBV per share at close, 9% EPS accretion and peer-leading profitability in 2027 and a platform for strategic growth for the next decade. As our teams have commenced integration planning and as Curt Farmer and I have met in person with roughly 2,000 Comerica colleagues in townhalls across Michigan, Texas and California, I'm even more confident today in our ability to achieve those results.

We continue to feel confident that we will close the transaction in the first quarter of 2026. Regulatory applications were filed in October, and we expect approval around the new year with shareholder votes for both Fifth Third and Comerica scheduled for January 6. Once we close, 2026 will be a very busy year as we work to deliver successful customer and systems conversions and to unlock the $850 million in expense synergies. As we've said before, savings will come primarily from the elimination of facilities, systems, vendors and some headcount reductions concentrated in overhead and noncustomer-facing roles.

In 2027, we expect the company to have a return on tangible common equity of 19% and an efficiency ratio in the low to mid-50s, both of which would be #1 in our peer group today. Over 5 years, we see an opportunity to deliver more than $0.5 billion in incremental annual revenue synergies, which were not contemplated in the deal economics coming from 4 areas: first, scaling Comerica's middle market platform and vertical expertise; second, deepening Comerica's commercial and wealth management client relationships to reach Fifth Third client wallet share levels; third, building out Comerica's retail banking business with the Fifth Third playbook and the 150 Texas de novo branches that we announced; and fourth, creating a differentiated innovation banking business through the combination of Comerica's tech and life sciences industry vertical and Fifth Third's Newline platform.

Comerica's middle market platform and specialty verticals are widely recognized as the crown jewels of their franchise. Unleashing them is job #1 for us. Since 2021, given balance sheet constraints and competing investment priorities, Comerica's middle market loan growth was less than 1% per year. By leveraging Fifth Third's larger balance sheet and stable funding base, ABL and specialty lending product capabilities and investment capacity to add experienced RM talent, we are confident we can boost middle market loan growth and relationship growth across the combined company to the 5% to 6% annual growth rate that Fifth Third has delivered over the past 5 years.

Second opportunity, as I mentioned, is deepening Comerica's existing relationships across commercial and wealth management. Today, Comerica generates roughly 169 basis points in commercial payments and capital markets fees per $1 in C&I loans, where Fifth Third generates 188 basis points or about 10% more of that amount. As Comerica's bankers have access to Fifth Third's differentiated payments products and capital markets platforms, we're confident we'll see increased wallet share.

Similarly, Comerica generates about $7 in AUM for every dollar in loans in its private bank where the ratio is greater than 10:1 in Fifth Third's Private Bank. We believe there's a best of both opportunity both to increase AUM among Comerica clients and to boost lending among Fifth Third Private Bank clients going forward. The third opportunity and most material of the group is building out Comerica's retail franchise across deposits, lending and investments.

We believe we'll see an immediate same branch deposit production increase once Comerica's colleagues have access to Fifth Third's data-driven direct marketing, products and digital capabilities. We also expect to produce a lift in same branch investment and loan production as we add investment in executives and mortgage loan officers to match Fifth Third's existing staffing and gearing ratios over time.

As we add 150 de novo branches to Texas through 2029, we expect to achieve top 5 locational shares in Dallas, Houston and Austin, which constitutes a $10 billion additional deposit opportunity as those branches season. The fourth opportunity is building a differentiated innovation economy banking platform. Comerica is well known in the venture community, having operated its Tech and Life Sciences business since the early 1990s. They possess a broad portfolio of VC relationships and banking and lending expertise.

When combined with Fifth Third's fintech credibility, embedded payments offerings and balance sheet strength, we believe there's an incremental opportunity to serve the innovation economy that's powering the growth of the U.S. overall. We're in the initial stages of developing our strategy here, but we believe it constitutes a very significant deposit and fee opportunity in particular.

To close, it's an exciting time to be part of Fifth Third. We're focused on delivering strong returns for long-term investors and are proud to rank second amongst peers in total shareholder return over the past 3-, 5-, 7- and 10-year time frames. Stability, profitability and growth will continue to be our operating priorities in that order because we've invested in a limited number of large strategic opportunities because we have focused on achieving density where we compete and because we have leveraged technology to differentiate our products and boost operating capacity, we have everything that we need to achieve the promise of our Comerica merger.

With that, I'm happy to take your questions.

Great. Thank you, Tim. So maybe to kick it off to dig a little bit deeper on the 2 announcements that you had yesterday with both Brex and Fannie DUS license. Maybe just talk about how you'd expect this to impact the business, the financials over the medium-term time frame?

Yes. So let's start with Brex since some of you may not be as familiar with Brex. Brex is the largest of the spend management fintechs in the commercial card market. We came to know them a little over 7, 7.5 years ago. They have been a client of Newline for several years since and developed relationships with the founders of the business. The journey they're on is the same journey we've been on across our commercial payments platform, which is to take these legacy businesses that are essentially all linked to processing payments on commodity payment rails that all banks have access to and to convert them into payment workflow automation businesses that are differentiated with subscription software.

So you get a little bit of the equivalent of the razors and the razor blades monetization model. The gap in what Fifth Third has been doing has been in the commercial card business because we have written on the same vanilla technology platforms that essentially every other Visa or Mastercard issuer would write on and had just never been in a position to make the sorts of investments in the AI capabilities that simplify everything from receipt capture and expense reporting to auto mapping expenses into individual GL codes so that you eliminate a lot of manual work in the accounting department and otherwise.

So we needed to do something there because the payables platform is -- payables in general are relevant to all industry verticals and not just one. So we have about $6 billion in annual commercial card spend today. That will move over the course of the next year from Fifth Third's internal platforms out and onto a co-branded Brex offering. There'll be a native integration that gets done. So commercial clients will have the ability to manage our receivables and payables through our environment. But it just immediately changes our value proposition from being basically rebate-driven and/or bundled to one where the commercial card and the spend management offering can be a tip of the spear.

So what we've seen in the other payments businesses, we do that is -- like today, we add almost one new payment-only relationship for every commercial payment relationship that we add by virtue of extending credit, right, and then getting the payments along with it. This is just another tip of the spear offering for us. So we'll go from a gross revenue minus expenses model to then essentially the contribution margin from the business to a net revenue model as part of the partnership.

So top line revenue will decline a little bit. Contribution margin will grow. But the more exciting thing is, in the pilot I mentioned that we ran this spring, the take rate when we went out to clients increased tenfold, like a literal 10x increase in the success rate we had in converting prospects into commercial card customers. So we're not building the plan around a 10x take rate increase, but it's a huge lever for us, both to add new relationships and just to gain wallet share in a category where we're probably the weakest. Frankly, regional banks in general are probably the weakest.

The DUS business was the equivalent, I think, of my holiday gift this year because we have been trying to acquire a DUS license literally for the past 10 years that I have been at the bank. We have looked at, bid on or walked away from 4 or 5 different platforms during that period of time, either because the relative size of the business didn't make sense or they were attached to a business that we didn't like and the math didn't work or we weren't comfortable with the culture. This is -- it's a huge asset for Fifth Third and ironically, about the perfect size.

What we want, we are believers not in a sort of portfolio holding company model, but in being one thing where we compete and in integration. And what we're going to get with this mechanics DUS license which came to them from HomeStreet is a good platform, a great initial starting point in terms of the talent, but not one that's so large that we're dealing with a lot of independent and sort of outside our core franchise business.

So we're going to be able to take what we've got, add talent, add licenses since DUS is basically the one license that's functioned as a walled garden and then integrate the go-to-market directly into our multifamily business and Comerica's multifamily business. And multifamily is a huge share of our construction lending, and it's the single largest share of Comerica's construction lending as well. So it gives us a fee-based mechanism to monetize the transition from construction to permanent financing for a lot of our clients and so for that to come along when it did is just -- was great.

It was great. And this will be more capital market oriented?

It will be. That's right. It's a fee-generating business. There are good deposits that come along with it, a little bit of bridge financing to get from construction to stabilization so that you can then use the agency takeout. But fees are the way that we'll monetize it over time.

Got you. So a lot of interesting stuff in the deck on the Comerica and the integration and revenue synergies. So maybe we'll start to dig into some of those. I'm looking at one of the slides, the deal is slated to close in the first quarter. I guess, first, what are the major hurdles between now and then? And any concerns given the HoldCo lawsuit that was out there that could delay this?

Yes. I promised to be on my best behavior. No, we're not worried at all. I think we got the regulatory applications in before the end of October. As I mentioned, we've been in constant dialogue with both the Fed and the OCC. Those discussions have all been quite constructive, and there is nothing that's come up that has caused me even the slightest concern. I think if anything, the sort of experience we're having is consistent with what we have been hearing from others who were ahead of us in line in terms of these transactions moving through in a sort of 90-day-ish type of time frame.

We have our shareholder meetings on January 6. Like if the worst thing that our shareholders are going to say about the deal is that there could have been more tangible book value dilution. I think we're probably in really good shape. And frankly, given the feedback that we've gotten from Comerica shareholders, and the way that the market is trading the deal in general, it's pretty clear to me that the shareholder vote is going to be very smooth on that front. So the last issue here is just the resolution of the suit. Having not spent a lot of time paying attention to this, I was a little bit surprised to learn that strike suits have been filed for basically every major deal that has been done over the course of the past several years, and I expect that will work its way out through the courts in due time.

I will agree, that was best behavior, and that was -- I did like the way you talk about the TBV dilution. So just looking at the time line, you're planning on closing in the first quarter and then it says systems branch and conversion is going to happen in the fourth. I guess talk to us about why that's the right time, what planning is being done and what you do need to ensure that you're ready as those dates approach?

Yes. Job #1 when you get these deals, it's a first do-no-harm sort of a thesis. Like what we're excited about with Comerica is the expense synergies paid for the deal, but the markets, the vertical expertise, things like the dealer platform, tech and life sciences, waste management, stuff we've talked about before and the middle market franchise and the culture they have there are really the foundation for like a decade of organic growth opportunities at Fifth Third.

So we got to make sure that we handle the conversion sensitively. We had about a 9-month approval time line with MB and then we converted in about 8 weeks after that. So call it a year from announcement, a little less than, it just made sense to us as we did our initial planning with Comerica that we take the same approach here. So we'll get the deal closed. We'll get the expense actions front-loaded to the extent that we're able to.

And then we're going to work on what I would think of as more an onboarding experience for their commercial clients than a conventional conversion experience. So we will -- for the largest relationships, in particular, the ones that have complex treasury needs, actually onboard them the way that we would if we were winning new business over the course of the period of 6 months. And that makes the weekend system conversion much less fraught, right? I think the good news from my perspective, we've essentially been converting ourselves over the last 5 years as we've done all the tech modernization activity.

So we have a clean platform. We understand how to do the cutover. We learned some really valuable things in the process at MB that silly won here. I don't know my own Fifth Third app, mobile app password because I've been using biometrics to log in for the past several years. So there are things that you can do to precondition customers before you cut over so that they have a better experience, and we'll be ready to go over the 3-day weekend at the beginning of the fourth quarter or end of the third.

Got you. So one of the things that you've noted is that their consumer bank was somewhat underinvested in. And maybe just talk about, is it just opening more branches? Is there more to do than that? And you commented before about getting loan growth to being similar to the 5% to 6% that Fifth Third historically has done. How do you get both franchises as you bring them together, generating the type of loans and deposit growth? And is there more investments that have to be made?

Yes. I think -- I actually think the Comerica team was smart not to be investing at the time they did in retail. One of the things that I admire about their culture is they're honest about what they're good at and they focus on those things and the things that they don't have the capabilities or expertise in, they don't do it. And that's not common, right? We have a lot of banks that are building branches that haven't built branches in a while or folks that have had more difficult time figuring out how to utilize direct marketing. We're trying to do more of that.

The Comerica folks were just clear eyed that they didn't have the capabilities and therefore, they didn't spend the money. So they haven't run a consumer deposit marketing campaign in 13 years, right? We drop 8 to 12 campaigns for households alone, not including the things that we do on an ongoing basis to my wallet share for our existing clients every year, right? So that's just job one is take the analytical marketing expertise, reground the models for Comerica's markets and generate a boost in same branch deposit production.

We get about 35% of our monthly household and deposit production from the branch through marketing-linked activity. So it would be fair to assume that as we get going here, that's where we're going to be the legacy Comerica. Second is obviously building the network to the right level of density in these markets. Like Comerica's performance in Michigan in retail is as you would expect, because they have high share and strong brand awareness, comparatively much stronger than in Texas and California, where the network is thinner.

So we're just going to solve that problem and fill it out. And we have -- whatever, a deep track record at this point of the results that the de novo program at Fifth Third have been able to drive relative to others. The last thing, which is one that I don't know that I fully appreciate when we get a little bit further into the deal is that we get a lot of home equity production, we get good card production, and we get excellent investment production out of our retail network because of the playbook we've got and because of our staffing ratio.

So you have, call it, 1 mortgage loan officer for every 4 branches at Fifth Third. You have 1 investment adviser for every 3 branches. The loan officers generated a little more than $4 billion in production last year. Fifth Third Securities, the broker-dealer had over $300 million in -- well over $300 million in recurring fee revenue last year. So at Comerica, there are 5 MLOs covering 345 branches, and there are 30 investment executives covering those same branches.

So they're operating at a rate that's like 3x less than what we are operating at on the investment side of the equation and substantially less than that, call it, 10x less in terms of what we would want to be doing on the mortgage front, maybe 20x. So we will do some hiring in those places. There are [indiscernible] already open in several of these markets so that we can bring the full playbook to bear.

And when you think about the 150 branches that you're in, I think you said 75 Houston, Dallas and then 25 San Antonio and Austin. Maybe just talk about the strategy going in there. Is this -- are we using the same playbook that we've used in the Southeast? Are the markets different at all that have to make some tweaks to it? Talk to us about that.

Yes. It's fundamentally the same playbook. So same geospatial tool that we utilize to locate branches which, I think we mentioned, that definitely will be the only time in my lifetime that I'm associated with an award for advancing an academic field study with the GIS Award that we won a few years ago for that tool, that same learnings in terms of the -- what we choose to build, how we evaluate individual parcels of land in a given area. And then certainly the same learnings as it relates to the launch tactics.

What's consistent about Texas and the Southeast that's quite different than most of the markets on the northern half of the country is they're less dense, right? They don't deal with the topographical barriers like rivers and oceans that we do here in New York. They're growing so fast that they're not as urbanized. And the byproduct of that is you need to be thinking about what you do in the city centers and how you provide points of convenience locally, but it really is about how you handle the neighborhoods that ring the urban core.

And I think just the early returns from the branches we built in large cities like Broward North and Southeast Florida, like what we're getting out of Georgia is our de novos are actually doing better there than they were doing in the midsized towns. And we're doing pretty well in the midsized cities. So I think we're in very good shape in terms of the toolkit.

And maybe to round out the discussion on the Comerica footprint. California is obviously a longer-term time line, but you mentioned there's lots of things you could do. You gave the example of Newline can work with TLS within the innovation economy. Maybe just talk about the approach to California. Is there more that could be done? Do things like the OCC opening up venture lending and that the kind of things increase what you can do out there?

Yes. So from a consumer perspective, the nice thing about California is it's an incredibly deep pool of liquidity. And because we have such a small share across the state, sort of the net incremental relative to cannibalization on rate offers will work very much in our favor. So the strategy there will be more deposit balance driven than it would be conventionally household driven, although we will do some household marketing in places where we have the right level of density.

I think the exciting thing is what we're going to be able to do on the commercial side of the equation. We've had a really good middle market presence in Southern California and then up into the Central Valley in particular. The #1 thing those folks ask for every time I'm out there is can we just get a few branches because we need folks to have access to them. So our -- the Fifth Third existing team is over the moon about having a thin network that will be able to support their activity.

It will allow us to do some things in the emerging middle market space that we have not been able to do out there, and Comerica has demonstrated that, that will be quite successful. But I think to your point, the big growth strategy is going to be innovation economy. There's no question that the combo of actions that the OCC took recently will make it much easier to participate in venture lending. But the value doesn't come from the lending in those businesses.

Like conventionally, it's a 4:1 deposit-to-loan ratio that you generate. But you have to be able to know how to do the lending. You got to have the relationships with the VCs to do everything else. So that is going to be the tip of the spear on the California strategy for us as we think there is a role in an ecosystem now that's sort of dominated by people who are in the venture banking space because they want the capital markets opportunities and the IPOs for somebody who wants to play in that market, but who wants the operating activity and who has the tech to do the integration that's required to make those businesses work straight through the way that they need to work.

Maybe let's switch a little bit, just talk about the current operating environment. So you gave an updated 4Q guide where, as you mentioned in your prepared remarks, Tim, you tweaked down slightly in noninterest income due to a little bit capital market deals getting pushed. You made up [indiscernible] on the expense side. So we're ending up in the same place from a PPNR perspective. Maybe just focus on 2 things in particular. One, what are you guys seeing in the lending environment? And two, obviously, it was nice to see the reiteration of the 40 basis points of charge-offs. Can you give sort of broad updates in terms of how you're feeling about credit?

Yes. So just on the capital markets front, thinking about this, we had our Board Meeting in the last few days. It feels like we got 9 months of market activity out of a 12-month year between the Liberation Day pause in the Spring and then the government shutdown here in the Fall. So the pipeline stayed very robust there. It's just given the delay in things that we expected would close in the early part of the quarter to the middle and late part of the quarter, it didn't feel prudent to come in here and assume that we were going to get 100% of everything that's scheduled for December 31 done. So that's probably $10 million to $15 million in activity that moves out of the fourth quarter that would have been there otherwise into the first quarter.

The good news is expenses are running in a good spot. And the byproduct of that is the PPNR guide will stay spot on the pin. From a lending perspective, production has been really good. I would tell you, it's not because we're seeing a big lift in the market. In fact, when you look at the Fed data on C&I, 100% of the growth has come from the NDFI market. All C&I exNDFI has been stable. In our case, the production has been good because we've been adding the bankers, right, and production rates have more or less tracked those guys coming online.

But utilization is softer in part because between the uncertainty attached to the government shutdown and now I think the uncertainty over how much of the current tariff regime sticks in the rollover into the coming year, you see people managing inventory a little bit tighter. But in general, I feel really good about the exit point for the year and how it sets us up, as I mentioned in my remarks, to continue to deliberate this sort of mid- to high single-digit growth on the revenue line items on a Fifth Third stand-alone basis than what we're going to be able to add with Comerica. From a credit perspective, things are advancing more or less exactly as we expect.

Maybe to dig in a little bit further on the revenue synergy opportunity, the $500 million over 3 to 5 years, lots of these are in areas where if you think about it, either you're building the branches to generate retail opportunity. Are these areas where Fifth Third has been -- has had superior performance and a lot of it is bringing Comerica up to the same sort of level? Can you maybe just talk about any investment that's needed to generate these? And will there be any sort of timing mismatch as you think about generating this?

Yes. The expense synergies that we announced when we announced the deal were a net number, inclusive of assumptions around reinvesting into the franchise. So I don't want anybody walking away worried that there's some big unexpected expense growth here that -- on the Comerica front that isn't anticipated. The near-term opportunities here are in leveraging the things that we know how to do and allowing their folks to be more productive, right?

It takes time to get the hiring engine going in markets where you're not recruiting. I learned that one the hard way, like when we had trunk middle market bankers relatively consistently over a 10-year period when I become President of the company. And it took us 18 to 24 months just to get people back into the habit of having the sorts of conversations that we needed to have to get on this 6% to 7% annual growth rate that we now have in terms of experienced RMs and wealth advisers. And then it will clearly take time.

Even in Texas, you got to wait a couple of months for a permit it turns out, but it will take time to get the branches built and out of the ground as we talked about when we gave our initial time frame. So I'm most excited about what we're going to be able to do in the middle market. I hear from the Comerica folks when I'm out that both the larger balance sheet and the capabilities, in particular, the technology, like they have -- many of them would say, listen, we have -- I have a 30-year relationship, we do all of the lending for the client. They leave excess deposits here, but they had to take the treasury somewhere else because there was a capability that they needed that they weren't able to offer or they needed to move into a syndicated transaction. We just didn't have the scope of services that we needed in order to retain it.

And so there's stuff we're going to be able to do on that front. And then the same branch production will be like that, right? That is an operational business for us. There's a well-defined playbook. It works in the Midwest. It works in the Southeast. It's worked in midsized markets and large ones. And I'm relatively certain that we'll be able to get that going even immediately after legal day 1 for everything other than checking and then post conversion, we'll get the checking going too.

Awesome. Well, we're out of time, but please join me in thanking Tim.

Yes.

So I'll start. So I am here with Fifth Third, just a brief introduction to them before we start. They're headquartered in Cincinnati, Ohio, about a $200 billion asset institution, 3 principal segments: commercial banking, consumer and small business and wealth and asset management. Very strong profitability metrics, so about an 18% ROTCE and a 1.25% ROA, noninterest-bearing make up 25% of total deposits, very attractive. And valuation of 10.5x next year's earnings.

So -- and with me today, I have -- to my immediate right, Bryan Preston, who is Executive Vice President and Chief Financial Officer. Bryan is responsible for many functions, including FP&A, corporate development, accounting and tax. He was named CFO in January of 2024 after serving 4 years as Treasurer.

He was previously CFO of Consumer Payments and Strategy. He served many roles at Fifth Third since 2003, and he started his career at E&Y. Jamie Leonard, Chief Operating Officer. He's responsible for many areas of the company, including retail banking, consumer lending, business controls marketing, operations, strategy on and on.

Jamie became COO in January '24 after 3 years as CFO. Before that, he was Chief Risk Officer at the firm Struthers. So shall we get started? All right. Okay. You haven't historically been an M&A shop. In fact, we've had Tim at this conference talk before about the very organically focused, so why pursue the Comerica acquisition now? And how does it fit into your strategy?

Great question. I think one of the things that's important as we evaluate optionality and options for growth, we do believe that foundationally, you have to be great at organic growth as a core principle, right? Real value creation for shareholders comes from being a builder. And so when we do that and the work we've done to be great at retail organic growth, middle market banking growth, it creates a real hurdle for us and a real discipline around evaluating the opportunity cost for an inorganic transaction because of the distraction it creates from the organic playbook that's working.

And it also gives us an option to evaluate the strengths that we have as a company and the strengths of our partner to figure out if the combination is going to make sense. And with something like Comerica, we look at our strength in our retail franchise, and this was an opportunity to bring something that we are great at.

We're great at building branches. We're great at growing deposits, and we can bring that to what is a great platform for future growth. And then looking at the middle market franchise, and you've heard us talk about strength and strength on this one, where we have a strong franchise, they have a strong franchise.

And what became important there was ensuring that there was good cultural alignment, because when it's strength and strength, you want to make sure that you view how you serve the customer, how you grow the business in a similar way and have a good alignment from a risk appetite perspective and a credit culture perspective.

And when we looked at the Comerica opportunity, we saw those things come together to really create something that creates a pathway for growth for us that can drive us for the next 5 to 10 years with the platform that we have together. The ability to take advantage of the opportunities in the demographics of the Texas market to continue to shift our growth profile from what was originally when we started our Southeast expansion, a heavy Midwest franchise to now really shift the profile of our growth from a long-term perspective and to give us an opportunity to continue to invest and build and do the things that we do very well to create shareholder value.

Okay. That's very comprehensive. The last deal that you did was a while back. It was announced in 2018 and took about a year, just under a year to close. We can move back to that later on the new environment. But it was a bit smaller. It was about 14% of your assets, and this is more like 1/3. So it's a little bit bigger. So what lessons did you learn from the MBFI transaction and the risk with integration? And I don't know as part of that, you can kind of touch on who -- maybe you're locking up more people, maybe you're -- just in the context of what you've learned from the MBFI transaction, you're going to do it.

Yes, we learned a lot from the MBFI transaction. Some things we did incredibly well, and we will do that again. Some examples of that were early appointment of the regional leadership -- and in the Chicago market, in particular, Mitch Feiger became the President of Chicago, did a wonderful job, joined our Board and is a great Board member today. Mark Hoppe followed Mitch Feiger, also an MB alum and was our Chicago President.

And now Mark Heckler, an MB alum is our Chicago President to this day. And I think when you get the right regional leadership in place that inspires the followership of the RMs, you will do a much better job on RM retention than just throwing money at a problem.

So I think we did that very well with regional leadership and with RM retention. I think some of the things that we learned the hard way on MB that we won't make the same mistake this time is, first, the faster you get to legal day one, the faster you get to close, the more flexibility you will have with the integration. With MB, given the environment, it was 273 days to regulatory approval and a full year to get to close.

And then the window between close and customer day one was 7 weeks. So that's a very tight window to get an integration done. We're hopeful here and highly confident that from announcement to legal day one, let's call it, March 1 as a placeholder, and we're looking at customer day one in October of 2026.

So that gives us a 7-month window, not a 7-week window in order to get the conversion done. And the reason why that window is important is with MB, they had a lot of customization within -- predominantly in their payments business. And Comerica is very similar. There's a lot of customization.

They're a very customer-centric organization, and we like that about them, but it makes an integration more challenging. And so when you have a short window, you uncover things during customer day one that you wish you would have resolved in that 7-week window. Well, now we can onboard clients between legal day one and customer day one into the Fifth Third network because we're merging their 2 bank charters into our bank charter on legal day one.

So we'll have a little more flexibility to get an integration completed for top customers that have customization of solutions in an extended period of time. So I think that we learned the hard way with MB. And the other hard lesson we learned was that with consumer data and fraud rules and all of the intelligence systems that exist in a company, when you move data over, the customer looks like it's a new customer, and that presents a different wrinkle to your Zelle authorization limits, your fraud controls, your ability to access your money.

And so those are the things that you need to make sure you're very careful about and having that 7-month window gives us more time for testing and building the right analytics so that they have a great experience on customer day one.

Okay. That's very helpful. So let me just skip ahead then to the closing and the timing of the closing. Like the said MBFI was nearly -- you talked about 10 months from announcement to close. What gives you confidence that, that you're getting pretty quick and it sounds to me that you're confident you're going to get there.

We've completed all the necessary filings. So we really focused on that in the month of October. I think the biggest change is just the environment and where the regulators are and their interest in helping facilitate acquisitions today that, that just wasn't the case 7 years ago.

So the environment is very different. It's more productive. I'm sure [ Raj ] will talk about that at lunch as well. So that's probably the biggest driver, but we've also done a lot of work on our side and the Comerica folks have done a lot of work on their side as well to bring the 2 companies together in an orderly, but quick manner.

And then Comerica has in some very attractive markets, but it always seems like maybe their growth was a little bit -- the loan growth was a little bit lower than it should have been, given the demographic tailwinds that they have there. How do you turn this around? I know you touched on this a little bit Bryan in your opening remarks, but how do you enhance that franchise? .

I think when you look at their numbers, it's not that they can't grow. It's that they were constrained and couldn't grow, given the balance sheet composition. And frankly, at Fifth Third, we're very empathetic to that position, because we were in that position 15 years ago, and we had to fight our way through it. We had to build out the 3 lines of defense, and that's expensive.

And that takes resources that you otherwise could have put into product and IT development. The March Madness, when you have deposit runoff when you're a smaller bank, it's then going to constrain loan growth. So hopefully, their employees see the light at the end of the tunnel, which is when they're on our platform with our products, whether it's in capital markets or lending and balance sheet capacity or in the consumer business, where we're really excited to see what their retail franchise can do when they have access to the #1 mobile app in regional banking at Fifth Third, the customer recommendation engine, the MyDay work, the Momentum banking with early pay extra time, MyAdvance.

These are all features that don't exist inside of Comerica because the consumer bank has been underinvested. But the moment this conversion is finished on customer day one. All of those things will be immediately available to their employees, to work with their customers and to really improve the customer experience.

So I'm excited about what the growth opportunity can be from a personnel perspective, I think from a demographic perspective, what is exciting is that -- if you go back to Fifth Third 15 years ago, predominantly a Midwest Bank, our retail footprint had a 1% population growth on average. When we're finished with the Southeast build-out and the Comerica acquisition and the additional branches for Texas, our retail footprint population growth will be over 4%.

So that's an incredible position to be in when we obviously believe we can take more than our fair share of the market. But even if you were just at the fair share, that's a really compelling growth number for the entire consumer bank.

Okay. And before you can implement this growth strategy, are there changes that you want to make to the composition of Comerica's balance sheet ahead of that or?

I wouldn't say changes to the composition of their balance sheet ahead of that. They are a very asset-sensitive business model. So as we bring their balance sheet onto our balance sheet, that will be a factor that we'll take into account as we manage rate risk. .

The bigger thing is that we have always foundationally believed that the majority of our funding, we want to be granular insured retail deposits. We were -- we've always aspired to have that number around 60% during the COVID deposit buildup, commercial buildup more than consumer. So we've kind of been in the mid-50s since then Comerica moves us closer to that 50-50 now.

So what we will do is we will continue to either through the investments we've been making from a branch perspective, the marketing analytics and the positive campaigns that we are able to run. We're going to continue to lean into retail deposit growth because that is what we want the foundation of the balance sheet to be going forward. We think there's a lot of opportunity with the branches that we've already built and that will be opening in the Southeast, and we also think there's opportunity in Comerica's franchise.

Because it's a business that's not had the money to invest in consumer marketing. And so we'll continue to grow that. And it will give us an opportunity to remix their funding because they were so commercially centric and we'll drive long-term savings out of adjusting their funding mix as we bring more of our deposit capabilities to their platform.

Okay. Just to talk about -- kind of go back to the comments you made about the Texas branches. I'm going to go to that first and then we'll go to the Southeast on and sort of how that fits in. So what cities are you thinking about there? I know it's a huge place. Where are you going to go first? What's the timing on that? And then how does that fit into the Southeast expansion that you've talked about for many years now.

Yes, we're very excited about the opportunity in Texas. As they bring to Fifth Third, 109 branches in Texas. We will invest in that network 150 locations in '27, '28 and 2029. Our teams have already been looking at sites over the past few weeks. I think we have 12 letters of intent that have gone out on site selection.

So we're moving very quickly. And as you saw in the Southeast with Fifth Third, we don't settle on location if we can't get a great location, then we'll move on. So the numbers I'll give you by city may change by the time we're finished, if better sites or different sites come up.

But right now, of the 150, we would expect 75% to be in Dallas and Houston split fairly evenly. And then the remainder split between San Antonio and Austin, such that we'll have top 5, our goal being top 5 location share within those 4 cities.

Okay. And then this isn't -- I think some of the concern is that -- this is at the expense of your Southeastern build-out, which is you've been talking about for quite some time. And so how does that fit in to the completing the build out? And if you can give us a little more detail on sort of -- your plans for branches there?

So the Southeast program has been very successful. You see the numbers in all the FDIC data. We'll open 55 de novos this year, 5 in the Midwest, 50 in the Southeast. This year is predominantly a year of Florida. Next year, there's an overweight in Georgia, but it's well on a glide path of 50 this year, 50 in '26, '27, '28. So the end of 2028, we will be through the 200 locations.

Of the 200 locations, we're 90% secured sites. So we're sort of on an auto pilot right now where the sites are good, construction is happening. We're really excited. Next month, we'll open our 100th branch in the Carolinas. So we're getting really substantial scale in the Southeast growth markets. And since we've been on this journey, one thing I love about Fifth Third is we're certainly aggressive in some ways, but we're also humble in other ways where you have to be humble to learn.

And we've been learning, and that's one of the things Tim has really brought to the company is a culture of get 1% better every day. And as we build each vintage of de novos, we made mistakes, we then fix those mistakes, and each vintage has performed better than the prior vintage such that the 2024 and 2025 vintages are 160% of their deposit goals based on where each branch is in its tenure.

So -- we're really excited about the Southeast, and we've got a great team, and it certainly helps when you have great products, digital capabilities to go with it.

I wonder if I could just follow up on that just briefly. And I don't want you to give away the store competitive advantage here, but you said the 1% improvement in some of the de novos that you opened, you made some mistakes. So was it location? Was it size? Like was it -- what were some of the things that stood out to you that you know...

A few of the things are pretty obvious, which is -- we saw this mistake with Fifth Third in 2003, '04 and '05. I've been at the company 26 years, Bryan, it's 20 years. We've seen a lot -- and when you put out a number and you're going to chase a number on branch builds, what happens is when the sites aren't available and you then cave on location quality in order to hit. I've got to open 200 branches in the Southeast.

That is a painful mistake and an expensive mistake to overcome because in short order, you're going to have to move the branch or you just have a legacy underperforming branch. And I think it was last year at [indiscernible], we showed average deposit balances by branch based on age of branch.

And you can see that a lot of our peers have a challenging network where you have some bad sites. And there's always the ingress and egress and what the miles per hour per road. We have a very sophisticated branch geospatial analytics tool that we use for site selection, but you still have to have good judgment in your sites. So we have really good partners. One of our beliefs and how we model the locations and what the tool does is it analyzes customer behavior from where you live, where you shop and where you work, and we have found that the more you're with where you live and where you shop, you ultimately will do a little better.

Can you bring some of those analytics and experience to the Comerica branches?

Oh, yes. We've already run our tools on their network. Their Detroit branches are very good. They run a very good retail franchise in Detroit. The Southwest has been challenged, because of the resource constraints that -- it's a thinner network than what it will need to be, and that's why we want to help that network get to a top 5 locations here.

Okay. Great. Just talking -- thinking about Texas makes sense for Comerica and the Midwest enterprise makes sense. California, I think people maybe have a few question marks there. They might be surprised to know that you already have folks there? Can you talk about that and sort of how California sort of factors into the whole deal?

Yes. So California, I think that's one of the interesting things for us with Comerica. I think we were uniquely positioned from where we have people today, right? Obviously, the Midwest, the Michigan overlap is obvious. But there are really no meaningfully new markets for us. We already had middle market banking teams in Dallas and Houston.

We already have middle market banking teams in the California locations they and where they are. And we have seen great growth from those team. And they are excited about our ability to bring the whole bank to those markets now. And we think it's going to put us in a position to be able to continue to grow and accelerate what we've done, accelerate our ability to attract new people to our platform as well.

That's to your question at the beginning around how do you get the franchise growing again. Our ability to grow the sales force is such a critical part of growth. And it was part of the lesson that we learned through the years, because we went through a decade of not growing the middle market team. We went through a decade of not investing in customer acquisition.

And so we know the journey that they've been on and we know how to get that started again. And we're excited about that. Texas is obviously going to be the focus from a retail investment perspective out of the gate. California, what we're excited about on California is a couple of things. One, there's a great middle market, small business and private banking opportunity with the branches showing up.

We do believe it will be more of a middle market, small business opportunity from the beginning. But even with that, there's still scaled branches in those markets and a lot of liquidity. So it is going to also give us access to retail deposit funding in a way that's not going to cannibalize our core markets.

And so we are also going to be able to use that as a funding tool over time. And then draw on top of that, the new line business that we have from a payments perspective, and that's our embedded payments business. There is a great synergy there with creating a very unique innovation economy bank that has great core banking capabilities with Comerica's Tech and Life Sciences vertical combined with our new line business.

And we think there's going to be some real opportunity from a growth perspective to be the bank of choice for that part of the economy.

Okay. Yes, that's helpful. I'm just going to ask a couple more and then open it up to questions. So just going to the capital side, how does this acquisition impact your capital plans? And then how do you think about the timing of share buybacks after you close?

Yes. No material impact from a capital plan perspective. When you think about the economics of the deal, the pricing of the deal, it should be relatively neutral overall from a capital perspective. Obviously, there'll be a little bit of noise around what are rates on the day of close, thanks to the beauty of purchase accounting today, one day is so important. .

And so we'll hold back on any share repurchases until we get to close, and we know what the final balance sheet and final capital ratios look like. But we would expect to be in a position to restart share repurchases shortly after close, assuming that the economic outlook looks similar to what it is today.

So we feel very good about that, continuing to target that 10.5% CET1 for now and continuing to look at what we think is going to be a fairly nice continued accretion of the AOCI. And from a market perspective, still on a good path to the market capital being north of 9% relatively soon.

And then after the deal closes, you'll be the smallest category 3 bank. How do you think about preparing for those requirements? And what are the costs associated with that? And does that sort of as the smallest category 3. Is it kind of put you at a little bit of a disadvantage, maybe you need to be a little bigger, you're the small, can you just kind of talk about that dynamic?

We don't feel that it puts it at a disadvantage. We look at -- and we've got a good sense of what the requirements look like and what it will cost us to get there. A couple of years ago, we were involved in the First Republic transaction in terms of being one of the banks that were asked a bit on the transaction.

As part of that program, as part of that process, we actually went through and built out a -- this is our plan associated with what we think the category 3 requirements are and our path to meet them. And that was part of our submission that we sent to the regulators when we made our bid. They gave us good feedback. We were one of the -- we were the only institution to do that approach.

And since then, we've actually spent a lot of time from a readiness perspective of -- we were looked at the world and said, you had an opportunity to basically double in size overnight. In a disruptive economy in a scenario, we wanted to make sure we were well positioned if that opportunity ever showed up again.

So we actually went through a program of building out all of our diligence playbooks, our integration playbooks, game planning, scenario planning, what that would look like. That has been very helpful for us as part of the diligence on Comerica. But on top of that, we build out a Category 3 readiness program where we looked at the road map of the requirements, what we would need from a technical perspective.

We made sure if we were continuing to work through our system modernization that we're doing today that we were doing that work with Category III requirements in mind. And we did work on a systems perspective to make sure that we understood if we were in a scenario where we were going to double the size of the bank very quickly, could our systems handle it and making sure that we were doing the work necessary so that we understood where there were any, any congestion or any inability for a system to process that kind of volume and making those investments -- making those investments along the way so that we knew what we would need to invest in to head down that path.

And then at the end of last year, we had a third party actually come in and assess our Category III readiness program and identify any areas where we would need to make incremental investments. From a big picture perspective, the incremental requirements from CAT 4 to CAT 3 are a lot less than stepping into Category 4 for the first time.

And it's a lot of the things we've done already. We will become an LCR bank again. We were an LCR bank previously. We never turned off the capabilities that we built to calculate the LCR, and we were always managing the balance sheet with LCR compliance in mind. And when March Madness happened last year, we went back to -- we're going to hold ourselves to category one, LCR compliance.

So there's nothing that we need to do from a balance sheet management perspective on that front for the LCR. There's a couple of other reporting requirements that will be new. We're a 2052 reported today, which is that's the detailed liquidity reporting that large banks have to do. We'll have to move from a T+10 reporter to a T+2. There's a little bit of work what to do to accelerate data availability, but we know what that looks like. And then the biggest new requirement is the SECL, it's the single counterparty credit limit reporting.

And you'll have 2 years once you become a Category 3 bank before you have to file that first report. And we've already scoped out and know what that looks like to build out the capability. So we feel very good and comfortable and the costs associated with that. It's all included in our costs associated with the net synergies we think we're going to be able to realize from the deal.

Okay. Sounds like you're ready. All right. Go to the audience and see if anybody has question. I don't know if we have the mic.

Manan Gosalia from Morgan Stanley. You spoke about how Comerica didn't necessarily have all the investments on the retail side. And you guys clearly have a good brand in your existing markets on the retail side. I guess, what kinds of investments do you think you need to make in the Comerica footprint on the retail side? Is it -- is it marketing in terms of deposit rate? Is it promo offers? What are some examples of what you need to do there? And then second, how are you thinking about brand in general in these new markets in Texas and California?

We'll definitely operate the Fifth Third brand. That brand will exist in those markets starting on customer day 1, so October of 2026. In terms of the investments required to really bring to life their retail network. It will be customer marketing, a combination of direct mail and digital, which they've really don't do today in those markets. So that will be a nice lift.

There are -- some of those offers. We can use our direct mail analytics program starting legal day one, and that offer would go out under the Comerica brand. And then when you get past customer day one, everything will be integrated into Fifth Third, and all offers will be under the Fifth Third brand. There are some of the branches. When they move to Dallas and built out the branch network that they have today.

Some of the branches, 15 years later, need a little bit of a refresh. So there'll be a branch refresh that we'll do as part of the conversion day on -- and then the biggest investment is the 150 branches to build out the network within Texas.

The wildcard for us will be in California. So part of your question is they have 85 locations in Southern California, and we'll have to think through how best to attack that market over time. But for now, our focus and resources are going to be dedicated on Southeast, Southwest, predominantly Texas and then digital offers and marketing to go along with it.

Any other questions?

Can I ask about the changed regulatory environment? I mean it created the Comerica opportunity, which is huge for you. But anything else in terms of your day-to-day interactions with the regulators or they're shifting much more in terms of focus on innovation, for example. What else do you think about when you think about the changed regulatory environment?

It is certainly a a much more productive regulatory environment in terms of innovation in the banking industry. It's one of the things that we're excited about from a new line perspective is because we have the ability to be the payments technology partner for some of the most innovative companies in the industry right now, leaders in that space. You look at the strike, the trust, the [indiscernible] relationships we have -- you look at the relationships we're building with Circle and fire blocks.

We have the ability to sit alongside some of the most innovative companies in the ecosystem right now, be the partner, learn and build innovative products -- and we think that gives us a unique opportunity to participate in what we think is going to be a rapidly growing sector of the financial ecosystem. And it gives us an opportunity to learn. It gives us an opportunity to choose where we play.

While we don't know what exactly the future is going to hold with things like stable coin, we do think that they're going to change how payments are done globally. But we don't think they're going to disrupt everything in the U.S. ecosystem, for example. And part of what we like about what we've done with New line is -- it is a strategic diversification investment for us, because when those companies are winning and the banking industry is losing, we are winning alongside them.

And we think that gives us a unique opportunity on that front. And on top of that, there are companies that are rapidly growing. And so we have an opportunity to grow with them. When their sales force becomes our sales force, and we're growing as we breathe effectively. Because their transaction volume creates new economics for us. So we feel very good about where we're positioned and the capabilities that we have to continue to take advantage of and grow share in the innovative sector of the financial system.

One more, Chris?

Chris McGratty from KBW. Can you talk about Direct Express, the growth opportunities, obviously, keeping it in-house as a win.

Yes. This is -- this was obviously the Comerica transaction came about after the Direct Express in there was an aspect of the Comerica transaction that is very helpful for us as well, which is we will now own the BINS, the Bank Identification Numbers on the cards under the Direct Express program. And that will actually make the conversion much simpler and much easier for the program participants.

So we are very excited about that. From a bigger picture perspective, for us, the primary way to think about the economics for the Direct Express program is primarily going to be the benefits associated with the deposit balances, on average, $3.5 billion to kind of $3.7 billion is what Comerica has reported as average balances for that program.

A huge kind of DDA book that creates a good funding opportunity and great funding synergies, so we're excited about that. It's really about growth in the program participants overall. When you think about that sector of the economy, it is -- this is really a program that's focused around the unbanked, people that don't have bank accounts for the most part, and that's where you're going to continue to see growth from a program participant perspective.

And then on top of that now with the executive order on continued digitization of Federal payments, the elimination of paper checks. This is the government's payments program associated with digital payments. So there is going to be continued opportunity for other programs to become part of the Direct Express program as the government is looking for ways to continue to create cost savings as part of their operations. So we are excited about long-term growth here.

Okay. Maybe switch topics. Maybe we'll talk about NDFI, we haven't talked about that too much. We like to talk about that. That's within the news. Can you just talk about a few things with your NDFI lending specifically, what's your total exposure, how much exposure do you have to similar borrowers? And then how do you sort of think about this more big picture? How do you view the risks with this.

Yes. This has been an interesting area clearly for investors and regulators to think about what is building in the financial sector associated with NDFI credit. Obviously, there was an expansion of the regulatory reporting requirements associated with this type of lending earlier this year. We don't find the categories that the regulators have provided to be that informative.

So we have tried to break it down in a slightly different way. The majority of what we are doing here, first is this has not been a rapid growth asset class for us. Like we do not view this as a strategic growth asset class. There are things that we've done in this portfolio for a long time. That we have a lot of history that we feel very good about understanding the risks that are inherent in it, and that is the core of the business.

It's a $10.2 billion portfolio, as you can see on the slide. The biggest sector is warehouse-related facilities associated with real estate. So think like residential mortgage warehouse, MSR facilities, there's some commercial mortgage warehouse facilities and -- this is also where we would categorize our lending to REITs because it's a similar structure.

Next is just generic corporate credit facilities to a financial company. Think our -- basically, our working capital facilities or revolving lines of credits to insurance companies, payments companies, broker-dealers, so just really traditional C&I lending. The third category for us is subscription lines, so capital call facilities where what you're ultimately lending against is rich people and institutional investors and their ability to make their capital commitments to the funds that they invest in.

We partner with funds that we know well. We understand, we feel comfortable in this area. Those first 3 portfolios, which make up nearly 70% of the balance. We've not had a credit loss in over a decade. Like we feel very good about the performance of these portfolios that we've been in for a long time.

A follow-up question that we always get is where is Comerica's NDFI lending, and it is primarily in that subscription lines portfolio, and they look very strong in that portfolio as well. The last 2 are the areas where they're -- the private capital warehouse. So this is the lending to private credit providers.

This is the NAV-based lending. This is an area where we have been very cautious from a growth perspective. It's one that we've not done a lot of. It's one that we'll do some, because we do think that private capital is it will be a material long-term competitor to the industry. And we do think there are really good players in the space.

But we think that for an asset class that hasn't been through a credit cycle yet for an asset class where there is so much money rushing into it now. We just want to make sure that we -- where we extend credit in the space, we do it with the best partners that we can. So we just continue to be cautious.

This is the area where it does feel like that there is a lot of growth in the industry and other portfolios. And it's one, we're trying to make sure that we really understand the risks before we lean into this portfolio more significantly. And the last portfolio is just broader consumer warehouse facilities. These are things that are non-real estate related.

So this is where auto finance facilities are. This is where the, the [indiscernible] loan was. And so this is a portfolio that's our smallest portfolio, one that we try to stay connected with really established providers to make sure that we have strong relationships and continue to manage that credit effectively. But it is one that is our smallest portfolio in this sector.

Okay. I think we are out of time, but thank so much. Thank you. Please join me in thanking Fifth Third for joining us today.

Thank you.

Thank you .

Thank you for standing by, and welcome to the Fifth Third Bancorp's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Matt Curoe, Senior Director of Investor Relations. You may begin.

Good morning, everyone. Welcome to Fifth Third's Third Quarter 2025 Earnings Call. This morning, our Chairman, CEO and President, Tim Spence; and CFO, Bryan Preston will provide an overview of our third quarter results and outlook. Our Chief Credit Officer, Greg Schroeck, has also joined for the Q&A portion of the call.

Please review the cautionary statements in our materials, which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward-looking statements about Fifth Third's performance. These statements speak only as of October 17, 2025, and Fifth Third undertakes no obligation to update them.

Following prepared remarks by Tim and Bryan, we will open up the call for questions. With that, let me turn it over to Tim.

Good morning, everyone, and thank you for joining us today. At Fifth Third, we believe that Great Bakes distinguish themselves not by how they perform in benign environments or rather by how they navigate on certain ones. Our operating priorities are stability, profitability and growth in that order. We seek to achieve them by assessing over the detail on our day-to-day operations while simultaneously investing for the long term.

As you are aware, last week, we announced the merger of Fifth Third and Comerica. Our M&A framework has been consistent. First, that M&A is not a strategy unto itself, but rather a means to achieve stated strategic objectives. Second, that the cash earn back, IRR and NPV of synergies must be superior to organic alternatives to justify higher execution risk. And third, that the outcome must be a company that is better and not just bigger. We believe this is one of those rare combinations that satisfies all 3 criteria.

Fifth Third's stand-alone momentum in the revenue and expense synergies from Comerica should produce a well-diversified, even more profitable company with even better long-term growth.

Shifting to third quarter earnings. This morning, we reported earnings per share of $0.91 or $0.93, excluding certain items outlined on Page 2 of the release. Reported and core results include the impact of nearly $200 million of provision expense associated with the fraud at Tricolor, which marred otherwise excellent quarter of operating results across NII, fees, expenses, and strategic growth. Average loans increased 6% year-over-year, marking the fourth consecutive quarter where year-over-year loan growth accelerated.

Average demand deposits were up 3% year-over-year, led by 6% consumer DDA growth. Adjusted revenues also rose 6%, underpinned by 7% improvement in net interest income and 5% growth in fees. Adjusted PPNR increased 11%, producing 330 basis points of positive operating leverage. Even with the impact of the large fraud, our profitability remains strong. On an adjusted basis, our ROA was 1.25%, our ROTCE was 17.7%, and our efficiency ratio was 54.1%.

In credit, commercial nonperforming assets declined 14% and criticized assets decreased 4%, to the lowest level in over 3 years. Lastly, tangible book value per share grew 7% year-over-year and 3% sequentially in a quarter in which we repurchased $300 million of stock and raised our common dividend by 8%.

Turning to our growth strategies. Our investments in the Southeast and expanding our middle market sales force and in building high-growth recurring fee businesses continue to demonstrate strong results. We added 13 branches in the Southeast during the third quarter, including our first in Alabama, and we expect to open 27 more before the end of the year. Consumer households across the Southeast increased by 7% year-over-year more than 4x the rate of underlying market growth.

Our deposit pricing remained disciplined with the total cost of retail deposits in the Southeast averaging 193 basis points in the quarter. We'll leverage the same proven de novo playbook, marketing tactics and differentiated digital offerings to drive retail deposit growth as we add 150 branches to Comerica's Texas footprint. Together, we'll have a presence in 17 of the fastest-growing large U.S. metro areas.

In our regions, our focus on middle market and wealth management is delivering new quality relationships, granular loan growth and recurring fees. In the third quarter, middle market RM headcount increased 8% year-over-year. New client acquisition increased 40% and average middle market loans increased 6%. In Wealth and Asset Management, advisor headcount rose 10% year-over-year, while fees climbed 11% and assets under management reached $77 billion in the quarter. Post close, we will rely on the same recruiting disciplines, investment capacity and one bank sales approach to help Comerica accelerate the growth of their crown jewel middle market franchise.

In our CIB verticals, Franchise Finance had another standout quarter. Over the past year, we have served as the lead arranger on 24 transactions totaling $3.9 billion, including 8 in the third quarter alone. Over the past 2 years, the Franchise Finance team has generated more than $40 million in annual commercial payments fees and $34 million in capital markets fees. We are excited to add Comerica's strong verticals to our existing expertise including in National Dealer Services, Environmental Services and Tech and Life Sciences, among others.

In commercial payments, fee growth reaccelerated to 3% sequentially in the third quarter. Newline increased revenue by 31% year-over-year and grew deposits by more than $1 billion. We expect Newline to sustain its growth as transactional activity ramps from the rollout of Strike Treasury and many other category definement payments customers who build on Newline's APIs. We're also seeing strong early activity from our acquisition of DTS Connect. Since the announcement, we have launched pilots with the most profitable quick service restaurant in the industry and the 1,200 location chain of convenience stores and also executed the first preordered branch change order at a major bank with over 2,000 branches.

On Direct Express, our merger with Comerica should simplify the transition for its 3.4 million program participants. We also anticipate additional growth opportunities stemming from the President's executive order, mandating the transition to electronic payments for all federal disbursements.

Lastly, we continue to deploy technology and lean manufacturing principles to produce savings and boost scalability. From our peak staffing level in early 2019, total headcount at Fifth Third is down 8%, while adjusted revenues are up 20%. The investments we've made will help us to efficiently scale the business and achieve our synergy targets as we integrate Comerica.

Before Bryan provides further detail on our outlook, I'd like to revisit the commitments we made at the beginning of the year, to deliver record NII regardless of the rate environment. and to produce 150 to 200 basis points of positive operating leverage for the full year. We will deliver both. Looking to 2026 and beyond, there is so much to be excited about at Fifth Third. Among these, the tailwind from our investments in the Southeast, along with 60 additional branches to be opened next year, the sustained excellence of our J.D. Power award-winning digital experience and differentiated payments products, incredible new colleagues, geographies and capabilities at Comerica becoming part of our company.

I'm grateful to all of the people whose hard work has put us in a position to take these steps. To the colleagues of both Fifth Third and Comerica, who will work so hard in the coming months to make our partnership a success and in particular, to our clients who entrust us with their well-being.

With that, Bryan will provide more detail on the quarter and our outlook for the fourth quarter.

Thanks, Tim, and thank you to everyone joining us today. Third quarter results reflect disciplined execution of our strategic priorities. Expanding in the Southeast, scaling payments in Newline and maintaining operational efficiency while delivering strong performance in a rapidly changing environment. Adjusted revenue was $2.3 billion, our highest since 2022. NII grew 7% year-over-year and 2% sequentially and net interest margin expanded for the seventh consecutive quarter.

Our balance sheet continues to benefit from our balanced business mix through diversified loan origination platforms, fixed rate asset repricing tailwinds and broad funding sources supporting proactive liability management. Our fee businesses, led by wealth, commercial payments and capital markets, delivered adjusted growth of 5% year-over-year and 7% sequentially. This revenue performance, along with ongoing expense discipline, led to an 11% increase in pre-provision net revenue and 330 basis points of positive operating leverage on an adjusted basis compared to the third quarter of last year.

As Tim mentioned, tangible book value per share, including the impact of AOCI, grew 3% from the second quarter despite only an 8 basis point decrease in the 10-year treasury rate, unrealized losses on our AFS portfolio improved 9% sequentially, underscoring the benefits of our bullet and locked-out securities. These positions provide certainty of cash flows and should continue to support tangible book value growth as they pull to par.

Now diving further into the income statement and balance sheet performance. Net interest margin expanded 23 basis points over last year and 1 basis point sequentially. Year-over-year, average loans are up 6%, and excluding CRE categories, average balances are up 7%. Repricing benefits on fixed rate assets and disciplined management of liability costs continue to contribute to the strong NII performance. As Tim noted, relationship manager headcount is up 8%, and average middle market loans grew 6% over the last year. Third quarter middle market production rebounded sharply, up around 50% on both a year-over-year and sequential basis.

Production levels are stable to improving in 11 of 14 regions, with the strongest performance in Central Ohio, Georgia, Texas and the Carolinas, Provide, our fintech lending platform, for Practice Finance continues to drive growth, with balances up nearly $1 billion over the last year. This growth in middle market C&I and Provide helps offset paydowns in our CIB and CRE portfolios, where average loan balances declined modestly as clients access bond and permanent financing markets during the quarter. This capital markets activity was a contributor to our strong fee performance during the quarter.

Production in our corporate banking verticals also rebounded this quarter, up 24% over 2Q. Pipelines for Middle Market and Corporate Banking remain strong heading into year-end. Commercial line utilization held steady throughout the quarter and ended in the mid-36% area. In total, end-of-period commercial loans are up 5% over last year. Consumer loans grew 2% on an average basis and 1% on a period-end basis from the prior quarter. We once again saw growth in nearly every major consumer lending category, led by continued strength in auto and home equity lending.

Shifting to deposits. Average core deposits increased 1% sequentially driven by DDA and money market growth. Average noninterest-bearing deposits grew 1% sequentially and 3% over the prior year, led by consumer DDA growth of 6% as we continue to drive strong household growth through a de novo investment. Overall, consumer household growth remained strong at 3% over the last year, led by the 7% growth in the Southeast.

Proactive balance sheet management has allowed us to maintain our strong liquidity position while reducing our overall funding costs. We remain focused on granular insured deposits, growing average consumer and small business deposits by 1% sequentially. Consumer and payments linked deposit growth has given us the flexibility to manage down wholesale funding, which declined 3% sequentially. This favorable mix shift lowered the cost of interest-bearing liabilities by 1 basis point.

Our Southeast de novo investments continue to deliver high-quality, low-cost retail deposits. Locations opened between 2022 and 2024 are significantly outperforming expectations with deposits per branch at month 12, averaging over $25 million, outpacing our model targets. And as Tim mentioned, our total cost of deposits in the Southeast is only 1.93%, generating 200-plus basis points of spread relative to Fed funds. We remain on track to open 50 branches this year, with 23 opened year-to-date. We have secured approximately 85% of the locations for the additional 200 Southeast branches that we announced last November. We ended the quarter with full category 1 LCR compliance at 126% and our loan-to-core deposit ratio was 75%, down 1% from the prior quarter.

Moving on to fees. Adjusted noninterest income, excluding security gains and Visa swap impacts, grew 7% sequentially and 5% over the last year. Wealth fees rose by 11% over the last year on $8 billion of AUM growth and strong retail brokerage activity. Capital markets fees rebounded, up 28% sequentially and 4% over the last year driven by higher activity in loan syndications and M&A advisories. Commercial payment fees increased $5 million or 3% sequentially, including a $2 million negative impact from higher earnings credits on demand deposit growth. This fee performance was driven by core treasury management and Newline-related gross fees.

Newline-related deposits hit $3.9 billion, up $1 billion from a year ago. The securities gains of $10 million were from the mark-to-market impact of our nonqualified deferred compensation plan, which is offset in compensation expense.

Moving to expenses. Adjusted noninterest expense increased 3% compared to the year ago quarter and 2% sequentially, reflecting continued strategic investments in technology, branches and sales personnel. Even with the headcount additions associated with these investments, overall headcount was down 1% versus last year as our value stream programs continue to drive savings through automation and process redesign. By year-end, we anticipate $200 million of run rate -- annualized run rate savings associated with our value stream programs.

Shifting to credit. The net charge-off ratio was 109 basis points for the quarter, which includes $178 million in net charge-offs from Tricolor. NPAs declined 10% sequentially as expected and the NPA ratio decreased to 65 basis points. Broad-based credit trends remain stable across industries and geographies. Excluding Tricolor, commercial charge-offs were 51 basis points compared to 38 basis points in the prior quarter. This increase is due to the resolution of certain nonperforming loans for which specific reserves had been previously established.

Commercial nonperforming loans decreased 14% sequentially and 30% since the first quarter. Consumer charge-offs were 52 basis points in the quarter, down 4 basis points, which is the lowest level over the last 2 years. The sequential decrease is primarily due to improvement in solar lending charge-offs which were down 39 basis points sequentially as expected. The broad consumer portfolio remains healthy with nonaccrual and over 90 delinquency rates stable or improving across loan categories.

Provision expense included a $142 million reduction in our allowance for credit losses, reflecting improvement in Moody's macroeconomic scenarios and a reduction in specific reserves. Even with the scenario improvements, our baseline and downside cases assume unemployment reaching 4.8% and 8.4% in 2026, respectively. We made no changes to our scenario weightings during the quarter.

ACL as a percentage of our portfolio loans and leases decreased 13 basis points to 1.96%. The ACL as a percentage of nonperforming assets increased to 32% in due to the decrease in NPAs.

Moving to capital. CET1 ended at 10.54% consistent with our near-term target of 10.5%. The pro forma CET1 ratio including the AOCI impact of the securities portfolio is 8.8%. We expect continued improvement in the unrealized losses as 62% of the fixed rate securities in our AFS portfolio are in bolder lockout structures which provides a high degree of certainty to our principal cash flow expectations.

Moving to our current outlook. We expect NII to be stable to up 1% from the third quarter due to loan and core deposit growth. This outlook assumes two 25 basis point rate cuts during the fourth quarter. We expect average total loan balances to be up 1% due to normal seasonal growth, strong C&I pipelines and continued broad-based momentum in consumer lending. We expect adjusted noninterest income to be up 2% to 3% due to seasonal strength in capital markets and continued commercial payments growth.

Fourth quarter adjusted noninterest expense is expected to be up 2% due to the opening of 27 financial centers in the Southeast and incentive compensation related to the growth in capital markets fees. In total, our guide implies full year adjusted revenue to be up nearly 5% and PPNR to grow 7% to 8%.

Moving to credit. Fourth quarter net charge-offs are expected to be around 40 basis points. Finally, turning to capital. We will be pausing share repurchases until the close of the Comerica acquisition, which is currently expected around the end of the first quarter of 2026.

In summary, we expect to maintain our momentum as we end the year and achieved record NII, positive operating leverage and strong returns in an uncertain environment, all while continuing to invest for the long term.

With that, let me turn it over to Matt to open up the call for Q&A.

Thanks, Bryan. Before we start Q&A, given the time we have this morning, we ask that you limit yourself to 1 question and 1 follow-up and then return to the queue if you have additional questions. Operator, please open the call for Q&A.

[Operator Instructions] Your first question today comes from the line of Gerard Cassidy from RBC Capital Markets.

Tim, can you give us some further updates or color on the Comerica transaction in terms of how it's been received internally at Comerica and maybe by their customers? They're going to be obviously part of Fifth Third in a short while. And then second, as part of that, how the process is going with the regulators we're seeing an incredibly expedited timeline on deals that have been announced before your deal being approved in less than 6 months?

Yes. Happy to do that, Gerard. And I think in general, it's just been, I think, positive all the way across the board. So just to start with the regulators first, I think we're making good progress on the regulatory filings. We expect to have them complete by the end of the month. And then for you, the S-4 should be filed shortly after we get the Q out. I think the control or the currency's public commentary actually was attached to a new charter approval recently, but about accelerating the review of both new charter applications and merger applications is clearly a very positive development and consistent with what we're seeing in other deals.

And all the early engagement that we have done with the regulators has been constructive. So I feel very good about the time line that we laid out and that Bryan just reiterated. I think the feedback from employees and communities has been really positive on both sides of Fifth Third and Comerica. I think the #1 question that we're getting is what the name of the Detroit Tiger stadium is going to be at the end of all this. It's a pretty good sign about what we're dealing with. So -- and I think what has run through to folks of this idea that we're going to be able to accomplish things together that neither company was going to be able to do on their own.

There was one of the other CEOs on another call talked a little bit about their philosophy on M&A and what they were interested in and not. I actually think what he said, if I were to abstract a little bit, is really true. Like if you're going to do a deal and you want it to be successful at ISR has to be strength paring strength or strength pairing opportunity. You can't have places where both companies are weak, be credit cold as a deal outcome and the beauty of what we're doing with Comerica is the things you need to believe are either strength, strength or strength, opportunity, right?

We're great at retail deposit gathering and are already primarily retail deposit funded. So we're going to be able to do a lot there. They have a fabulous granular middle-market loan franchise. We priced more granularity in our commercial business. There's going to be a really nice complement there. We're both strong in different ways in the payments business and wealth management. So there's a strength, strength match. I just think there's a lot positive there. And I think what we are going to try to do, either later this quarter as we turn the beginning of the year is to just provide a little bit more insight to investors on the synergies.

We are feeling very good about our ability to get the outcomes. When you look at the synergies as a percentage of Fifth Third and Comerica combined, which is really the right way to look about it -- look at it because that's the way that we'll be approaching this exercise. They're quite manageable. And I think well defined but just in general, the reception has been -- it's -- the teams on both sides were small because of the focused diligence effort, so that the first announcement Monday morning was, wow, followed by, I think, in general, a lot of excitement about what we're going to be able to get done together.

Great. I appreciate that. And as a follow-up, as you said in your opening comments, the great banks distinguish themselves on how they navigate uncertain environments. And this week has certainly been very uncertain for many of the regional banks, including your own, because of the concerns about this NDFI lending and the contagion risk. And I frame that with, if you go back to the 1980s and look at what happened in the price of oil in Texas dropping below $10 a barrel that led to the contagion risk of commercial real estate blowing up.

In the NDFI portfolio you have, and I know you have the Tricolor issue, but is there a contagion risk in there? And can you just share maybe your thoughts on what's going on with that portfolio and how the market is reacting to it?

I appreciate you being the one to give the history lesson this time around. Normally, I feel like it has to be me on these calls, so thanks for that. And you'll be happy to know I assigned the belly up as reading to new executives at Fifth Third. So there's a lot of familiarity with the oil patch bust in Texas and Oklahoma around the shop here. I think one of the challenges we have on the NBFI front is while the Fed's reporting was designed to be helpful here, the categorization is a little bit confusing. So Schroeck is prepared to talk a little bit about maybe an easier way to understand what's in NBFI across the industry and in our portfolio in particular. So I'm going to turn it over to him.

Yes. It's great question, Gerard. Thank you. I'll start by saying it's a portfolio that we have maintained low levels. We're the lowest -- one of the lowest levels in the FI concentrations of large banks. We're at about 8% of the total portfolio. As Tim said, the core report categories can be pretty generic. So I'll provide a breakdown based on how we review the exposure and the risks contained in that portfolio.

I'll start with REITs. So REITs and other mortgage-related facilities make up 33% of our NBFI balances and represent the largest portion of the portfolio, represents 1 of our oldest asset classes within our ABF portfolio. We have processes, procedures and structures that have been tested through the cycle and include robust monitoring of leins to ensure a priority of our mortgages. We've not had any losses in this portfolio over the last 10 years. So a really solid portion of the portfolio that makes up our largest component.

Next, about 24% of the NBFI balances are to payment processors, insurance companies, brokerage firms and SBIC firms or funds. Balances in this category are primarily related to large players, well-recognized names and not at all related to the conversations going on in the markets right now. Next would be our subscription facilities at 18% of NDF funds represent exposure to high net worth individuals and other private capital investors who have capital commitments to these funds. 13% of the balances are loans to private capital warehouse facilities. This category has been an area of rapid growth in the industry. However, we've been really intentional in limiting our growth in these vehicles.

We have one lender where we have a deep relationship. This is a portfolio where we have deep relationships with the lenders, typically lending into one of their portfolio companies and that's -- that relationship orientation is key as we look into that portion of the NBFI portfolio. The smaller share of NBFI balances are loans to non-real estate and nonprivate credit-related warehouses. It's about 9% of our balances. That category includes our exposure to consumer asset classes.

Gerard, you mentioned Tricolor. It's in -- that fraud issue was in that portfolio and has received significant scrutiny as part of our comprehensive review of the portfolio. Given that comprehensive review, we feel very confident in the quality of the remaining clients in that category. We've been overall, and we've been very deliberate in our strategy to keep NBFI portfolio balances diversified. Our disciplined underwriting framework is designed to safeguard portfolio quality by avoiding aggressive advance rates which we see in the marketplace sometimes, overly concentrated collateral pools, inexperienced management teams and structures that do not meet our overall risk appetite.

I'll also add, as part of the Comerica, Gerard, you mentioned Comerica, but part of that review -- during our due diligence, we also reviewed Comerica's NDFI portfolio. of Comerica's NDFI portfolio is concentrated in low-risk subscription facilities, which complements our disciplined approach to client selection and portfolio diversification. Post close, our combined NDFI balances will be 7%, so down from our Fifth Third overall 8%. So we feel really good about the ongoing diversification and overall asset quality of the remaining portfolio.

Your next question comes from the line of Ebrahim Poonawala from Bank of America.

I guess maybe just sticking with credit and outside of the NDFI issues. Just if you -- from a mark-to-market standpoint, are your customers feeling the pain on the commercial side from tariffs and slowing activity? Or are we on the other side actually where things are picking up in terms of folks wanting to make investment decisions, which could drive loan growth? I'm just wondering what seems more likely as we cut through all this noise at the moment here.

Yes, I think unfortunately, the answer to that is yes on both points. The close of the quarter, I was out in several of our markets. I got to visit about 3 dozen of our commercial clients and the quarter-to-quarter went to the client, we referred to as outlook "nauseously optimistic. The tariff uncertainty absolutely continues to weigh on any clients that are exposed. That said, I would tell you, in general, people are more optimistic than they were in the second quarter, in part because when you add up all of the different tariffs, there is some uniformity across most of the countries that provide our significant sources of the supply chain for folks in materials and manufacturing and construction and the other sectors that are big in our footprint.

The question mark really has been what would be the -- who would bear the brunt of the tariffs. And I would say now on balance it is a sort of a shared pain approach here where the supplier, the intermediary and the customer each absorbing about 1/3 of the increased cost. But the supplier and the intermediaries have also been clear whenever we talk to them that their intent is ultimately to get back to prior margins, which would mean over time, you would see continued price increases as a mechanism to move the cost through. The bright spot here is really 1 that's just the Fed resuming rate costs. I think people have been more optimistic about they're more front-end focused, and I think I would have said, I believe them to be -- and they're more optimistic about what the value of a total of 50 to 100 basis points of cuts will have on client demand and also penciling out of their own investments.

There's also another reality here, which is a lot of our clients when the tariff announcements hit deferred capital expenditures and have been renting either renting excess space or renting equipment. And we are getting requests now for financing that are reflected in the pipeline in the middle market business, in particular, to support the sort of shift from rent to own. So I think that's quite positive.

The other thing that I like seeing is I like our logistics clients, they're a good bellwether on the sort of wheels of the economy turning and we're hearing some logistics clients that there hasn't exactly been a huge rebound, but that the activity has stabilized and is moving on the upswing. The folks that are -- that having the most robust demand, obviously, are the people who are either attached to the big government infrastructure investments, things like bridges and roads that are moving forward or the folks that are attached to AI and there's so much demand there because with 1 of our clients in the concrete business that not only have a strong order book, but the suppliers are driving the pricing as opposed to the buyers driving the pricing in these cases, meaning the margins are really great.

And the other end of the spectrum, I think residential construction, auto is still slower.

That's helpful. And I guess just a separate question. I think back to Comerica. I think if you don't mind spending some time around -- and you talked about this when you announced the deal, just the optionality that Comerica provides. So you've talked about opening the branches in Texas, but Comerica also had a big technology, life science practice and Fifth Third through Newline has been leaning in there. Just either it's that or either it's double-clicking on the existing footprint and deepening relationships, which may have kind of sidelined a bit over the last decade. What's that potential to unlock and accelerate growth for the combined entity as we look out a year from now?

Yes. Thanks for asking on that one. You know like one of my fundamental beliefs is if you don't want to grow by sacrificing pricing or risk discipline, you have to attach yourself to segments of the economy that have a secular tailwind and the innovation economy is the most profound secular tailwind on the business side of our business in the U.S. So I am quite excited about the potential on Tech and Life Sciences. Historically, the OCC looked at that business a little bit differently than other people did, but I think the early signals coming out of the OCC are that they want national banks be able to compete in all markets.

And I am optimistic that we're going to be able to do some interesting things there. Michigan is about creating -- finishing off the play in terms of the fortress position in the Midwest. Texas for us is going to be about investment. I think we can continue to add a lot more middle-market bankers. And clearly, the branches are there. California really will be a more business-focused strategy and between Newline, which is a unique asset. And the fact that a lot of the early folks at SVB actually were from a predecessor to Comerica in 1991. We have the credibility having been in that market.

Like there's a really interesting thing to be done there because post SVB, to your point, you have First Citizen's still active, you have JPMorgan active. You have a couple of investment banks active that really are leading on the M&A advisory and capital raising front. And then you have foreign banks. And a fragmented market like that will be -- is good hunting for people like us. The thing that's probably important to remember with Comerica is I think they're running a 4:1 deposit-to-loan ratio 3:1, 4:1 deposit-to-loan ratio in that market. So one of the things we may do very early on is just focus on the ways in which we can leverage Newline to drive even more deposits into the platform as well.

Our next question comes from the line of Scott Siefers from Piper Sandler.

Tim, so I mean, based on all you've said, I don't get the impression that there's any change or impact to your de novo expansion plans while you go through the Comerica transaction. But I was just hoping you could spend a moment discussing sort of how you balance the planned organic expansion with the large integration, just to make sure nothing sort of slips through the cracks.

Yes. No, that's great. So I think you probably have to think about it in two ways. One is just what resources the two sort of separate growth areas of focus draw on. So the de novos are in the Southeast footprint. There is going to be -- there are some really wonderful Comerica bankers in the Southeast, but they don't have a branch presence. So we're not going to have disruption in those markets. So the regional leaders, who have to be on top of driving the daily, weekly, monthly activity in the Southeast, are not going to be disruptive. That's the first thing.

Secondarily, the people inside the bank who find the locations, who build the locations and who run the locations are three different groups. So 85%, as Bryan said, of the locations have been found, meaning that group has the capacity to be able to be looking for locations in Texas. And if you just do the math on the 40 we will have built in the second half of this year, the 60 we just said we're going to build next year, by the time we're at a point where we've got sites and permits pulled, the people who build the locations are going to be freed up from the Southeast to be able to shift their focus onto the acceleration of the openings in Texas.

And lastly, because of the scale we have in the Southeast, the draw on human capital and the need to drive recruiting and otherwise to be able to support the new branches is substantially lower because the majority of the folks we put into the de novos are people who have trained up and come through our other retail financial centers. And therefore, the Southeast is sort of on the flywheel of being able to feed itself. So there really is not an overlap in terms of the critical resources to be able to do those two things.

I think the second thing that's really important as we've talked a lot about the focus on modularity in the way that we drive the retail expansion, that has been the point I'm trying to make, whenever I say we haven't built 100 branches. We build 1 branch 100 times. It's a consistent site selection model. It's a consistent retail format, meaning there's no need for additional engineering resources or otherwise. We have experience at this point with essentially every zoning jurisdiction and set up that you would want to experience in the zoning rules in general in Texas are much easier than they are in the Southeast and certainly than the Midwest.

So it's not like we're going to have to learn on the fly here. We just have to find the locations, and we have the people to do that. And we've got to build the same thing we've been building, and we know how to do that, obviously. And then the focus really is going to be on making sure that as we do the conversion in Texas, the initial experience that Comerica's existing retail clients have is really, really strong. And then that we are doing the recruiting that we need to do to be able to support the larger base.

Lastly, it's probably worth noting, and I think we were building a fair number of de novos in '19 when we did the MB conversion. We didn't have any problem juggling both of those either.

Okay. Perfect. And then with regard to Direct Express, you noted that the merger should simplify the transition for the customers. I imagine it really eases things for you all as well. I know there was already a sense of urgency to get the balances moved before the merger was announced, but I was hoping you could just sort of spend a moment, at least at a top level on how -- I presume it's all still going to switch to Fifth Third's rails. How -- what are the sort of the plans for that to take place?

Yes. So the transition schedule that we talked about when we announced the Direct Express win that commencing Fifth Third as the administrative agent for new program enrollees in the beginning of the first quarter and then starting the conversion process at the end of the second quarter is still progressing as planned and I feel good about all that. The dynamic here that's most important is that we were going to have to issue out of our own bins or buy Comerica's bins in order to be able to make the card numbers work, right? And when the deal closes, again, provided that it closes as we expect it to and in advance of when we were planning the back-end conversions, the factors that would have driven new card issuance would have been the need to use a different bid range.

So we -- Kurt and I had actually talked about Fifth Third buying the bins from Comerica prior to commencing the discussion on the merger itself. We were looking at the possibility of being able to simplify that aspect for the program participants. And clearly, we get the deal closed, the bins or ours, and we'll be able to continue to issue out of them and maintain existing cards.

Your next question comes from the line of Manan Gosalia from Morgan Stanley.

You touched on Direct Express right now. I was wondering if you could talk about just opportunity there on the income statement and the contribution there. I think on the CMA deck, you adjusted for about $110 million in NII. But can you touch on what the full opportunity is there? And how do you expect that to grow, the fee contribution that you expect maybe the expense add on there? Any additional color there would be helpful.

Yes, happy to talk, Manan. The big question when we announced the program was really the win of the program was about the timing of when we would see the balance transitions over and that was one of the reasons why we said we'd provide more information in the fourth quarter. Obviously, the Comerica transaction provides a lot more certainty around how the balances will hit the third balance sheet. On average, it's about $3.5 billion of DDA that will obviously provide a lot of funding benefits associated with our balance sheet.

From a fee perspective, the way to think about it is there's probably a 15% to 20% type margin on the fees relative to the expense load. And you're probably looking at something that is in the range of $100 million to $110 million type expense level that's primarily related to the processing costs and the fees, there's a gross up on the fees associated with the interchange that comes through. We do have some revenue share with our processing partners. That's why there will be a fairly direct link on that. And then the growth for us is primarily going to be related to transaction activity in the future as well as growth in the programs.

And we are excited about the potential for incremental growth in the program due to the executive order trying to limit more -- to limit the amount of paper checks that are issued, and this is the government's program for electronic disbursements. So we do believe there's even more upside in the program over time. as the government continues to try to find efficiencies in its disbursement processes.

That's very helpful. Maybe if I can pivot over to credit. Excluding the credit that you called out, I think NCOs were about 52 basis points this quarter, and you're guiding for about 40 basis points in the fourth quarter. I know you talked about some of the sentiment and what you're hearing, but can you speak to what gives you the confidence that NCOs will step down from here? And how we should think about that going into 2026?

Yes. It's Greg. Great question. So I look at it in a couple of different ways. One of the leading indicators, right, the criticized assets, and as Bryan mentioned, our criticized assets are down again 4% this quarter. I also look at predictability. We've been -- we've talked over the last couple of quarters about NPAs coming down in that 40% range. They were 14% this quarter, 30% over the last 2 quarters, and we have good visibility tracking to that 40% at the end of the year. We're not seeing NPA surprises. The losses we're taking are reserved. So those are all leading indicators.

I think we're continuing to do a good job on getting out ahead of some of these problems and dealing with them timely. So I feel good about that. The consumer portfolio continues to perform very, very well. 90-day delinquencies are just 6 basis points below even pre-COVID levels. Consumer loss rates stable at 52 basis points. That's consistent with our 10-year average. We noted the solar portfolio is improving, as we said on prior calls. So the portfolio is playing out as we have predicted over the last couple of quarters. And I still feel really good.

I mean, excluding the Tricolor fraud-related issue, I still expect full year charge-offs to land in the midpoint of our original guidance range and assuming no significant changes in the environment based on what I know today, I continue to be very confident that the commercial loss rates return to that mid 30, 35 basis point range in the fourth quarter.

Yes. And then I just ads since there are some names that have been the news. We have no relationship with Kantor. We did have a relationship historically with first brands, but we exited it in a handful of years ago because of some issues that were identified during the collateral reviews we were doing. And that only residual exposure there is $51,000 of operating leases, so $51,000 secured Greg tells me by a forklift and a printer. I asked if the printer had wheels, he said no. So if necessary, we're going to use the forklift to get the printer out of there. But they're just -- that's the other thing here in terms of confidence is there's no exposure to the names that are out in the market.