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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.

Q2 2026

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

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Fifth Third Bancorp

fifth third bancorp

Hello, everyone. Thank you for joining us, and welcome to Fifth Third's Second Quarter Earnings Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. 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, 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 17th, 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.

Morning, everyone. 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 boosts. 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 two of the release. When we announced our merger with Comerica nine months ago, we made three 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 potential 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 openings 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. Our largest fee businesses hit important milestones during the quarter with commercial payments and wealth and asset management each achieving a $1 billion+ 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 mock 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. Our consumer team shipped a new AI-powered interface within our mobile app designed to streamline navigation and task 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 crediting eligible payments such as merchant receivables and government payments up to two days early for free, enabling business customers to accept payments via Zelle and tap-to-pay directly on their smartphones providing access to working capital through the same award-winning digital interface that powers Provide. Internally, Fifth Third colleagues continued 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 accepted 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, I'm 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 the 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. Let me review the key themes in two 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 move 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 remained 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 Provide's leading digital experience in practice finance into a broader small business lending platform, where we have moved from number 31 in SBA lending nationally a year ago to number 15 today. Period-end consumer loans grew steadily, with the mix continuing to shift. Home equity balances increased 3% sequentially, and we were the number one 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 non-relationship 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 non-interest-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 prioritize granular insured deposit funding, and we continue to hold meaningful liquidity buffers. We maintained a Category 1 LCR 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 one line, but three delivering solid outcomes. The same three that we have invested in for years, and the returns are compounding. Adjusted non-interest income, excluding security gains and other items listed on page four 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. 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 syndication 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 non-interest expense of $1.86 billion was better than our expectations as we continue to realize synergy benefits ahead of schedule. Page five of our release details the certain items that had the largest impact on non-interest 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 a 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. Consumer delinquency trends remained stable. Non-performing assets were relatively stable, up 3 basis points from the first quarter. Commercial criticized assets decreased during the quarter. Where we grow is a choice and so is where we don't. Our exposure to non-depository 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 provide significant loss absorption before we would recognize a dollar 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 have 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 one 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 and 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%. 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. 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-$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-$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 non-interest income guidance to a range of $4.06 billion-$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 non-interest expense guidance to a range of $7.22 billion-$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 at profitability and efficiency levels consistent with our 2027 targets. For credit, we expect second half net charge-offs of 30-35 basis points, which would place our full year performance in the bottom half of our 30-40 basis points range.

Turning to capital, our CET1 operating target is 10%-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, 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%-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 non-interest income is expected to increase 1%-3%, while adjusted non-interest expense is expected to decrease 1%-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, with the Labor Day conversion just weeks away, the earnings power is landing on the schedule we set. 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, then return to the queue if you have additional questions. Operator, please open the call for Q&A.

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Ebrahim Poonawala with Bank of America. Your line is now open. Please go ahead.

I guess maybe talking about the upcoming systems conversion at Comerica. Just talk to us as we move forward. 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 making that franchise more productive. Does it create idiosyncratic revenue growth runway for Fifth Third, even as early as 2027? Thanks.

Sure. Thank you. Good question. A lot there. Yeah, 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. We elected to do three mocks as opposed to two, which I think is generally where people are. We got through the second mock in June, and that went very well. We've actually built some pretty cool tech tools for this conversion.

Effectively, an intelligence layer that sits on top of the Microsoft project plan hard deck that is able to monitor the conversion in real time, and then helps the teams coordinate, including having AI essentially listening in to the Teams or Slack feeds and monitoring for any sort of sign that there may be a delay, and then helping us to think through the contingencies and whatnot. We feel very good about being able to get the conversion done in Labor Day, which then, to your point, even 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 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. 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 one to be able to get $500 million to $750 million out of the Southwest markets. When we did the earnings call and the programs were tracking ahead of plan, we said we hope to get $1 billion-$2.5 billion of incremental deposits into those Southwest branches.

We're eager post-conversion to be able to turn on the checking household acquisition marketing. We expect to do very well. The unannualized sequential checking household growth in the Southwest was 4%, as I mentioned in my prepared remarks. I won't make an effort to calculate the compound rate. Just multiply that by four. It's 16% annualized growth in incredibly robust markets, and that's without 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 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 two months that Comerica did in 12 months last year. That is evidence of where I think we'll be able to see pickup. We had some sizable commodities hedging relationships in metals and recycling come online, aligned to Comerica's verticals in the second quarter. About 10% of the Comerica payments 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. The ABL product in particular, in addition to equipment leasing, continues to be quite successful. We had Comerica bankers win new quality relationships. Not just servicing existing relationships, but win new relationships with those products.

I'm of the view that given that those things are materializing today, pre-conversion, when it's still a little bit kludgy to be trying to manage client relationships across two 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 fee production on the commercial side of the equation next year. There's no reason not to take the household growth rates and to multiply it by four for the Southwest, because we will invest in an environment where deposits continue to be important, where the demand continues to be ample. What incremental we generate above and beyond the $850 million in the bottom line drive up tangible book value per share growth.

Got it. Thank you. Maybe Bryan, one quick one for you. As we think about, I'm assuming you still expect the normalized net margin to move into the 340s, I guess, sometime next year. Just talk to us on the deposit side, given the campaigns y'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. Beyond competitive landscape, also from a customer behavior standpoint. Is the Fed not doing anything, just leading to deposit pricing discussions ebbing, or customers are still kind of mixing towards higher rate products? Thanks.

Thanks, [Ebrahim]. We would tell you the environment certainly is competitive. 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. 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 all the Midwest, Southeast, and Southwest. We've tested a lot of different rate offers over the last six months in the first half of the year, and it certainly is getting more expensive to grow deposits. 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. 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. We see that trend continuing. 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. That really helps us manage the overall marginal cost of those deposits, which has been a key part of the strategy. We think it's going to continue to be competitive. On the commercial front, 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. 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.

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. It is something we're keeping a close eye on right now.

Yeah. 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. You know well that $1 billion is a yard in the bond lexicon. If you go through the numbers this past quarter, we got two yards year-over-year from Newline, we got three from consumer, most of which from the Southwest and the Southeast, and then four yards for Direct Express. If we get one more yard and we are at a first down. Those are things that not everybody can play.

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 a cloud of dust, I guess, right? Get your first down and four.

Your next question comes from the line of Manan Gosalia with Morgan Stanley. Your line is now open. Please go ahead.

Hey, good morning, all. 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. 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, bearing in mind that you also want to keep reinvesting in the business?

Yeah. We feel very good about where we're going to end the year. Right? Bryan reinforced it that whatever the glide path we are almost at on the ROTCE, the original target we set for 2027, then said we could get to in the fourth quarter. 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. When you take our guidance and work it through your models, I know it'll show that.

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 this sort of 19%+ ROTCE through a little bit of additional operating leverage that essentially compensates for the roll-in of the AOCI into tangible common equity, then driving tangible book value per share growth is the best way for us to generate long-term value for shareholders. 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 shipped 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.

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 path for us, given our position in the ecosystem, than 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. Maybe separately on Direct Express. You spoke about issuing new cards, adding the 66,000 new beneficiaries. I guess how quickly can that product scale relative to the $3.7 billion in deposits you just mentioned? How are you thinking about the opportunity to expand that program in the years ahead?

Yeah. There are two stages here, right? There's front book, back book. The front book product applies all new beneficiaries in the federal government that go into the Direct Express program are going on that new platform. 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 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 pace with which deposits are growing if you just look at the Direct Express portfolio in total.

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. The byproduct of that is I actually think we're going to see pretty nice secular growth tailwinds there.

Yeah. If you were to look back on a multi-year view of this, in 2024, this program averaged closer to $3 billion in balances. 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. 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. Ryan, your line is now open. Please go ahead.

Morning. Tim, to an earlier question, you talked about the deposit growth engine moving full speed ahead with your first down reference. Bryan also talked about runoff of some higher balances. 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? Thank you. I have a follow-up.

Yeah, Ryan. When we look at the numbers, 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 to 2/3 of a quarter impact as well as now and layering on top of that normal commercial seasonality. If you look at, 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.

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. We think we have a long runway in front of us.

We've talked for a bit now about the four $10 million 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, getting it into the place where we should be from a market share perspective, 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 five, six, seven years as the network matures out. We think the tailwinds associated with the deposit franchise are there. 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.

We've delivered, hopefully you feel like you've seen it in our numbers, good outcomes. The consumer franchise continues to deliver, the investments we've made from a branch perspective continue to pay off. When you look at our overall deposit cost, consumer core franchise, $116 billion of deposits that are at a [$125 million] total cost of deposits right now. We feel very good about the profitability that franchise is kicking off. What you see is the ability to attract new customers, rate is often part of that. When you can provide a customer with leading product, great service, convenient locations, we're able to maintain those customers as we price them down over time. They're getting a great experience at Fifth Third, 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 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. Do you think we could sustain these types of loan growth rates going forward? Thank you.

Yeah. I feel pretty good about our ability to sustain the loan growth pace going forward, barring a material change in the macro. 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. That was based through the quarter on the belief that the situation in the Middle East was de-escalating, also I think the fact that the tariff confusion has settled out. Clearly we have some retrenchment on the Middle Eastern front, 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 had stopped bidding at market rates just given input cost uncertainty and had resumed bidding during the quarter. I think clients across the board indicate that demand's pretty stable.

In some cases actually had been improving. The sectors 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. At least as it relates to us, 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. That is informed by the fact that there are 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 three or four years. There's a nice step forward there. The verticals in particular, the specialty verticals were the standout. They grew 6%. 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 won't converge around the same growth rate. Good underlying demand attached to secular things more than sort of specific points in the cycle. Just both the sort of added feet on the street on the Fifth Third side and then the continued re-acceleration of the rate of growth that Comerica had demonstrated it was capable of prior to the last three or four years.

You have a pretty nice sustained loan growth outlook for the bank.

Your next question comes from the line of Erika Najarian with UBS. Erika, your line is now open. Please go ahead.

Hi. Good morning and thank you. 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? Also was just hoping to put, to borrow Ryan's words, a finer point on your response to deposit costs to Ebrahim. 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? If we do get that Fed hike, what kind of beta would we see?

I think a mid-single digit growth rate is a fair growth rate for us from a long-term perspective. 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 the 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. 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 balance growth just given where we are from a rate environment perspective will come in in an interest-bearing product. 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. We're able to manage through that obviously with continued asset growth as well as the fixed rate asset repricing that continues. 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.

Thank you. 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. 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 window as liquidity?

We are exactly where we need to be from a balance sheet perspective, from an LCR requirement perspective. Any LCR relief would create some value from a long-term margin perspective. The concept there is that you could ultimately hold a smaller security portfolio, and in particular, a smaller level 1 allocation, which would obviously be NIM accretive and a margin accretive. 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. 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 pledged at the discount window well above what our security portfolio is. We don't believe we could take our security portfolio to near zero. 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 endgame 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. 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 points difference between the standardized approach. That is an option that we'll have in front of us.

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 Markets. Gerard, your line is now open. Please go ahead.

Hi, Tim. Hi, Bryan. Question for you, Tim. Obviously, you pointed out that the synergies are coming in ahead of the $850 million, a good bit ahead. Obviously Jamie is shaking out more expenses from the trees, which is great. The question I have for you, and 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. 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've grown revenues X.

Now, I know you touched on the mortgages already, residential mortgages how much you've done. When do you think you could quantify for us that not only do we get these expense savings, but look at this revenue growth?

Yeah. No, great question. I think going into next year. I don't think we have to wait for next year. We're tracking all of this stuff in a pretty detailed way, hence my point earlier about, like 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. 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 one, which is protect what we have and get the expense synergies out, to job two, which is energize the combined team around the opportunities to drive growth. The job one, we talked about the expense synergies.

I think the other thing maybe that is worth mentioning that I didn't is 99.4% of the customers that Comerica had in commercial at the beginning of this year are still clients today. We're actually running ahead of normalized client attrition. We're doing better from an attrition perspective than you normally would in this sort of equation. 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've been with either company being independent. We've done the product innovation rollouts. We have added specialists in several of the markets. We'll continue to do more of that.

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 a 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. We'll just transparently let you see it.

Very good. Appreciate that color. As a follow-up, it's more of a macro question. It might be kind of difficult to get your arms around the answer, 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. I'm not suggesting you guys are making construction loans to build out the data centers, 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. Second, we saw it during the dot-com era when all that fiber was built, and it was so overbuilt. Much of it went dark and caused problems.

I'm not suggesting we're overbuilding yet for AI, how do you guys get your arms around the risks with this AI growth to this country? Eventually it slows down and some of the second derivative impacts to your bank.

Yeah. You know that we worry about that. Given the time that I spend technology, the 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 have 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. My own view on this is that there's a possibility that that capacity gets absorbed just over a much longer timeframe than people anticipate. 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.

We have lots of relationships with people who are engaged in constructing data centers. The chance at one market visit I did out West to meet an HVAC contractor who mentioned that they have a five-year backlog equating to $300 million in incremental backlog due to hyperscaler demand. We have clients that we bank that are in the exotic businesses of quarrying aggregate or mining lime that goes into concrete that gets poured into the foundations 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. We do that work every time we re-underwrite an individual client. We look at the concentration risk that exists in their revenue composition. We look at the stress scenarios as it relates to demand overall as well as idiosyncratic scenarios.

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 basis prior to the data center build.

Great. Thank you. Appreciate it as always.

Your next question comes from the line of Mike Mayo with Wells Fargo Securities. Mike, your line is now open. Please go ahead.

Hey. If I could just get a clarification. You've not changed your $850 million expense saving number. Is that correct?

$850 million or more will drop to the bottom line. The or more question will be a function of 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. 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.

Fifth Third Bancorp (FITB) Q2 2026 Earnings Call Transcript

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