FITB - NASDAQ

Thank you for standing by, and welcome to the Fifth Third Bancorp Fourth Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to withdraw your question, again, press 1. 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 fourth quarter 2025 earnings call. This morning, our Chairman, CEO, and President, Timothy N. Spence, and CFO, Bryan D. Preston, will provide an overview of our fourth quarter results and outlook.

Please review the cautionary statements in our materials, which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward-looking statements about Fifth Third's performance. These statements speak only as of January 20, 2026, and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Bryan, we will open up the call for questions. With that, let me turn it over to Tim. Good morning, everyone, and thank you for joining us today. At Fifth Third, we believe great banks distinguish themselves not by how they perform in benign environments, but rather by how they navigate uncertain ones. Our priorities are stability, profitability, and growth in that order, which we achieve by obsessing over the details in our day-to-day operations while consistently investing for the long term. This disciplined approach has delivered shareholder returns that rank among the best in our peer group over the last three, five, seven, and ten-year time frames. Today, we reported earnings per share of $1.04 or $1.08 excluding certain items outlined on Page two of the release. We achieved an adjusted return on equity of 14.5% and adjusted return on assets of 1.41% and an adjusted efficiency ratio of 54.3%. All among the best of all banks regardless of size who have reported thus far. Adjusted fourth quarter revenues rose 5% year over year driven by 6% growth in net interest income, 8% growth in commercial payments fees, and 13% growth in wealth and asset management fees. Fourth quarter average loans increased 5% year over year, driven by 7% growth in consumer loans and 7% growth in market and business banking C&I loans. Average core deposits grew 1% year over year driven by 5% growth in consumer DDA and 3% growth in commercial DDA. Net charge-offs were 40 basis points for the quarter, the lowest level in the past seven quarters. And nonperforming assets decreased for the third consecutive quarter. Our CET1 ratio increased to 10.8% and tangible book value per share grew 21% year over year, thanks to strong earnings performance and the continued pull to par of our AFS portfolio. The fourth quarter capped a year of milestones for Fifth Third. In the Southeast, we opened 50 new branches, including our 200th branch in Florida and our 100th branch in The Carolinas. To put this in context, if Fifth Third Florida were a standalone bank, it would have the 44th largest branch network in the US. And Fifth Third Carolinas would have the 78th largest. Our De Novo branches continue to deliver deposit growth that is 45% higher than peer De Novo branches. Net new consumer households grew 2.5% year over year, with the Southeast growing households by 7%, highlighted by 10% growth in Georgia and 9% in The Carolinas. Our sustained investments in digital transformation continue to set Fifth Third apart as well. In 2025, our consumer mobile app was recognized by J.D. Power as the top mobile banking app for user satisfaction among regional banks. We shipped over 400 updates to the app during the year, including features such as direct deposit switching, a financial wellness hub with cash flow insights and spending analysis, and free estate planning capabilities through our partnership with Fintech Trust and Will. In small business, a little over a year ago, we asked our Fintech to provide to lead all of small business for Fifth Third. Since then, Fifth Third has become a top 20 national SBA lender for the first time anyone can remember and finished number two in J.D. Power's 2025 national small business banking satisfaction study ahead of all other regional banks. In commercial payments, our software-enabled managed services Big Data Healthcare, Expert AR and AP, and DTS Connect, and our embedded payments platform, NewLine, continued to grow rapidly. One in every three commercial clients we added in 2025 was a payments-only client with no credit extension. Newline revenues more than doubled compared to the fourth quarter of last year, and deposits increased by $1.4 billion. Newline's product team also finished the year strong launching a model context protocol server to enable secure, standardized access to our API and documentation to AI agents. This is a key building block to support future AgenTek commerce applications and a first among US banks. In commercial, we delivered new quality relationships, granular loan growth, and recurring fee revenue in the middle market as we continue to add our own talent in strategic growth markets and to benefit from hiring in prior years. New client acquisition increased 40% across all regions compared to 2024. Our emphasis on the Southeast, Texas, and California markets led to a 12% increase in RMs producing 14% growth in C&I loans. In wealth and asset management, fourth quarter wealth fees increased 13% and assets under management reached $80 billion for the quarter. The strong performance was broad-based. Fifth Third Wealth Advisors' AUM and fees increased 50% from a year ago. Fifth Third Securities generated record fees. And our private bank had its second-highest level of gross AUM flows recorded in history. We continue to deploy technology and apply lean manufacturing to drive savings and enhance scalability. In 2025, our value streams approach $200 million in annualized run rate savings. Cross-functional teams continue to be focused on reducing waste and improving quality, which strengthens our execution and provides funding for continued investment in our growth strategies. We are excited about our momentum as we enter 2026. Or as our partners at Kennesaw State like to say, there's a lot of action at the fraction. As we announced last week, we have received all material regulatory and shareholder approvals to complete our merger with Comerica. 99.7% of Fifth Third votes and 97% of Comerica votes cast were in favor of the merger, an overwhelmingly positive result and a recognition of the value this combination will create. We expect to close on February 1. 2026 will be a busy year as we focus on successful conversion and delivering $850 million in expense synergies. Looking ahead, I'm even more confident in our ability to realize the benefits of the combination, which will support continued peer-leading returns and efficiency in 2027 and beyond. I'm also excited to get to work delivering more than $5 billion in revenue synergies over the next five years, across four areas of focus: First, scaling Comerica's middle market platform and vertical expertise. Second, deepening Comerica's commercial and wealth management client relationships to reach Fifth Third levels of client wallet share. Third, building out Comerica's retail banking business with the Fifth Third playbook and 150 Texas De Novo branches. And fourth, creating a differentiated innovation banking business by combining Comerica's second life sciences vertical and Fifth Third's Newline platform. Before I turn it over to Bryan, I want to say thank you to our team both at Fifth Third and our new Comerica colleagues for the way you support our customers and our communities and for your commitment to getting 1% better every day. I'm grateful to everyone who will work so hard in the coming months to ensure 2026 is a success for the bank and its clients. I also want to say thank you to those individuals from both companies whose hard work brought us to this point who will not be continuing with us on this journey. All of you combined are what has made our company the special place that it is. With that, I'll turn it over to Bryan, who will provide more detail on the quarter and on our outlook for 2026.

Thanks, Tim, and good morning. Our results show what disciplined execution delivers in an uncertain environment. Record full-year NII of $6 billion and $9 billion in total revenue, improving asset quality, and top quartile returns and efficiency. With a resilient balance sheet and an operating model built to deliver repeatable organic growth and scale benefits, we are positioned to generate growth and shareholder value as we integrate Comerica. Diving into our fourth quarter performance, we achieved an adjusted return on assets of 1.41%, our highest level since 2022, and a return on average tangible common equity, excluding AOCI of 16.2%. Disciplined expense management resulted in an adjusted efficiency ratio of 54.3%, a 50 basis point improvement from 2024. Adjusted PPNR for the quarter was over $1 billion, a 6% increase from the prior year. Our strong profitability enabled us to return $1.6 billion of capital to our shareholders in 2025 while also growing our tangible book value per share, including the impact of AOCI, 21% compared to the previous year. Looking at the balance sheet and NII, net interest income was $1.5 billion for the quarter, a 6% increase over last year. As net interest margin expanded 16 basis points finishing the year at 3.13%. Loan growth, proactive liability management, and repricing benefits on fixed-rate assets contributed to the strong NII performance throughout the year. Average loans grew 5% year over year. In commercial, average loans grew 4%, and excluding CRE categories, increased 5% year over year. Improving the granularity of our loan portfolio remains a priority. In middle market, we continue to add relationship managers in high-growth markets, which contributed to the 7% year-over-year increase in average middle market loans. In small business, we have extended the technology of Provide to all of small business lending. This expansion, combined with its core practice finance activities, drove a $1 billion increase in balances over last year. While on a sequential basis, commercial average balances were flat due to a decrease in utilization, commercial production accelerated during the fourth quarter, rising 20% sequentially to a multiyear high. Indiana and The Carolinas led regional growth, and in our verticals, production was strongest in technology, healthcare, and metals material and construction. The utilization decrease coincided with the government shutdown during October and November but stabilized in December at 35%, down from 36.7% in the third quarter. Corporate banking and CRE were the primary drivers of this decrease in utilization. Industry loan growth continues to be lending to non-depository financial institutions, which represented approximately 60% of total industry loan growth and virtually all non-real estate and non-consumer-related loan growth in 2025. We continue to prioritize granular relationship-based middle market and small business lending. Shifting to consumer, loans grew by 6% on an average basis compared to last year. Auto and home equity lending accelerated in 2025, growing 11% and 16%, respectively. In the fourth quarter, we achieved the number two origination market share in HELOC within our footprint, up from number four in the prior year, driven by improved branch performance and digital engagement. We expect home equity production to remain robust due to the strength of home prices, lower front-end interest rates, and low housing turnover. Turning to deposits, average core deposits increased 1% over last year, driven by 4% DDA growth, partially offset by slower growth in interest-bearing products. As we've managed funding costs in 2025, interest-bearing deposit costs were 2.28% in the fourth quarter, down 40 basis points year over year, representing a 50% beta during 2025. As I mentioned on last quarter's call, we are focused on strong deposit growth as we prepare for the close of the Comerica merger. This resulted in a 3% sequential increase in average transaction deposits due to our growth bias and normal seasonality. As Tim highlighted, consumer household growth remained robust at 2.5% and continues to translate into strong consumer DDA performance, which increased 5% in 2025. Our proactive balance sheet management has enabled us to maintain a strong liquidity position and reduce overall funding costs as we prepare to integrate Comerica's balance sheet, which has a lower concentration of retail deposits. Growth in granular insured deposits provided flexibility to reduce wholesale funding, which declined 14% sequentially. This favorable mix shift lowered the cost of interest-bearing liabilities by 17 basis points. Our Southeast De Novo investments continue to deliver high-quality, low-cost retail deposits. Southeast consumer deposits increased by 4% sequentially, accounting for over 50% of the total consumer deposit growth for the quarter. Overall, our total cost of deposits in the Southeast is below 2% and generates a spread of more than 175 basis points relative to the Fed funds rate. We opened 50 Southeast branches in 2025, including 27 branches in the fourth quarter. Additionally, we have now secured all locations for our Southeast De Novo program. We also have 43 locations in Texas with letters of intent either complete or in process as we begin to transition our De Novo program to these new high-growth markets. We ended the quarter with full category one LCR compliance, at 123%, and our loan to core deposit ratio was 72%, down 3% from the prior quarter. Now on to fees. Adjusted noninterest income, excluding security gains, and the other items listed on Page four of our release, grew 3% sequentially and year over year. Wealth fees increased by 13% over last year, driven by $11 billion in AUM growth and strong retail brokerage activity. Capital markets capital market fees increased 5% sequentially, reflecting seasonal strength in M&A advisory. Commercial payment fees increased 8% year over year and 6% sequentially. This fee performance was driven by core treasury management activity and new line-related fees. New line-related deposits reached $4.3 billion, up $1.4 billion from a year ago. The securities losses of $5 million were from the mark-to-market impact of our nonqualified deferred compensation plan, which is offset in compensation expense. Moving to expenses, Page five of our release details certain items that had a larger impact on our noninterest expenses this quarter, including a $50 million contribution to the Fifth Third Foundation, $13 million in merger-related expenses, and a $25 million benefit from the adjustment to the FDIC special assessment during the fourth quarter. The larger contribution to the foundation this year relates to increased community investments we will make as part of the Comerica merger and tax planning in response to tax law changes impacting 2026. Adjusting for these items, noninterest expense increased 4% compared to the year-ago quarter and 2% sequentially, reflecting ongoing strategic investments in technology, branches, marketing, and sales personnel. Savings from our value stream programs, through automation and process redesign, continue to help fund these investments. As Tim mentioned, our value streams reached $200 million in annualized run rate savings. Our normal course daily focus on these operating disciplines has resulted in a 54.3% adjusted efficiency ratio in the fourth quarter and a 55.9% efficiency ratio for the full year while still investing for growth and maintaining strong regulatory standing. Shifting to credit, the net charge-off ratio was 40 basis points for the quarter, in line with our expectations and an improvement of six basis points from the fourth quarter of last year. Portfolio NPAs were down $4 million sequentially, and the NPA ratio remained at 65 basis points. Since the first quarter of last year, portfolio NPAs are down 20% and commercial NPLs are down 30%, consistent with our expectations from early 2025. Commercial charge-offs were 27 basis points, down five basis points from the prior year. Overall, we are seeing stable trends across industries and geography in our commercial portfolio. Consumer charge-offs were 59 basis points, down nine basis points from the prior year with improvements across nearly all asset classes. The overall consumer portfolio remains healthy, with nonaccrual and over 90 delinquency rates stable to improving across all loan ACL was the percentage of portfolio loans and leases, remained at 1.96% and the ACL as a percentage of nonperforming assets was also stable at 302%. Provision expense included a $6 million reduction in our allowance for credit losses primarily reflecting the small decrease in end-of-period loan balances. Our baseline and downside cases assume unemployment reaching 4.78% in 2026. We made no changes to our scenario weightings during the quarter. Moving to capital, CET1 ended at 10.8%, up 20 basis points, reflecting the strength of our capital generation and our decision to pause share repurchases until the Comerica transaction closes. The pro forma CET1 ratio including the AOCI impact of the securities portfolio, stands at 9.1%. Since the first quarter, our unrealized loss on the AFS portfolio has decreased by 20% despite only a four basis point decrease in the ten-year treasury rate. This outcome is the result of our strategy to invest in bullet or locked-out structures which represent 60% of the fixed-rate securities in our AFS portfolios. We expect continued improvement in the unrealized losses given the high degree of certainty to our principal cash flow expectations as a result of our investment portfolio strategy. While 2025 was a more eventful year from a macroeconomic and policy uncertainty perspective than we expected, we are pleased with our disciplined operating performance and our ability to deliver on our financial commitments. Our full-year net interest income of $6 billion is 2.5% above our prior record. And our full-year operating leverage of 230 basis points is above the range we projected entering the year. We open 2026 with strong business momentum and a clear focus on the critical actions necessary to deliver a successful integration of Comerica. Now moving to our current outlook, as we announced last week, we expect to close the Comerica transaction on February 1. With systems conversion anticipated around the end of the third quarter. Additionally, our outlook uses the forward curve at the January, which assumed 25 basis point rate cuts in March and July. We expect full-year NII to range between $8.6 and $8.8 billion. As part of the integration, we expect to take actions to better position the combined balance sheet within our rate risk appetite including investment portfolio and hedge repositioning. We do not expect material one-time charges related to these actions. Based on the current rate outlook, and our planned balance sheet actions, we expect NIM to increase approximately 15 basis points upon the close of the transaction. That increase is driven by four to five basis points of pickup from discount accretion on marked investment securities we will retain, another four to five basis points from repositioning the remaining securities with new positions, and three to four basis points from cash flow hedge repositioning. The remaining two to three basis points of improvement is driven by a combination of funding synergies and balance sheet mix. We also aim to accelerate retail deposit growth, with targeted analytical marketing in the legacy Comerica branches to improve the combined company's funding profile. We expect full-year average total loans to be in the mid $170 billion range. This increase is primarily driven by broad-based improvement in C&I. Our outlook assumes that commercial revolver utilization remains relatively stable throughout 2026. Full-year adjusted non-interest income is expected to be between $4 and $4.4 billion, reflecting continued revenue growth in commercial payments, capital markets, and wealth and asset management. We expect full-year noninterest expense to be between $7 and $7.3 billion, excluding the impact of anticipated CDI amortization and the $1.3 billion in estimated acquisition-related charges. This guidance assumes the realization of 37.5% of the $850 million of annualized run rate expense in 2026. In total, our guide implies full-year adjusted revenue and adjusted PPNR excluding CDI amortization, to be up 40 to 45% over 2025. And another 100 to 200 basis points of positive operating leverage. We expect to exit 2026 at or near the profitability and efficiency levels consistent with the 2027 targets we announced with the acquisition. Moving to credit, we expect 2026 net charge-offs to range between thirty and forty basis points reflecting ongoing normalization of credit trends and the impact of the incorporation of Comerica's loan portfolio. Finally, turning to capital, we currently expect CET1 capital post-close of the Comerica acquisition to remain near our 10.5% target. Subject to final purchase accounting marks, and the timing of one-time merger-related charges. We continue to believe 10.5% is an appropriate target for our CET1 ratio for the combined company. Our capital return priorities remain paying a strong, stable dividend, organic growth, and then share repurchases. We expect to resume regular quarterly share repurchases in 2026, with the amount and timing dependent on balance sheet growth, final purchase accounting marks, and the timing of merger-related charges. Given the magnitude of the impact of the merger on the first quarter, we are not providing first-quarter guidance at this time. We will provide our customary outlook on our first-quarter results in early March. In summary, we are excited about the opportunities to drive growth and profitability in 2026. As we continue our strategic investments and successfully integrate Comerica. These actions position us to deliver best-in-class performance in 2027 and beyond, creating lasting value for our shareholders and our clients. With that, let me turn it over to Matt to open up the call for Q&A.

Thanks, Bryan. Before we start Q&A, given the time we have this morning, I 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. Your first question today comes from the line of Ebrahim Poonawala from Bank of America. Your line is open.

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

Yeah. Great question, Ebrahim, and thanks for it. I think you have to think about these things in terms of time frames. Right? Because what I would say the most immediate near-term opportunity is gonna come from some of the things we can do tactically in both leaning into Comerica's existing customer base as well as what our deposit marketing-driven deposit marketing and product strategies will allow us to do in Comerica's branch network, followed by this sort of medium-term opportunity here, which is the build-out of the Texas markets from a retail distribution perspective. And then what I'll say is a medium to long-term opportunity, but a very exciting one, which is the ramp-up of the innovation banking business. So I had the opportunity in the fourth quarter to do five different in-person town halls with Kurt Farmer. And at those town halls, we saw probably a quarter of Comerica's total employees. And then Kurt and Peter Sefcik and the other business leaders were kind enough to make certain that I had the opportunity to meet several of the top client coverage people in each of the markets. And I will tell you, in every conversation, there was an example of a place where either funding constraints or competition for investment dollars on the technology front or otherwise had inhibited the ability of Comerica to get the sort of natural growth they're capable of generating. You actually see that when you look back at the period prior to March Madness. They were generating pretty solid top-line growth and C&I balance growth. When they were not in a period where they were making some of these investments to get to be a category four bank. Or in a position where they were making hard trade-offs as it related to balance sheet size and margin and otherwise? So day one, when we get through legal day one, on February 1, we are literally doing a bottoms-up review name by name to say where are their places that the broader balance sheet capacity or the ABL and equipment leasing and product capabilities will allow Comerica to lean more. Where are their places where their investment committee policies at Comerica's clients that were inhibiting the amount of corporate cash could come on the balance sheet. Where there are places where there were technology investments that Fifth Third have been able to make that support commercial payments that we'll be able to get near-term growth. And as we go through that first annual renewal cycle, that sort of natural renewal cycle that happens in C&I, I expect we'll see that a lot. Second thing, the branch distribution's an important part of the strategy. It's the third, obviously, but it's one of three legs of the stool. The other two being the disruptive product offerings that we have and the digital marketing. Digital and direct marketing, excuse me, because mail continues to play a prominent role in what we do. But we're gonna drop a million pieces of mail within the first two weeks of legal day one, to support consumer deposit marketing across Comerica's Western markets. And it'll be the first million of what'll probably be 13 or 14 million pieces of mail that will go out over the course of the year. That'll be the first consumer deposit marketing campaign that the Comerica branches have seen in more than a decade. And we've demonstrated the ability that we have to use rate as a mechanism to drive early connectivity with new households. And then to be able to manage margin over time across the Southeast. And that is gonna happen quickly. I think the third thing I just would highlight here is the point Bryan made in his script, which is we have over 40 of the 150 locations we intend to build already secured. Because the development partners have been such a big part of the Southeast build-out, people who are doing the strip center developments that are anchored by grocers like Publix, as an example, are also doing the new strip centers that are being anchored by high-end grocers like HEB and others across Texas. And because of the success we've had with them in the Southeast, they came to us after the announcement and gave us a lot of early opportunities. So that the brick and mortar will come out of the ground faster in Texas than it did when we started the Southeast expansion. And it's all the same models, the same selection criteria, the same discipline, around what we're willing to pay relative to what we think we can generate over the first five to six years that the branches are open that are driving all of those decisions. So that's gonna be the early stuff. The blue sky opportunity here is innovation banking because that will continue whether it's tech and technology, AI, software, the things that are coming out of the valley, or life sciences and the transformation that's gonna go on and help care over the course of the next decade. Those factors really are the driver of the American economy. We think we have a unique value proposition there because of the payments capabilities and the broader balance sheet's gonna allow us to grow that business without creating a concentration risk issue. So I wouldn't be surprised to see that business become materially larger than it is today. We just have a little bit of work that we've gotta do to ensure that we have the right guardrails around it, the right product offerings, and the right level of coverage.

Thank you. That was an in-depth answer. I'll step off. Thank you.

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

Hi, Ken. Hi, Bryan. Hey.

Morning.

Tim, following up on your Comerica comments, can you give us an update on the integration? How is it progressing? And when will the customer conversion occur? Now that the legal closing has occurred, I think it was two months ahead of schedule, just what the timeline is.

Yeah. Great question. Thanks, Gerard. We are way ahead of where I think we had hoped to be at this stage. And frankly, way ahead of where we were at the same time, you know, with MB. The big driver here, obviously, is that we received all the critical regulatory approvals less than seventy days after filing our application. So that is what is making it possible for us to get to legal day one at the February. There really haven't been any surprises that have come out, which I think is you would hope that given the thoroughness of the diligence that was done. But we feel really good on that. And then the other thing that I don't know that I appreciated would have the impact that it has had is the First Republic process was a sobering one for us because it came together so quickly. And when First Republic didn't work out for Fifth Third, we decided we were gonna make sure that in the event that another opportunity materialized, that we'd be ready. So we did some work on what we called two x-ing the bank. Which focused on both systems capacity but also manual processes. Right? With the real question being, would anything break if the bank doubled in size? And then also just started the work to close the gap assessment that we had done on category three readiness. And, obviously, Comerica doesn't double us, but it's a big step larger. And the things that we needed to make sure that we got done in order to support that and we're already done. So that's a long way of saying we're gonna get closed earlier. In a good position from the systems and processes perspective. I think we're gonna move the conversion up to Labor Day. From, you know, what would have otherwise been a mid-October time frame. That's gonna be super important because we just wanna be able to get the benefit of all Fifth Third technology and both revenue and expense synergies. But it's also, I think, gonna be really useful for you all because the same way that the fourth quarter at '25 was like the last clean look that you were gonna get at what the old Fifth Third was capable of delivering. The '26 should give you a very clear look at what the new Fifth Third is capable of delivering and, in fact, as Bryan referenced, I think we're confident we can hit the return targets that we laid out in the deal model for full year '27. In the fourth quarter at 26. In terms of the return on tangible common equity of 19% and efficiency ratio that was 53-ish percent or maybe a little better given seasonality.

Very helpful. Thank you. Yeah.

And your artist is giving you any more perspective. I think the only thing that Jamie's marked excited about than my indirect Red Hawk basketball being undefeated in the top 25 is the progress that we've been making on the integration. So things are going really well with me.

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

Yeah. That's right. There are sort of the puts and the takes in this one. Right? The good news is production's been great. And middle market utilization dipped during the government shutdown, but rebounded nicely through the end of the quarter. I consider the fact that people are actively seeking to take us out of CRE exposure to be a market strength. It's just reflective of the quality of what we've originated there. The big decline in utilization, as Bryan mentioned, came from the corporate banking portfolio. What we're hearing anecdotally which is supported by, you know, the sort of early returns this year, is that a lot of that was cleaning up balance sheets in an effort to get into a position where you could get our corporate banking clients could get borrowing costs down in the anticipation of either making big capital investments this year because of the tax reform or even more prominently to be able to support M&A activity. So, you know, the and it's probably worth mentioning in the first couple of weeks here, we've seen C&I loan balances come up. Call it 8 or $900 million, already since January 1, which really is being driven by utilization and some of the fourth quarter production, you know, funding that up. The wild card here at the end of the day is gonna be what I for lack of a better term, we're calling chronic postponement syndrome internally. Which is the tendency for our clients to postpone really large capital investments. In the face of uncertainty. So they all feel, I think, on balance. I don't they feel the same or better about twenty-six than they did about twenty-five. And I think they're all excited about tax reform. Rates have been helpful, but they really have been sort of a salve to the, you know, accumulated increase in costs. You know, more than anything else in terms of the business. But they wanna believe that they're making multiyear investments into an environment where the rules of the road are gonna be stable. And so the question really is gonna be, do they feel like they have that stability, or do they feel like there's a risk that the window closes to make those investments? Or do we just continue to deal with this chronic postponement syndrome as a, you know, a drag on broader utilization and C&I activity? That's sort of where we are. You didn't ask it, but normally you do. I think the other drag for us was the NDFI balances were actually down $600 to $700 million in the fourth quarter, where they were the principal driver of growth for C&I across the banking sector. So we started with low exposure actually that declined as opposed to getting growth from that category.

I appreciate all those insights. Thank you, Tim.

Yep.

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

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

Thanks, Scott. You know, we're always targeting to be relatively rate neutral. Especially in a normal environment. We're just not in a position where we feel like we wanna make big bets. Certainly, the balance sheet becomes the natural balance sheet becomes a lot more asset sensitive. Given the merger. You think about our C&I loans, we're gonna go from about two-thirds of our C&I portfolio floating rate to close to 80% of our commercial portfolio floating rate. So we are gonna take some action through some swaps and some hedges. We'll probably still be a little bit asset sensitive when all is said and done. But we'll be in a good manageable position that will be in line with our rate outlook. The work clearly won't be done at that point. We've talked a lot about the balance sheet mix that we've been striving for over the last couple of years. We talk about a 60/40 commercial to consumer mix from a loan perspective and 60/40 consumer to commercial, mix perspective on the deposit front. Both of those areas are going to continue to take a lot of investment to get us back to those levels. And that will be a multiyear journey for us. And it's part of the reason you hear us talking, in particular, on the deposit front around the investments in marketing and in the build-out of the Texas franchise. Because those will be big drivers for us. Today, the Southeast is contributing to almost half of our consumer deposit growth, and we're confident that Texas is gonna be able to deliver a lot of long-term consumer deposit growth for the franchise. And so we feel good about the positioning. The balance sheet is going to continue to grow. And put us in a stable position that gives us a lot of optionality to manage the rate environment.

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

Yep. Okay. Perfect. Tim and Bryan, thank you both very much.

Thank you.

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

Good morning.

Morning.

Just on the deal, just wanna see, you know, if there's have you made any changes to your initial assumptions tied to the Comerica transaction outside of timing? But any changes to the assumptions that you provided at the announcement, the cost save expectation, the restructuring charges, or the related marks or P&L impacts?

No, made no material changes to any of the assumptions inherent in the transaction. I'd say the only major items were the timing of close, pulling forward the conversion date. We do think that ultimately, we're going to likely be able to deliver a little bit better than the 37.5% of the 850 in 2026 given some of those timing changes. But we also do intend to invest a little bit more in growth as well. So we might be approaching $400 million of in-year expense saves in 'twenty-six if all goes well, but we're hoping to reinvest maybe $40 million of that. The original expectation was gonna be around $320 million of expense saves in 2026. So we're obviously feeling very good about what we're seeing from a progress perspective on the integration. And beyond that, the loan marks and the balance sheet marks are all very similar to what we would have expected.

Got it. Alright. Thank you for that, Bryan. And then separately, on the loan growth side, I appreciate the color you gave on the decline in the line utilization in the quarter. That decline seems more pronounced than more than many of your peers. And I hear you on the shutdown and some of the balance sheet cleanup but anything company-specific that you'd say that exacerbated that? And then just separately, also on the loan growth front, you know, if you could maybe give us a little more color around the greatest drivers of growth that you see in the commercial portfolio after the combination is completed with the commercial?

Yeah. Good question. I mean, John, it's gotta be a little bit idiosyncratic and a little bit compositional. Right? Like, at this time last year, we had a big uptick in line utilization in the fourth quarter. When other people didn't have it, and we tried to talk down enthusiasm on what that meant for '25 and we gave back a little bit of the utilization in the first quarter and other people kinda got it. I think there are two visible things. One, NDFI as a percentage of total commercial loans is way lower here than it is for most of our peers. And the NDFI loans tend to fund and stay funded at a level that's higher than what, you know, standard working capital revolving lines of credit would be secondarily, leverage lending here has continued to decline over time, and that's funded term debt principally. You know, for most of the industry and a smaller share of the overall balance sheet. And then I think lastly, when we've talked about this, but we are clearly believers in the of technology to transform the business. It's transformed the way Fifth Third operated. But we're also very aware of the fact that there's literally never been a tech infrastructure build-out where there was an overbuilding, whether it was cell towers or fiber or e-commerce distribution centers during COVID. And so we've been a little bit more cautious about just how broadly we were willing to play in data center and data center-linked activity. And there again, that's funded up pretty quickly, you know, in places where the loans are being made. So I think there's a possibility there's some of that. But one way or the other, utilization is not a thing we control. What we can control is originating high-quality credit and making sure we have the right team on the field. So that's the thing that we've been focused on.

Okay. Great. Thanks. And as we think about the where do we see the growth coming from with the Comerica acquisition? It really is an extension of the middle market play that has been driving success for us for the last couple of years. We've been growing middle market loans consistently, and even this year, middle market 7% as we highlighted in our prepared remarks. And we just see so much opportunity there as well as leaning into the specialty verticals where Comerica has just had so much success historically. There's just some great synergies there between their core business and our core business on the things that we're good at. That's gonna create a lot of opportunity for us as we think about what loan growth could look like going forward from here.

Got it. Alright. Thanks, Bryan, and thanks for the color, Tim, as well.

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

Hey, Mike. Hi.

Hey.

So it sounds like you're all pulled up on your merger prospect. Now it's just a matter of executing, I guess. But just to clarify, you said you look to get your 2027 targets in the '26 now? Is that right?

Yes.

Okay. Okay. So you have earlier closing, earlier targeted conversion, earlier metrics, so is there any change in your targeted EPS accretion this year? I think you just said kind of maybe just a little bit accretive, and then you get the big accretion in 2027. Any changes to those numbers would seem like that would be implied to go higher?

It would be it would basically be achieving the accretion earlier. So we are expecting we talked about 9% EPS accretion in 2027. We would expect to be able to deliver 9% EPS accretion from the deal in 2026.

Okay. And then I'm just you know, it's maybe your middle name is, you know, Tim Digital Spence. You know, Tim might think of you as, like, the digital banker. Then I hear you talk about 13 million pieces of mail. I mean, that sounds very last century of you. You're gonna you have billboards too, and, like, it sounds very old school. So does that still work? It's just kind of intriguing.

There may be a billboard or two out there, Mike. The benefit of direct mail is that you can literally pick down to the individual household who receives the offer and who doesn't. Right? Whereas in a digital environment, you have a lot more data on that folks, but you are still at the end of the day optimizing around the segments of the population and to some extent some path dependency around traffic. So we actually have a JV that we have been running with one of the leading digital marketing firms to help us think through the way that we deliver a best-in-class digital acquisition funnel. It's a significant share of new household origination. Like, if you look at marketing link, household origination, it's probably fifty-fifty digital and direct mail today. But when it comes to rate offers, you want to basically get in front of the people that you want to communicate with and not necessarily just the rate shoppers. Which is what you tend to find at the affiliate marketing websites when you're leading purely with rate and not a broad value proposition. And we can't frankly go digital until we get through conversion with Comerica because they don't have the ability to open digital accounts online. So there's nothing we can do with the Comerica brand until we get there. But mail still works. It works in credit cards. It works in checking. It's the reason that you see the JPMorgan's of the world continuing to use it in addition to folks like Fifth Third. And there may be a billboard or two somewhere, but I promise you if we have one, it'll be a digital billboard. How about that?

No. I mean, whatever works. I mean, I guess you're saying it's digital, it's branches. So for those last 110 branches that you need to secure, seems like, you know, you kinda telegraphed that and made the I don't know. How long will that take to get your other 110 or the 150 De Novo branches?

Oh, it's the opposite of the slowly but suddenly. I think in this case, it's suddenly and then slowly because what we the benefit we have here is we have been building for so long in the Southeast with strip center developers who are also doing a lot of building in Texas that we were gonna see a lot of the low-hanging fruit fast because we have these development partners who saw the announcement and picked up the phone and said, hey. I'm doing four of these in Dallas and two in Austin. And one in Houston and otherwise. And do you guys want the outlot? So they know our specifications. They know what we expect from the zoning perspective. They know how well we perform as a strip center tenant. And what we expect in our contracts for ground leases or purchases. And therefore, we were always gonna get more locations earlier. We're not gonna compromise the selectivity. And as we fill in hotspots on the map, by definition, it just takes a little bit longer to get the last handful of these locations. But it's a robust market. It's just stunning to think that an MSA the size of Dallas or Houston could be growing at the rate that they are. And all that new development creates lots of opportunities, like, to build branches where you would wanna have them today versus where they were when they were built thirty years ago.

I look forward to the Investor Day in Dallas in a year or two.

Yeah.

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

Hey, Erica.

Hey. Just one quick follow-up question for me, and I really want to know what Jamie's middle name is if yours is digital Tim.

On the depository hawk. What that's worth. Red Hawk. It's Red Hawk in the middle.

So, Bryan, I'll make yours liquidity. Then. And speaking of you know, we heard a lot about the longer-term and medium-term deposit plans. But just wondering, you know, what we should how we should think about average deposits that's underpinning your net interest income outlook for the year. And how we should think about, you know, given Tim's comments about targeted rate offers, how we should think about, you know, deposit costs underpinning the 2026 outlook.

Yeah. I would tell you that, 2026 is really gonna be a remixing year for the combined company. I think you're gonna see something that looks very similar to what we've been able to deliver on the Fifth Third franchise, which is targeted growth from a DDA and an iBT perspective in particular consumer iBT. And what we'll be looking to do is some balance sheet optimization, funding cost optimization, from the Comerica balance sheet as it comes on. You know, there's a number of things that they've had to do. Since March 2023 when they had more significant liquidity stress that we would be looking to clean up as it comes on board. For us, on a stand-alone basis, what it's going to mean is a continuation of what we saw in the fourth quarter, which is our betas look a little bit lower for the kind of Fifth Third legacy markets than they would have been in the past as we're more balance-oriented. But what it's going to do is bring down overall funding costs for the combined franchise as we put the things together. So we do think as I touched on in my NIM discussion, that there's a couple of basis points of NIM pickup that's just gonna be attributable to the funding synergies as well as some overall balance sheet mix changes.

Got it. Thank you.

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

Oh, hey, guys. I know this is gonna get cleaned up over the course of time. But just on the overall guidance, you know, you gave the PAA in the revenue side. Can you can you just if you have it, can you give us what the CDI add from the deal is on the Comerica side so we can kinda square the total overall? Thanks.

Yeah. Sure, Ken. It should be about $20 million a month in 2026 when the deal closes. And then it'll be a sum of the year digit approach, so you should expect to see a $20 to $30 million reduction as you roll on the year two of the amortization.

Perfect. Thank you. And just a step back question also, I know it's all kind of in the total guide, but how would if you step back before you look at pro forma, how would you think just, like, stand-alone Fifth Third momentum is as you just think about, last year's results on the stand-alone side versus kind of the momentum on the stand-alone Fifth Third side. And whatever way you can kind of put it into context, revenue momentum, loan deposit momentum, etcetera.

Yeah. Absolutely. We continue to feel good about what we were seeing from the core Fifth Third franchise. You know, we would have we would have been talking about mid-single-digit loan growth if you would have looked fourth quarter twenty-six to fourth quarter twenty-five. Comparison in terms of what our core business is driving. And that's really a continuation of continued strength in the middle market that would drive mid-single-digit C&I growth as well as continued strength out of the home equity and the auto businesses being big drivers from the loan front. We would have we would have still been talking revenue growth in that mid-single-digit mid-upper single-digit growth rate perspective. And another 100 to 200 basis points of positive operating leverage which would have taken our efficiency ratio down into the low 55s on a full-year basis. So overall, feel very good about what the core trend is for our company, which was already one of the more one of the most profitable, amongst the peers, and as Tim highlighted amongst, you know, basically banks of any size this quarter. So we felt really strongly about that momentum. And then on top of that now, the 200 basis points of pickup that we were expecting from an ROTCE perspective and efficiency ratio perspective, we're going to deliver those amounts even now given the timing, being able to pull forward the close and the conversion. Associated with the Comerica transaction. So a lot of things that are stacking up that are really gonna drive a nice financial outcome for 2026 and beyond.

Thanks, Bryan.

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

Hey, good morning. I wanted to ask about the 19% plus ROTCE target. I mean, it looks like you're already at $19.06 as of April. Are there any areas that you think you're overearning here? I mean, it seems that the core business is delivering nicely. The Comerica acquisition should be accretive in twenty-seven. You're gonna resume buybacks in the 19% plus number in 2027, but just wanted to see if there's any offset that we should be thinking about.

Yeah. The two things that I would point out is just, one, the normal seasonality of our profitability. So one, the first quarter tends to be a seasonally low quarter for us from a profitability perspective. Because of seasonal compensation items. And the fourth quarter tends to be a seasonally high quarter for us from a profitability perspective. So that's just one thing to keep in mind as you're looking at those numbers. And the second component was we did have a small release. This quarter from an ACL perspective. In a normal environment where we would expect to see continued loan growth, we would expect to see a little bit of a build every quarter. So those two items have an impact on that comparison that you're looking at.

Alright. Perfect. And then just on Direct Express, can you tell us what's in the numbers for Direct Express in 2026? And does that hit full run rate by the fourth quarter? Or is there more growth you expect as you get out into 2027?

Given the merger, the full run rate is in our numbers and is in the guide then for the fourth quarter, just given that we're assuming that we're maintaining the business as we do the merger. The only thing that's missing right now is one month of activity for the month of January. So Comerica stand-alone activity in the month of January is the only thing that would not be in our 2026 numbers. And that continues to operate in that $3.6 to $3.7 billion deposit range as well as a 100-ish million a year in expenses and fees. That's continuation of that is what's resident in the guide that we've provided other than the month of January activity.

Yeah. The upside there as we get into '27 and beyond, Manan, is I like, in my head, I associate the direct program with Social Security payments because it's the super majority of the funds that are loaded onto those cards. But the Direct Express program is the Bureau of Fiscal Services mechanism to help all government agencies get off paper checks. In places where customers do not have a bank account that they are registering for ACH deposits. So the president signed an executive order directing agencies across the government to eliminate paper check distributions. For the sake of reducing fraud. And we do believe that as we get on to our tech platform, as we broaden the functionality that's available to direct participants. We're gonna be able to play a little bit of offense here and actually work with the Bureau of Fiscal Services to go agency to agency. Help them understand how they can make use of Direct Express as a mechanism to fulfill the executive order. And there, is where we're gonna find more meaningful upside out of that program in terms of growing it.

Got it. Is there a time frame in which you can do that, or is that?

Yeah. We gotta get the conversion done and the feature builds. That job one is to take care of existing program participants. So that'll be the majority of that work this year. Because we will be moving on to a different tech platform. And that is being developed with Fifth Third and Fiserv. And once we're there and we've got the existing program converted, we'll focus on how we expand the program.

Great. Thank you.

And your final question today comes from the line of Christopher Edward McGratty from KBW. Your line is open.

Great. Thank you. Hey, Tim. Going back to capital, I noticed in your prepared remarks, you talked dividend, organic growth, buybacks, didn't hear anything about inorganic growth. I'm wondering if the timing the sooner closed conversion changes at all about your timing about when you would consider another bank acquisition, although I know you've been clear about getting this one first.

Yes. That is the last thing on my mind right now for what that's worth. The upside opportunity here is really and there's a lot of work in front of us. So the focus doesn't change the timing in terms of how we would think about it. The focus really is on making sure that we get the Comerica customers converted and taken care of, that we make the company from an employee perspective feel like one company. And we get the expanded capabilities that both Fifth Third, Legacy Fifth Third customers and Comerica customers are gonna benefit from. To market. We got plenty to work on as it is.

Okay. Very clear. Thank you. And then the follow-up would be just on investments. You talked about, I think, $40 million going back into the business with the sooner cost takeout. Can you just help us with tech spend pro forma, you know, rate of growth, what you're spending, you know, how you measure it. I think some of your peers have been walking that number up, but just interested in your thoughts on tech spend.

Yeah. I mean, we've grown for several years now tech spend in the sort of high single-digit to low double-digit range. Right? Call it seven to 10%. On an annualized basis. I anticipate we're gonna continue to do it. What we've been artful about here is we've been able to fund the franchise investments about half of them, right, through other cost reductions. Like, the number itself, you'll see in our disclosures on that is a good example of this. Like, if you look year over year, from December 25 back to '24, that headcount was flat at Fifth Third, but underneath the surface, line of business and engineering resources and tech actually grew 2%. And then the staff roles came down and operations roles came down 3%. As the investments we've made in automation and the value streams and otherwise actually play their way through. So we're we will continue to make those investments. I think it was one of our fellow category three banks who made the comment in their call that you're either on offense or defense. And we are on offense here and tend to continue to be on offense for the foreseeable future.

Alright. Perfect. Thank you.

And we have reached the end of our question and answer session. I will now turn the call back over to Matt Curoe for closing remarks.

Yeah. Just one last thing before I hand it over to Matt to the thanks, Tim. And thank you, Rob. And thanks, everyone, for your interest in Fifth Third. Please contact the investor relations department if you have any follow-up questions. Rob, you may now disconnect the call.