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F500-2021-358-Fifth Third Bancorp

The Cincinnati-based bank has origins dating back to 1858 as the Bank of the Ohio Valley, and today operates more than 1,100 branches in 11 states across the Midwest and Southeastern U.S. Fifth Third slid 33 spots in the rankings in 2020, as the pandemic curbed loan and deposit growth and low interest rates hamstrung its interest income. But its shares rose more than 50% in the first five months of 2021, as its business lines benefited from a broader post-COVID economic recovery.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-325-Fifth-Third-Bancorp

This Cincinnati financial services company continues its rise on the <em>Fortune</em> 500 thanks to a string of acquisitions. It divides its business into four segments: commercial banking, branch banking, consumer lending, and wealth management.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Fifth Third Bancorp, through its holding Fifth Third Bank, offers banking and financial services for consumers and small businesses, including residential mortgages, brokerage services, insurance, and wealth management. It operates over 1,000 banking locations in the Midwest and Southeastern regions of the U.S.

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Fifth Third Bancorp (FITB): Company Profile, Stock Price, News, Rankings

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Fifth Third Bancorp

fifth third bancorp

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. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. 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 17th, 2026, and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Bryan, we'll 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 banks 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 two of the release. Results reflect the February 1st closing of the Comerica 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 a 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 investment. New client 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 not from non-relationship sources.

In commercial payments, Newline continued to scale with revenue up 30% and deposits up $2.7 billion year-over-year. During the quarter, Plaid 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 than originally expected on February 1st and have continued to make progress at an accelerated pace.

Our top priority is our people, and we're working hard to become one team. Since legal day one, 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 the caliber of our combined team. On technology, we remain on track to convert all systems over Labor Day weekend with our first full mock conversion later this month. As a result, we remain confident that we will deliver $360 million of net cost savings this year and reach 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 results that we generate in our legacy Fifth Third markets, and nearly half of new savings customers also opened a 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 are building. 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 impacts of the war in Iran on 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, but 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 billion 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 in extra effort to support the integration, whether that's 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 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 reveal 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 Comerica acquisition. That includes seven basis points from securities portfolio marks and repositioning, six basis points from cash flow hedge termination, and two 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 1st 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 two 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 number one HELOC origination market share in our legacy Fifth Third branch footprint, with an average portfolio 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 billion, and the end-of-period core deposits were $231 billion. Non-interest-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 trend stride is showing up directly in our funding costs. On a legacy Fifth Third basis, consumer household growth of 3% over last year supported 4% consumer DDA growth.

Total deposit costs, including the benefit of non-interest-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 the 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 non-interest income, excluding securities losses and the other items listed on page four 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 non-interest 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. Newline 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 in commodities and FX, and strong bond underwriting fees, combined with two months of Comerica activity, were the primary drivers of this growth. Turning to expenses. Page five of our release details certain items that had a larger impact on the non-interest expense this quarter, primarily $635 million in merger-related expenses. Adjusted non-interest 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 three 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 credits. The net charge-off ratio was 37 basis points for the quarter, in line with our expectations, and the lowest level in two 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 two-year low, with stable trends across industries and geographies. Consumer net charge-offs were 58 basis points, down five basis points from last year.

The consumer portfolio remains healthy, with non-accrual and over 90 delinquency rates relatively stable across all loan categories. We have been deliberate about where we choose to grow. Our exposure to non-depository financial institutions represents only 7% of our total loan portfolio, well below the industry average. Our three 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 a dollar 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 discipline 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 Comerica acquisition. The ACL as a percentage of non-performing assets increased to 316%.

Provision expense included $83 million for merger-related day one 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%, 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 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 proposed rule 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 in securities that return principal 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 pull to par. 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 non-interest 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 non-interest expense is expected to be $7.2 billion-$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%-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 billion-$179 billion, driven by growth in C&I, home equity, and auto.

NII is projected to be $2.2 billion-$2.25 billion, with NIM expanding another three to five basis points. Non-interest income is expected to be $1 billion-$1.06 billion, and non-interest expense is expected to be $1.87 billion-$1.89 billion. Finally, net charge-offs are expected to be 30-35 basis points. The first quarter established the foundation. NII above expectations, tangible book value per share growth intact, credit at a two-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 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.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We'll go to our first question from Mike Mayo at Wells Fargo.

Hi. 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 three months, or since your last presentation, that you think is maybe going better than expected? Is any of that higher NII guide due to the expansion in Texas and the promotions? 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? Thank you.

Yeah. Hey, Mike. It's Tim. Good morning. I'll take an initial crack at that one and then I'll let Bryan clean it up. Yeah. I think you did a pretty good job of summarizing the path. As you know, when it comes to these large transactions, the absence of any surprises is a positive, right? Getting one quarter closer to the 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 completed the lock the walls planning exercise that we run. All the customer day-one deliverables have been locked. 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.

A couple of things in payments. I think the data strategy and the data conversion, that work's completed. All the risk-based process reviews we needed to get done which are essentially the drill 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 a declaration of success. The sort of employee attrition is actually running a little bit below historical levels. 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 as 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 in the Southeast would work in Texas and in the Southwest more broadly. That initial mailing that I referenced in my prepared remarks was a test, right? It was a 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 opened checking even in an environment where all the legacy tech limitations that Comerica had are still in place, I think is very good. But maybe the more exciting thing is then having regrounded the models, we dropped the subsequent mailing on the 10th or 11th of this month to 6 million people. The very early results there are super positive.

With the sort of reground of the analytic models, we're getting 3x the response rate that we see at this stage in a campaign in our legacy markets. 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. 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. In terms of what's not working.

We got a little bit of an internal civil war here between people who like their chili with beans, no beans, or on spaghetti. 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 is I work too hard, but okay, I'll take that. Just interesting, I think I said it sounds very old, last century, all these mailings and stuff. 6 million mailings and sounds like you're getting $1 billion of deposits that'll pay it off. This is all Comerica accounts right now.

Right? After Labor Day, they're all going to become Fifth Third accounts. Seems like that transition has some risk too, going from Comerica to actually branded Fifth Third. How do you manage that transition?

Yeah, the tech conversion, as you know, is the single largest point of risk in a transaction. 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. 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. We're definitely always mindful of that. Assuming that we execute the conversion well, the way that we did with MB, as an example, then I actually think the tech conversion is a positive. There'll be a backend period where people will need to learn to navigate new interfaces, whether that's the consumer mobile app or the commercial portals and otherwise.

The capabilities that are existing in Fifth Third's digital channels are much broader than exist inside Comerica's current channels. The point I made about the managed services, those are software solutions that we offer in commercial payments. The fact that we've shown those things to 100 Comerica clients, and 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. The reason we're not doing digital marketing to support the Southwest markets today is because Comerica can't open consumer deposit accounts digitally. Therefore, there's no sense in using them.

Once we're under the Fifth Third brand and on the Fifth Third tech stack, the 50% of our direct marketing that gets done via digital today, all of a sudden then becomes viable in the Southwest. All the household growth tactics that we use in addition to the deposit growth tactics in the Southeast become viable as well.

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

Morning, guys. Thank you for taking the question. Maybe Bryan, hoping to start with you. If somebody could speak to some of the underlying drivers in the core margin. 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. 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 sides, just those kinds of things that you're seeing.

Yeah, 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 a third of our balance sheet was effectively repriced with the Comerica acquisition. 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 a basis point and a half kind of pickup each quarter through the end of the year. Feeling good about a trajectory that gets us approaching to exiting the year closer to 340 from a NIM perspective. A lot of things going well from a NIM 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 within the Midwest continues to be the most competitive deposit market that we're seeing from a consumer perspective. More competitive than the Southeast. We're still trying to get a better sense of what Southwest looks like, but it does not look like it is going to be an outlier relative to other markets.

Okay. Perfect. Thank you. Maybe a higher level question. You all have talked about the fourth quarter of this year representing sort of the time when we'll 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 a post-Comerica time, like in the next year when those benefits have really become realized. How will you 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?

Yeah, that's a good one. We've been getting a variant of 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. 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. I had Nike posters of Steve Prefontaine on my wall growing up. The view here is there's no finish line, right? We have so much in front of us. You want to generate a strong return on equity under any circumstances. You want to make the decision at the margin.

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 P/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. When I got here 11 years ago, I think it was under a quarter of the U.S. population lived 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 path to top five 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 Category III or IV banks, and maybe any of the LFI banks. We've got this payments business now that's benefiting when non-banks actually take share from banks, which is great. We have this huge influx of bankers from Comerica who have the shackles off of them, in terms of not being capital or liquidity constrained. I'm proud of the track record we have for tech innovation. We will continue always to invest in the core business with the expectation that at 19% ROTCE is great. If we run out of ideas, then we'll focus on getting 19% to be 20% or 21% or 22%. Otherwise it'll be about growing book value per share.

Got you. Okay, perfect. Thank you very much.

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

Tim, did you have a Dave Wottle poster too with Steve's poster?

I did. I had Steve and Dick Fosbury. At my height and my lack of foot speed, you had to go with the field athletes as well. High jumpers.

Got it. Good for you. When I look at your utilization trends that you gave us, and you touched on 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 two areas? One, legacy Fifth Third, what you're seeing there, and then also legacy Comerica. What are they seeing?

Yeah. 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 where we're starting to see 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. 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. Obviously, later in the quarter, some impacts associated with the situation in the Middle East.

Yeah. Maybe the one thing I'd add there that is, at least based on the cursory read I did of the other banks that have reported thus far, is one thing we didn't see that a lot of other people saw is we didn't get a lot of the loan growth from private equity or private capital. If you look at the growth in loans, less than 10% of it, in our case, came from private equity or private capital. My quick read through was 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 real economy businesses. Primarily privately held real economy businesses. People that make things or move them or warehouse them or sell them. Or core services like healthcare.

Otherwise between the two of us, we were both on the low end of the MDFI as a percentage of total commercial loans tables. 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, is we have less than $100 million of funded exposure to data centers. 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. I don't think there are a lot of us employing AI researchers at 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.

The obligors are a little less clear than we personally would prefer. That is where the growth wasn't coming from in our case.

Very good. Just one follow-up on the credit quality, which Bryan, you pointed out, the guide for charge-offs is very good and 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 30-89 delinquency numbers, even though they're low, when you look at the commercial and industrial going to 38 basis points or the CRE going up, is it anything there that we should just keep an eye on? Or is it just because of the combination of the two companies and people maybe didn't know where to send payments? I know that sounds kind of strange, but any color there?

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

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

Hey, morning. I had a question first just on deposits. As we go through all these updates, it 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 in what seems like an intense environment. How are you converting clients acquired through promotions into core checking accounts? Is that happening? Just kind of remind us on where that stands. Maybe tied to one of the previous questions, Tim, when you think about opening these branches in Texas three to five years from now, just degree of confidence that branches will still be as relevant five years from now as a client acquisition tool as they are today. Thank you.

Yeah. Good question. Yeah, 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 a new branch opening or otherwise into primary long-tenured relationships, that's effectively the seed corn for everything that we do because we have an acquire once and then maximize wallet share strategy. That's the reason we keep disclosing the household growth rates in the Southeast. Those are primary households. If accounts go inactive, they get washed out of that number. You could trust that the 3% overall, and in this case, the 8% 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 one period divided by active accounts in the same period the year before -1, right?

The population growth in the Southeast is 1.5%-2% per year in any given market. Our growth rates have been 7%-8%. We're generating 3x-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 that number. That's primary checking customers. In the Southwest and in Texas, we have 81 or 82 of these properties locked up. We're going to have branches opening next year, not in three to five years, just to be clear. I think the measure of their importance, I actually like to think about branches.

If you don't think about them as standalone 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 mail. 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 one 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. 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. Just one quick follow-up. You mentioned this a few times in terms of delineating between NBFI growth versus non-NBFI. One, do you see there are embedded risks in that lending that you don't like? Just give us a sense of when you evaluate why is it attractive for so many of your peers and not so much when you assess that for Fifth Third. Thanks.

Yeah. 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. Their two strategies for growth were retail money, which was always a bad idea, and which has just been demonstrated again to be a bad idea, and by promising returns of 8%-9%, which we just viewed as being unrealistic, right? Banks run at 8x-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%-9% with, call it, 2x-3x leverage with loan-only revenue just always felt like it was unrealistic.

Is there a place in the investment spectrum or on the efficient frontier for something that offers a return between corporate bonds and equities? 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. I can't speak to the leverage points that a lot of others are. The reason we avoided it is because we couldn't figure out what total leverage was in these structures between the portfolio companies, and 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. We don't like things that we don't understand.

I think for me at least, though, the bigger reason to avoid it is lending to BDCs is not a place where banks are going to build competitive barriers, which means the return profile just eventually will gravitate to cost of capital. We want to generate returns in excess of cost of capital. 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. That is where we want to get the growth from, is stuff that can generate a 19%+ 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.

Hey, good morning. I think in the prepared remarks, you mentioned that the proposed rules recognize granular, say, for well-collateralized loans. I think you were pointing to opting into ERBA. First, I just wanted to clarify that. Then my main question, Tim, when you think about ERBA, 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?

Hey, Manan, it's Bryan. At this point, we're still evaluating whether or not we would opt into ERBA. It's not necessarily the driver of what's creating the big benefit for us. ERBA's probably an incremental 10 or so basis points relative to the numbers that I quoted, and then obviously there are some complexities associated with data and models and systems in place necessary to do some of the calculations. 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 the regulatory landscape as well. There is always that aspect of competition and ultimately how you think about capital allocation across.

I don't think it will have, ultimately, ERBA or non-ERBA would have a really big impact, ultimately, on competitiveness across the industry and between the banks that opt in and those that don't.

Yeah, I guess the only thing I'd just add there is it sort of depends on how you underwrite. Not every bank, 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 calculated returns. The binding constraint here, obviously, we think about reg cap and the return on reg cap in terms of the performance of the company as a whole.

When we look at individual credits, we look at 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. If all you were looking at was the same capital charge for every loan you underwrite, like in a non-ERBA environment, I think you'd run into that risk. 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. 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? Is there something that you want to see that would cause you to manage your liquidity differently from what you're doing now?

Yeah, I think the most valuable thing for the industry is some credit in the liquidity rules associated with your secured lending capacity 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. Those would 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.

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.

Oh, great. Good morning. Hey, morning. Tim, I want to come back to the comment about the Midwest being more competitive than the Southeast. Seems somewhat contrary to where all the capital's being allocated from a lot of the banks. Can you unpack that a bit?

Yeah. Chris, this has been true. It's one of the interesting factors that's just been true for a very long time. I think you have two 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 trillion-dollar market share, and less consolidated markets tend to be more competitive. 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. Credit unions tend to be optimizing for very different factors. Like they're not held to a profit mandate, and therefore they tend to be optimizing around just absolute levels of liquidity needed or otherwise.

The 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 one of the interesting things as we've moved into the Southeast is 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. 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. Yeah, definitely with Chicago being one of the more competitive markets and fragmented.

Fifth Third Bancorp (FITB) Q1 2026 Earnings Call Transcript

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