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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

Thank you for standing by and welcome to the Fifth Third Bancorp third quarter 2025 earnings conference call. 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star one. Thank you. I'd now like to turn the call over to Matt Curoe, Senior Director of Investor Relations. You may begin.

Good morning, everyone. Welcome to Fifth Third's third quarter 2025 earnings call. This morning, our Chairman, CEO, and President Tim Spence, and CFO Bryan Preston will provide an overview of our third quarter results and outlook. Our Chief Credit Officer, Greg Schroeck, has also joined for the Q&A portion of the call. Please review the cautionary statements in our materials, which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results, as well as forward-looking statements about Fifth Third's performance. These statements speak only as of October 17, 2025, and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Bryan, we'll open up the call for questions. With that, let me turn it over to Tim.

Good morning, everyone, and thank you for joining us today. At Fifth Third, we believe that great banks distinguish themselves not by how they perform in benign environments, but rather by how they navigate uncertain ones. Our operating priorities are stability, profitability, and growth, in that order. We seek to achieve them by obsessing over the detail in our day-to-day operations while simultaneously investing for the long term. As you are aware, last week we announced the merger of Fifth Third and Comerica. Our M&A framework has been consistent. First, that M&A is not a strategy unto itself, but rather a means to achieve stated strategic objectives. Second, that the cash earned back, IRR, and NPV of synergies must be superior to organic alternatives to justify higher execution risk. Third, that the outcome must be a company that is better and not just bigger.

We believe this is one of those rare combinations that satisfies all three criteria. Fifth Third's standalone momentum in the revenue and expense synergies from Comerica should produce a well-diversified, even more profitable company with even better long-term growth. Shifting to third quarter earnings, this morning we reported earnings per share of $0.91 or $0.93, excluding certain items outlined on page two of the release. Reported and core results include the impact of nearly $200 million of provision expense associated with the fraud at Tricolor, which marred an otherwise excellent quarter of operating results across NII, fees, expenses, and strategic growth. Average loans increased 6% year-over-year, marking the fourth consecutive quarter where year-over-year loan growth accelerated. Average demand deposits were up 3% year-over-year, led by 6% consumer DDA growth.

Adjusted revenues also rose 6%, underpinned by 7% improvement in net interest income and 5% growth in fees. Adjusted PP&R increased 11%, producing 330 basis points of positive operating leverage. Even with the impact of the large fraud, our profitability remained strong. On an adjusted basis, our ROA was 1.25%, our ROTCE was 17.7%, and our efficiency ratio was 54.1%. In credit, commercial non-performing assets declined 14%, and criticized assets decreased 4% to the lowest level in over three years. Lastly, tangible book value per share grew 7% year-over-year and 3% sequentially in a quarter in which we repurchased $300 million of stock and raised our common dividend by 8%. Turning to our growth strategies, our investments in the Southeast, in expanding our middle market sales force, and in building high-growth recurring fee businesses continue to demonstrate strong results.

We added 13 branches in the Southeast during the third quarter, including our first in Alabama, and we expect to open 27 more before the end of the year. Consumer households across the Southeast increased by 7% year-over-year, more than four times the rate of underlying market growth. Our deposit pricing remained disciplined, with the total cost of retail deposits in the Southeast averaging 1.93% in the quarter. We'll leverage the same proven de novo playbook, marketing tactics, and differentiated digital offerings to drive retail deposit growth as we add 150 branches to Comerica's Texas footprint. Together, we'll have a presence in 17 of the fastest growing large U.S. metro areas. In our regions, our focus on middle market and wealth management is delivering new quality relationships, granular loan growth, and recurring fees.

In the third quarter, middle market RM headcount increased 8% year-over-year, new client acquisition increased 40%, and average middle market loans increased 6%. In wealth and asset management, advisor headcount rose 10% year-over-year, wealth fees climbed 11%, and assets under management reached $77 billion in the quarter. Post-close, we will rely on the same recruiting disciplines, investment capacity, and one-bank sales approach to help Comerica accelerate the growth of their crown jewel middle market franchise. In our CIB verticals, franchise finance had another standout quarter. Over the past year, we have served as the lead arranger on 24 transactions totaling $3.9 billion, including eight in the third quarter alone. Over the past two years, the franchise finance team has generated more than $40 million in annual commercial payments fees and $34 million in capital markets fees.

We are excited to add Comerica's strong verticals to our existing expertise, including in national dealer services, environmental services, and tech and life sciences, among others. In commercial payments, fee growth reaccelerated to 3% sequentially in the third quarter. Newline increased revenue by 31% year-over-year and grew deposits by more than $1 billion. We expect Newline to sustain its growth as transactional activity ramps from the rollout of Stripe Treasury and many other category-defined payments customers who build on Newline's APIs. We're also seeing strong early activity from our acquisition of DTS Connex. Since the announcement, we have launched pilots with the most profitable quick-service restaurant in the industry and a 1,200-location chain of convenience stores, and also executed the first pre-ordered branch change order at a major bank with over 2,000 branches.

On Direct Express, our merger with Comerica should simplify the transition for its 3.4 million program participants. We also anticipate additional growth opportunities stemming from the president's executive order mandating the transition to electronic payments for all federal disbursements. Lastly, we continue to deploy technology and lean manufacturing principles to produce savings and boost scalability. From our peak staffing level in early 2019, total headcount at Fifth Third is down 8% while adjusted revenues are up 20%. The investments we've made will help us to efficiently scale the business and achieve our synergy targets as we integrate Comerica. Before Bryan provides further detail on our outlook, I'd like to revisit the commitments we made at the beginning of the year to deliver record NII regardless of the rate environment and to produce 150 basis points-200 basis points of positive operating leverage for the full year.

We will deliver both. Looking to 2026 and beyond, there is so much to be excited about at Fifth Third. Among these, the tailwind from our investments in the Southeast, along with 60 additional branches to be opened next year, the sustained excellence of our J.D. Power award-winning digital experience and differentiated payments products, and the incredible new colleagues, geographies, and capabilities at Comerica becoming part of our company. I'm grateful to all the people whose hard work has put us in a position to take these steps, to the colleagues of both Fifth Third and Comerica who will work so hard in the coming months to make our partnership a success, and in particular to our clients who entrust us with their well-being. With that, Bryan will provide more detail on the quarter and our outlook for the fourth quarter.

Thanks, Tim, and thank you to everyone joining us today. Third quarter results reflect disciplined execution of our strategic priorities: expanding in the Southeast, scaling payments in Newline, and maintaining operational efficiency while delivering strong performance in a rapidly changing environment. Adjusted revenue was $2.3 billion, our highest since 2022. NII grew 7% year-over-year and 2% sequentially, and net interest margin expanded for the seventh consecutive quarter. Our balance sheet continues to benefit from our balanced business mix through diversified loan origination platforms, fixed-rate asset repricing tailwinds, and broad funding sources supporting proactive liability management. Our fee businesses, led by wealth, commercial payments, and capital markets, delivered adjusted growth of 5% year-over-year and 7% sequentially.

This revenue performance, along with ongoing expense discipline, led to an 11% increase in pre-provision net revenue and 330 basis points of positive operating leverage on an adjusted basis compared to the third quarter of last year. As Tim mentioned, tangible book value per share, including the impact of AOCI, grew 3% from the second quarter. Despite only an 8 basis point decrease in the 10-year Treasury rate, unrealized losses on our AFS portfolio improved 9% sequentially, underscoring the benefit of our bullet and lockout securities. These positions provide certainty of cash flows and should continue to support tangible book value growth as they pull to par. Now diving further into the income statement and balance sheet performance, net interest margin expanded 23 basis points over last year and one basis point sequentially. year-over-year, average loans are up 6%, and excluding CRE categories, average balances are up 7%.

Repricing benefits on fixed-rate assets and disciplined management of liability costs continue to contribute to the strong NII performance. As Tim noted, relationship manager headcount is up 8%, and average middle market loans grew 6% over the last year. Third quarter middle market production rebounded sharply, up around 50% on both a year-over-year and sequential basis. Production levels are stable to improving in 11 of 14 regions, with the strongest performance in central Ohio, Georgia, Texas, and the Carolinas. Provide, our fintech lending platform for practice finance, continues to drive growth, with balances up nearly $1 billion over the last year. This growth in middle market CNI and Provide helps offset pay downs in our CIB and CRE portfolios, where average loan balances decline modestly as clients access bond and permanent financing markets during the quarter.

This capital markets activity was a contributor to our strong fee performance during the quarter. Production in our corporate banking verticals also rebounded this quarter, up 24% over 2Q. Pipelines for middle market and corporate banking remain strong heading into year-end. Commercial line utilization held steady throughout the quarter and ended in the mid-36% area. In total, end-of-period commercial loans are up 5% over last year. Consumer loans grew 2% on an average basis and 1% on a period-end basis from the prior quarter. We once again saw growth in nearly every major consumer lending category, led by continued strength in auto and home equity lending. Shifting to deposits, average core deposits increased 1% sequentially, driven by DDA and money market growth.

Average non-interest bearing deposits grew 1% sequentially and 3% over the prior year, led by consumer DDA growth of 6% as we continue to drive strong household growth through our de novo investments. Overall, consumer household growth remains strong at 3% over the last year, led by the 7% growth in the Southeast. Proactive balance sheet management has allowed us to maintain our strong liquidity position while reducing our overall funding costs. We remain focused on granular insured deposits, growing average consumer and small business deposits by 1% sequentially. Consumer and payments linked deposit growth has given us the flexibility to manage down wholesale funding, which declined 3% sequentially. This favorable mix shift lowered the cost of interest-bearing liabilities by 1 basis point. Our Southeast de novo investments continue to deliver high-quality, low-cost retail deposits.

Locations opened between 2022 and 2024 are significantly outperforming expectations, with deposits per branch at month 12 averaging over $25 million, outpacing our model targets. As Tim mentioned, our total cost of deposits in the Southeast is only 1.93%, generating 200+ basis points of spread relative to Fed funds. We remain on track to open 50 branches this year, with 23 open year to date. We have secured approximately 85% of the locations for the additional 200 Southeast branches that we announced last November. We ended the quarter with full Category 1 LCR compliance at 126%, and our loan-to-core deposit ratio was 75%, down 1% from the prior quarter. Moving on to fees, adjusted non-interest income, excluding security gains and Visa swap impacts, grew 7% sequentially and 5% over the last year.

Wealth fees rose by 11% over the last year on $8 billion of AUM growth and strong retail brokerage activity. Capital markets fees rebounded, up 28% sequentially and 4% over the last year, driven by higher activity in loan syndications and M&A advisories. Commercial payments fees increased $5 million, or 3% sequentially, including a $2 million negative impact from higher earnings credits on demand deposit growth. This fee performance was driven by core treasury management and Newline related gross fees. Newline related deposits hit $3.9 billion, up $1 billion from a year ago. The securities gains of $10 million were from the mark-to-market impact of our non-qualified deferred compensation plan, which is offset in compensation expense. Moving to expenses, adjusted non-interest expense increased 3% compared to the year-ago quarter and 2% sequentially, reflecting continued strategic investments in technology, branches, and sales personnel.

Even with the headcount additions associated with these investments, overall headcount is down 1% versus last year, as our value stream programs continue to drive savings through automation and process redesign. By year-end, we anticipate $200 million of run rates to annualized run rate savings associated with our value stream programs. Shifting to credit, the net charge-off ratio was 109 basis points for the quarter, which includes $178 million in net charge-offs from Tricolor. NPAs declined 10% sequentially, as expected, and the NPA ratio decreased to 65 basis points. Broad-based credit trends remain stable across industries and geographies. Excluding Tricolor, commercial charge-offs were 51 basis points compared to 38 basis points in the prior quarter. This increase is due to the resolution of certain non-performing loans for which specific reserves had been previously established. Commercial non-performing loans decreased 14% sequentially and 30% since the first quarter.

Consumer charge-offs were 52 basis points in the quarter, down four basis points, which is the lowest level over the last two years. The sequential decrease is primarily due to improvement in solar lending charge-offs, which were down 39 basis points sequentially, as expected. The broad consumer portfolio remains healthy, with non-accrual and over 90 delinquency rates stable to improving across loan categories. Provision expense included a $142 million reduction in our allowance for credit losses, reflecting improvement in Moody's macroeconomic scenarios and a reduction in specific reserves. Even with the scenario improvements, our baseline and downside cases assume unemployment reaching 4.8% and 8.4% in 2026, respectively. We made no changes to our scenario weightings during the quarter. ACL as a percentage of our portfolio loans and leases decreased 13 basis points to 1.96%.

The ACL as a percentage of non-performing assets increased to 302% due to the decrease in NPAs. Moving to capital, CET1 ended at 10.54%, consistent with our near-term target of 10.5%. The pro forma CET1 ratio, including the AOCI impact of the securities portfolio, is 8.8%. We expect continued improvement in the unrealized losses as 62% of the fixed-rate securities in our AFS portfolio are in bullet or lockout structures, which provides a high degree of certainty to our principal cash flow expectations. Moving to our current outlook, we expect NII to be stable to up 1% from the third quarter due to loan and core deposit growth. This outlook assumes two 25 basis point rate cuts during the fourth quarter. We expect average total loan balances to be up 1% due to normal seasonal growth, strong CNI pipelines, and continued broad-based momentum in consumer lending.

We expect adjusted non-interest income to be up 2%-3% due to seasonal strength in capital markets and continued commercial payments growth. Fourth quarter adjusted non-interest expense is expected to be up 2% due to the opening of 27 financial centers in the Southeast and incentive compensation related to the growth in capital markets fees. In total, our guide implies full-year adjusted revenue to be up nearly 5% and PP&R to grow 7%-8%. Moving to credit, fourth quarter net charge-offs are expected to be around 40 basis points. Finally, turning to capital, we will be pausing share repurchases until the close of the Comerica acquisition, which is currently expected around the end of the first quarter of 2026.

In summary, we expect to maintain our momentum as we end the year and achieve record NII, positive operating leverage, and strong returns in an uncertain environment, all while continuing to invest for the long term. With that, let me turn it over to Matt to open up the call for Q&A.

Thanks, Bryan. Before we start Q&A, given the time we have this morning, we ask that you limit yourself to 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 would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Your first question today comes from the line of Gerard Cassidy from RBC Capital Markets. Your line is open.

Tim, can you give us some further updates or color on the Comerica transaction in terms of how it's been received internally at Comerica and maybe by their customers? They're going to be obviously part of Fifth Third in a short while. Second, as part of that, how the process is going with the regulators, we're seeing an incredibly expedited timeline on deals that have been announced before your deal being approved in less than six months.

Yeah, happy to do that, Gerard. I think in general, it's just been positive all the way across the board. Just to start with the regulators first, I think we're making good progress on the regulatory filings. Expect to have them complete by the end of the month. For you, the S-4 should be filed shortly after we get the queue out. I think the Comptroller of the Currency's public commentary actually was attached to a new charter approval recently, about accelerating the review of both new charter applications and merger applications, which is clearly a very positive development and consistent with what we're seeing in other deals. All the early engagement that we have done with the regulators has been constructive. I feel very good about the timeline that we laid out and that Bryan just reiterated.

I think the feedback from employees and communities has been really positive on both sides of Fifth Third and Comerica. When the number one question that we're getting is what the name of the Detroit Tigers Stadium is going to be at the end of all this, it's a pretty good sign about what we're dealing with. I think what has rung true to folks is this idea that we're going to be able to accomplish things together that neither company was going to be able to do on their own. One of the other CEOs on another call talked a little bit about their philosophy on M&A and what they were interested in, not. I actually think what he said, if I were to abstract a little bit, is really true.

If you're going to do a deal and you want it to be successful, it either has to be strength pairing strength or strength pairing opportunity. You can't have places where both companies are weak be critical to the deal outcome. The beauty of what we're doing with Comerica is the things you need to believe are either strength strength or strength opportunity, right? We're great at retail deposit gathering and are already primarily retail deposit funded, so we're going to be able to do a lot there. They have a fabulous granular middle market loan franchise. We prize more granularity in our commercial business. There's going to be a really nice complement there. We're both strong in different ways in the payments business and wealth management, so there's a strength strength match. I just think there's a lot positive there.

I think what we are going to try to do either later this quarter or as we turn the beginning of the year is to just provide a little bit more insight to investors on the synergies. We are feeling very good about our ability to get the outcomes. When you look at the synergies as a percentage of Fifth Third and Comerica combined, which is really the right way to look at it, because that's the way that we'll be approaching this exercise, they're quite manageable and I think well-defined. In general, the reception has been, it's the teams on both sides were small because of the focused diligence effort. The first announcement Monday morning was, wow, followed by, I think in general, a lot of excitement about what we're going to be able to get done together.

Great. I appreciate that. As a follow-up, as you said in your opening comments, the great banks distinguish themselves on how they navigate uncertain environments. This week has certainly been very uncertain for many of the regional banks, including your own, because of the concerns about this NDFI lending and the contagion risk. I frame that with, if you go back to the 1980s and look at what happened, the price of oil in Texas dropping below $10 a barrel, it led to the contagion risk of commercial real estate blowing up. In the NDFI portfolio, you have, and I know you have the Tricolor issue, but is there contagion risk in there? Can you just share maybe your thoughts on what's going on with that portfolio and how the market's reacting to it?

Yeah, I appreciate you being the one to give the history lesson this time around. Normally, I feel like it has to be me on these calls. Thanks for that. You'll be happy to know I assign the book "Belly Up" as reading to new executives at Fifth Third. There's a lot of familiarity with the oil patch bust in Texas and Oklahoma around the shop here. I think one of the challenges we have on the NDFI front is while the Fed's reporting was designed to be helpful here, the categorization is a little bit confusing. Schroeck is prepared to talk a little bit about maybe an easier way to understand what's in NDFI across the industry and in our portfolio in particular. I'm going to turn it over to him.

Yeah, it's a great question, Gerard. Thank you. I'll start by saying it's a portfolio that we have maintained at low levels. We're the lowest, one of the lowest levels of NDFI concentrations of large banks. We're at about 8% of the total portfolio. As Tim said, the call report categories can be pretty generic. I'll provide a breakdown based on how we review the exposure and the risks contained in that portfolio. I'll start with REITs. REITs and other mortgage-related facilities make up 33% of our NDFI balances and represent the largest portion of the portfolio. It represents one of our oldest asset classes within our ABF portfolio. We have processes, procedures, and structures that have been tested through the cycle and include robust monitoring of liens to ensure priority of our mortgages. We've not had any losses in this portfolio over the last 10 years.

A really solid portion of the portfolio that makes up our largest component. Next, about 24% of the NDFI balances are to payment processors, insurance companies, brokerage firms, and SBIC firms or funds. Balances in this category are primarily related to large players, well-recognized names, and not at all related to the conversations going on in the markets right now. Next would be our subscription facilities at 18% of NDFI funds and represents exposure to high net worth individuals and other private capital investors who have capital commitments to these funds. 13% of the balances are loans to private capital warehouse facilities. This category has been an area of rapid growth in the industry. However, we've been really intentional in limiting our growth in these vehicles. We have one lender where we have a deep relationship.

This is a portfolio where we have deep relationships with the lenders, typically lending into one of their portfolio companies. That relationship orientation is key as we look into that portion of the NDFI portfolio. The smallest share of NDFI balances are loans to non-real estate and non-private credit-related warehouses. It's about 9% of our balances. That category includes our exposure to consumer asset classes. Gerard, you mentioned Tricolor. That fraud issue is in that portfolio and has received significant scrutiny as part of our comprehensive review of the portfolio. Given that comprehensive review, I feel very confident in the quality of the remaining clients in that category. We've been overall, and we've been very deliberate in our strategy to keep NDFI portfolio balances diversified.

Our disciplined underwriting framework is designed to safeguard portfolio quality by avoiding aggressive advance rates, which we see in the marketplace sometimes, overly concentrated collateral pools, inexperienced management teams, and structures that do not meet our overall risk appetite. I'll also add, as part of the Comerica, Gerard, you mentioned Comerica, but part of that review during our due diligence, we also reviewed Comerica's NDFI portfolio. 70% of Comerica's NDFI portfolio is concentrated in low-risk subscription facilities, which complements our disciplined approach to client selection and portfolio diversification. Post-close, our combined NDFI balances will be 7%, down from our Fifth Third overall 8%. We feel really good about the ongoing diversification and overall asset quality of the remaining portfolio.

Thank you for the thorough answer. Appreciate it.

Yeah. Your next question comes from the line of Ebrahim Poonawala from Bank of America. Your line is open.

Good morning. I guess maybe just sticking with credit and outside of the NDFI issues, just if you, from a mark-to-market standpoint, are your customers feeling the pain on the commercial side from tariffs and slowing activity, or are we on the other side actually where things are picking up in terms of folks wanting to make investment decisions, which could drive loan growth? I'm just wondering what seems more likely as we cut through all this noise at the moment. Yep.

Yeah. I think, unfortunately, the answer to that is yes on both points. The quote of the quarter, I was out in several of our markets. I got to visit about three dozen of our commercial clients. The quote of the quarter went to the client who referred to his outlook as, quote, "nauseously optimistic." The tariff uncertainty absolutely continues to weigh on any clients that are exposed. That said, I would tell you in general, people are more optimistic than they were in the second quarter, in part because when you add up all of the different tariffs, there is some uniformity across most of the countries that provide, you know, are significant sources of the supply chains for folks in materials and manufacturing and, you know, construction and the other sectors that are, you know, big in our footprint.

The question mark really has been what would be the, who would bear the brunt of the tariffs? I would say now on balance, there's a sort of a shared pain approach here where the supplier, the intermediary, and the customer are each absorbing about a third of the increased cost. The supplier and the intermediaries have also been clear whenever we talk to them that their intent is ultimately to get back to prior margins, which would mean over time you would see continued price increases as a mechanism to move the, you know, the cost through. The bright spot here is really one, that's just the Fed resuming rate cuts. I think people have been more optimistic about, they're more front-end focused than I think I would have said I believed them to be.

They're more optimistic about what the value of, you know, a total of 50 basis points-100 basis points of cuts, you know, will have on client demand and also penciling out of their own investments. There's also another reality here, which is a lot of our clients, when the tariff announcements hit, deferred capital expenditures and have been renting, either renting excess space or renting equipment. We are getting requests now for financing that are reflected in the pipeline in the middle market business in particular to support the sort of shift from rent to own. I think that's quite positive. The other thing that I like seeing is I like our logistics clients. They're a good bellwether on the sort of, you know, wheels of the economy turning.

We are hearing from logistics clients that there has not exactly been a huge rebound, but the activity is stabilized and is moving on the upswing. The folks that are having the most robust demand, obviously, are the people who are either attached to the big government infrastructure investments, things like bridges and roads that are moving forward, or the folks that are attached to AI. There is so much demand there because with one of our clients that is in the concrete business, they not only have a strong order book, but the suppliers are driving the pricing as opposed to the buyers driving the pricing. In these cases, the margins are really great. On the other end of the spectrum, I think residential construction, auto is still slower.

That's helpful. Thanks for that. I guess just a separate question, I think back to Comerica. I think if you don't mind spending some time around, you talked about this when you announced the deal, just the optionality that Comerica provides. You've talked about opening the branches in Texas, but Comerica also had a big technology life science practice, and Fifth Third through Newline has been leaning in there. Either it's that, or it's double-clicking on the existing footprint and deepening relationships, which may have kind of sidelined a bit over the last decade. What's that potential to unlock and accelerate growth for the combined entity as we look out a year from now?

Thanks for asking on that one. One of my fundamental beliefs is if you don't want to grow by sacrificing pricing or risk discipline, you have to attach yourself to segments of the economy that have a secular tailwind. The innovation economy is the most profound secular tailwind on the business side of our business in the U.S. I am quite excited about the potential on tech and life sciences. Historically, the OCC looked at that business a little bit differently than other people did, but I think the early signals coming out of the OCC are that they want national banks to be able to compete in all markets. I am optimistic that we're going to be able to do some interesting things there. Michigan is about creating, finishing off the play in terms of a fortress position in the Midwest.

Texas, for us, is going to be about investment. I think we can continue to add a lot more middle market bankers, and clearly the branches are there. California really will be a more business-focused strategy. Between Newline, which is a unique asset, and the fact that a lot of the early folks at SVB actually were from a predecessor to Comerica in 1991, we have credibility having been in that market. There is a really interesting thing to be done there because post-SVB, to your point, you have First Citizen still active, you have JPMorgan active, you have a couple of investment banks active that really are leading on the M&A advisory and capital raising front, and then you have foreign banks. A fragmented market like that is good hunting for people like us.

The thing that's probably important to remember with Comerica is I think they're running a 4/1 deposit-to-loan ratio, 3/1, 4/1 deposit-to-loan ratio in that market. One of the things we may do very early on is just focus on the ways in which we can leverage Newline to drive even more deposits into the platform as well.

Your next question comes from a line of Scott Siefers from Piper Sandler. Your line is open.

Morning, guys. Thank you for taking the question. Hey, Tim, based on all you've said, I don't get the impression that there's any change or impact to your de novo expansion plans while you go through the Comerica transaction. I was just hoping you could spend a moment discussing sort of how you balance the planned organic expansion with the large integration just to make sure nothing sort of slips through the cracks.

Yeah, no, that's great. I think you probably have to think about it in two ways. One is just what resources do the two sort of separate growth areas of focus draw on. The de novos are in the Southeast footprint. There is going to be, I would, there are some really wonderful Comerica bankers in the Southeast, but they don't have a branch presence. We're not going to have disruption in those markets. The regional leaders who have to be on top of driving the daily, weekly, monthly activity in the Southeast are not going to be disrupted. That's the first thing. Secondarily, the people inside the bank who find the locations, who build the locations, and who run the locations are three different groups.

85%, as Bryan said, of the locations have been found, meaning that group has the capacity to be able to be looking for locations in Texas. If you just do the math on the 40 we will have built in the second half of this year, the 60 we just said we're going to build next year, by the time we're at a point where we've got sites and permits pulled, the people who build the locations are going to be freed up from the Southeast to be able to shift their focus onto the acceleration of the openings in Texas.

Lastly, because of the scale we have in the Southeast, the draw on human capital and the need to drive recruiting and otherwise to be able to support the new branches is substantially lower because the majority of the folks we put into the de novos are people who have trained up and come through our other retail financial centers. Therefore, the Southeast is sort of on the flywheel of being able to feed itself. There really is not an overlap in terms of the critical resources to be able to do those two things. I think the second thing that's really important is we've talked a lot about the focus on modularity in the way that we drive the retail expansion. That has been the point I'm trying to make whenever I say we haven't built 100 branches, we built one branch 100x.

It's a consistent site selection model. It's a consistent retail format, meaning there's no need for additional engineering resources or otherwise. We have experience at this point with essentially every zoning jurisdiction and setup that you would want to experience. The zoning rules in general in Texas are much easier than they are in the Southeast and certainly than the Midwest. It is not like we are going to have to learn on the fly here. We just have to find the locations, and we have the people to do that. We have to build the same thing we have been building, and we know how to do that, obviously. The focus really is going to be on making sure that as we do the conversion in Texas, the initial experience that Comerica's existing retail clients have is really, really strong.

We are doing the recruiting that we need to do to be able to support the larger base. Lastly, it is probably worth noting that I think we were building a fair number of de novos in 2019 when we did the MB conversion. We did not have any problem juggling both of those either.

Okay. Perfect. Thank you for that. With regard to Direct Express, you noted the merger should simplify the transition for the customers. I imagine it really eases things for you all as well. I know there was already a sense of urgency to get the balances moved before the merger was announced. I was hoping you could just sort of spend a moment, at least at a top level, on how I presume it's all still going to switch to Fifth Third's rails. What are the plans for that to take place?

Yeah. The transition schedule that we talked about when we announced the Direct Express, when commencing Fifth Third as the administrative agent for new program enrollees in the beginning of the first quarter and then starting the conversion process at the end of the second quarter is still progressing as planned. I feel good about all that. The dynamic here that's most important was that we were going to have to issue out of our own bins or buy Comerica's bins in order to be able to make the card numbers work, right? When the deal closes, provided that it closes as we expect it to and in advance of when we were planning the backend conversions, the factor that would have driven new card issuance would have been the need to use a different bin range.

Kurt and I had actually talked about Fifth Third buying the bins from Comerica prior to commencing the discussion on the merger itself. We were looking at the possibility of being able to simplify that aspect for the program participants. Clearly, we get the deal closed, the bins are ours, and we'll be able to continue to issue out of them and maintain existing cards.

Yeah, perfect. Okay, good. Thank you very much.

Your next question comes from a line of Manan Gosalia from Morgan Stanley. Your line is open.

You touched on Direct Express right now. I was wondering if you could talk about just the opportunity there on the income statement and the contribution there. I think on the CMA deck, you adjusted for about $110 million in NII. Can you touch on what the full opportunity is there? How do you expect that to grow? The fee contribution that you expect, maybe the expense add-on there. Any additional color there would be helpful.

Yeah, happy to talk, Manan. You know, the big question when we announced the program was really about the wind of the program, was about the timing of when we would see the balance transitions over. That was one of the reasons why we said we'd provide more information in the fourth quarter. Obviously, the Comerica transaction provides a lot more certainty around how the balances will hit Fifth Third's balance sheet. You know, it's three, on average, it's about $3.5 billion of DDA that will obviously provide a lot of funding benefits associated with our balance sheet. From a fee perspective, the way to think about it is there's probably a 15%-20% type margin on the fees relative to the expense load.

You're probably looking at something that is in the range of $100 million-$110 million type expense level that's primarily related to the processing costs and the fees. There's a gross up on the fees associated with the interchange that comes through. We do have some revenue share with our processing partners. That's why there will be a fairly direct link on that. The growth for us is primarily going to be related to transaction activity in the future, as well as growth in the programs. We are excited about the potential for incremental growth in the program due to the executive order trying to limit the amount of paper checks that are issued. This is the government's program for electronic disbursements. We do believe there's even more upside in the program over time as the government continues to try to find efficiencies in its disbursement processes.

That's very helpful. Maybe if I can pivot over to credit.

Excluding the credit that you called out, I think NCOs were about 52 basis points this quarter, and you're guiding for about 40 basis points in the fourth quarter. I know you talked about some of the sentiment and what you're hearing, but can you speak to what gives you the confidence that NCOs will step down from here and how we should think about that going into 2026?

Yeah, it's Greg. Great question. I look at it in a couple of different ways. One of the leading indicators, right, of the criticized assets, and as Bryan mentioned, our criticized assets are down again 4% this quarter. I also look at predictability. We've talked over the last couple of quarters about NPAs coming down in that 40% range. They were 14% this quarter, 30% over the last two quarters, and we have good visibility tracking to that 40% at the end of the year. We're not seeing NPA surprises. The losses we're taking are reserved. Those are all leading indicators. I think we're continuing to do a good job on getting out ahead of some of these problems and dealing with them timely. I feel good about that. The consumer portfolio continues to perform very, very well. 98 delinquencies are just 6 basis points below even pre-COVID levels.

Consumer loss rates stable at 52 basis points. That's consistent with our 10-year average. We noted the solar portfolio is improving, as we said on prior calls. The portfolio is playing out as we have predicted over the last couple of quarters. I still feel really good. I mean, excluding the Tricolor fraud-related issue, I still expect full-year charge-offs to land the midpoint of our original guidance range. Assuming no significant changes in the environment, based on what I know today, I continue to be very confident that the commercial loss rates return to that mid-30, 35 basis point range in the fourth quarter.

Yeah. Manan, if I just add, since there are some names that have been in the news, we have no relationship with Cantor. We did have a relationship historically with First Brands, but we exited it a handful of years ago because of some issues that were identified during the collateral reviews we were doing. The only residual exposure there is $51,000 of operating leases, $51,000 secured, Greg tells me, by a forklift and a printer. I asked if the printer had wheels. He said no. If necessary, we're going to use the forklift to get the printer out of there. That's the other thing here in terms of confidence, there is no exposure to the names that are out in the market.

Your next question comes from the line of Ken Usdin from Autonomous Research. Your line is open.

Hey, guys. Good morning. Good morning. I was wondering if we talk a little bit about the NII trajectory and the helpers that you have. Can you just give us an update about the fixed-rate repricing that you have and what you're seeing now given the change in the curve in terms of the benefits and how long out you have a line of sight onto that?

Yeah. Thanks, Ken. Great question. We continue to feel good about fixed-rate asset repricing. That's something that was a contributor this quarter as well as for most of the year. We have seen a decent compression in the yield curve this quarter. In particular, the two to three-year point in the curve has come down about 40 basis points since we talked with you as part of July earnings.

That obviously has a decent impact on the indirect auto business, which has been a big driver of our fixed-rate asset repricing. We're still seeing $45 billion a quarter of fixed-rate assets that are repricing, and we're picking up now around 100 basis points. We expect that 100 basis points to persist basically through the end of this year and into mid to late next year. We do feel good about the trajectory that we're seeing there, even with some of the compression that we've seen from a curve perspective. Honestly, for 2026, when you think about NII trajectory, the Comerica Incorporated transaction just has such a meaningful impact on the overall balance sheet positioning. As we've talked as part of that announcement, a fairly decent pickup from a profitability perspective.

NII is going to be a good component of that as we work ahead on bringing our diverse funding capabilities to that platform, as well as positioning the balance sheet for and using our fixed-rate loan origination platforms to position the balance sheet for better long-term performance. We feel very good about the trajectory that we're on. We are heading into next year intentionally running a little bit heavier on cash and a little bit more balance from a deposit perspective because we do want to be in a position to take care of some of the funding things that they have had to do as they have managed through this environment the last couple of years. You are going to see us a little bit more balanced from a retail perspective.

We've always been very focused on keeping our retail contribution to be the primary funder of our balance sheet. That's something that, you know, we'll want to continue to do as we bring the Comerica balance sheet on board.

Great. That was actually, that tells some of my follow-up, which was just, you know, it's been great to see the non-interest bearing growth over the last couple of quarters. Still a little increase in the IVD costs. To that point you just made, and given that we're on the next leg down of the rate cycle, what does that put us into context in terms of what you're expecting to see in terms of deposit data on the IVD side? Thanks.

For the next, I would tell you for the next couple of quarters, the fourth quarter and into the first quarter, we're going to be a little less aggressive than we have been. We delivered a low 60% beta on the first 100 basis points of cuts. Prior to the Comerica transaction, I had high confidence that we were going to be able to deliver kind of mid-40% to low 50% beta, which would have kept us in a good position. Given the point of trying to stay balanced from a retail perspective, because we want to work ahead and be in a position to deal with some high-cost funding that's on their balance sheet, that'll be a very accretive transaction for us in 2026 when we utilize the optionality that our funding position will give us next year to deal with some issues on the combined balance sheet.

We are going to run a little bit lower on our betas from here. I would expect that for the fourth quarter and the first quarter, for our betas to be in the more like the 30% range. That's a little bit of the rationale when we talk about a kind of a stable to up 1% NII forecast for the fourth quarter is taking that into context.

Yep, that makes sense. Okay, thanks for that, Bryan.

Your next question comes from a line of Chris McGratty from KBW. Your line is open.

Hey, good morning. Sean Culhane actually on for Chris McGratty. Quick question just on the expense growth expectations. You touched on near-term expense growth elevating as you continue to invest in the branch expansion. Just longer term, how should we think about operating leverage from here? Maybe more specifically, how do you think about organic expense growth in terms of balancing places that require continued investment, such as payments, as well as the branch expansion, obviously, in Texas, as well as the Southeast? Versus kind of like the synergies and the offsets from both the merger as well as prior AI expense.

A lot of good questions embedded in there. A couple of things. One, the branch expense is seasonal, right, for us. I think we said we were going to get about 50 branches opened this year.

40 of the 50 happened in the second half of the year. That's part of the reason that you see the ramp in the fourth quarter is half of the branches in total get opened in the fourth quarter alone. That's actually an improvement for us. It used to be there were 85% or 90% of the branches got opened in the fourth quarter. I wouldn't read too much into the fourth quarter as a point of extrapolation into the future. We do believe we have the ability to continue to drive operating leverage out of the company. It's been convenient that others have offered 2027 as a medium-term guidance range because that corresponds with the numbers that we provided for the combination of Fifth Third and Comerica.

The outlook there was 19% ROTC or better, and getting down to the low to mid 50s, they call it 53% in terms of the efficiency ratio. We printed 54 this quarter. The guide implies 54 next quarter. There is continued operating leverage in order to get there, and that's inclusive of the sorts of investments we're making in the business. We bought a payment software company in this past quarter that feathered into the run rate. I think what's worked for us here has been this belief that we need to fund something on the order of half of everything that we want to invest back into the business through finding other savings opportunities. That's principally been automation, leveraging technology to drive people costs down and to improve scalability. Those investments are going to be super helpful, as I mentioned in my prepared remarks, as we integrate Comerica.

It's allowed us to just look at it over five years. I think we've bought now five fintech companies during that period in time. We've built more branches than anybody other than JPMorgan during that period of time. We've been growing the sales force by 5%-10% across the regional footprint during that period of time, making big investments in tech platforms and otherwise. Despite all that, we've had, I think, something that's on the order of the lowest cumulative expense growth across our peer group. We are going to continue to invest in the company. I'm super excited, as I've said, about the opportunities to invest into places like Texas and scaling the verticals like National Dealer Services and pairing that with the auto business and tech and life sciences like Ebrahim asked earlier.

We also expect ourselves to have to pay as we go in addition to asking investors to back it. That's why you get the operating leverage at the end of the day.

That's great color. Thank you. Appreciate it.

Your next question comes from a line of Mike Mayo from Wells Fargo Securities. Your line is open.

Hey, I have kind of one negative question, one positive question. The negative question, if you could just double-click on the Tricolor category. I think it was 9% of your total NDFI. Just elaborate more on what's contained in that category. The positive question is, you talked about the team that will be in charge of the integration of Comerica. You have Jamie. I haven't heard you talk about Darren King either. I almost forget that he's there. You're keeping him like locked in a closet somewhere. You have a lot of talent at the top of the house. I'd like to hear how they'll be deployed for the integration. First, more elaboration on the Tricolor category.

Yeah, I was going to say, we'll start there because now I'm going to go get Darren out of his office and demonstrate that he's free to move around the building. Go ahead, Greg.

Mike, it's primarily consumer asset classes. Consumer auto, consumer finance companies is the majority of that 9%. There's a reason why it's our lowest category from a concentration standpoint, as we're watching that consumer very, very closely, clearly impacted with higher interest rates, unemployment, inflation, etc. That's primarily what makes up that category.

Fifth Third Bancorp (FITB) Q3 2025 Earnings Call Transcript

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