Fifth Third Bancorp (NASDAQ:FITB) Q3 2025 Earnings Call Transcript

Fifth Third Bancorp (NASDAQ:FITB) Q3 2025 Earnings Call Transcript October 17, 2025

Fifth Third Bancorp beats earnings expectations. Reported EPS is $0.93, expectations were $0.87.

Operator: 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 speakers’ remarks, there will be a question and answer session. 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.

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

With that, let me turn it over to Tim. Good morning, everyone, and thank you for joining us today. At Fifth Third, we believe that great banks distinguish themselves not by how they perform in benign environments, but rather by how they navigate uncertain ones.

Timothy N. Spence: Our operating priorities are stability, profitability, and growth in that order. We seek to achieve them by obsessing over the detail on our day-to-day operations while simultaneously investing for the long term. As you are aware, last week we announced the merger of Fifth Third and Comerica. Our M&A framework has been consistent.

Matt Curoe: First, that M&A is not a strategy unto itself.

Timothy N. Spence: But rather a means to achieve stated strategic objectives. Second, that the cash earn-back, IRR, and NPV of synergies must be superior to organic alternatives to justify higher execution risk, and third, that the outcome must be a company that is better

Matt Curoe: and not just bigger. We believe this is one of those rare combinations that satisfies all three criteria. The Third standalone momentum in the revenue and expense synergies from Comerica should produce a well-diversified

Timothy N. Spence: even more profitable company with even better long-term growth.

Matt Curoe: 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 marked an otherwise excellent quarter of operating results across NII fees, expenses, and strategic growth. Average loans increased 6% year over year

Timothy N. Spence: 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.

Matt Curoe: Adjusted PPNR increased 11% producing 330 basis points of positive operating leverage.

Timothy N. Spence: Even with the impact of the large fraud, our profitability remains strong. On an adjusted basis, our ROA was 1.25%, our ROTCE was 17.7%, and our efficiency ratio was 54.1%.

Matt Curoe: In credit, commercial nonperforming assets declined 14% and criticized assets decreased

Timothy N. Spence: 4%. To the lowest level in over three years.

Matt Curoe: 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.

Timothy N. Spence: And raised our common dividend by 8%.

Matt Curoe: Turning to our growth strategy, our investments in the Southeast, and expanding our middle market sales force and in building high growth recurring fee business

Timothy N. Spence: continue to demonstrate strong results.

Matt Curoe: We added 13 branches in the Southeast during the third quarter. Including our first in Alabama. And we

Timothy N. Spence: expect to open 27 more before the end of the year.

Matt Curoe: Consumer households across

Timothy N. Spence: Southeast increased by 7% year over year, more than four times the rate of underlying market growth. Our deposit pricing remained with the total cost of retail deposits in the Southeast averaging 193 basis

Matt Curoe: points in the quarter.

Timothy N. Spence: We’ll leverage the same proven de novo playbook marketing tactics, and differentiated digital offerings to drive retail to

Matt Curoe: deposit. Growth,

Timothy N. Spence: as we add 150 branches to

Matt Curoe: Comerica, Texas footprint.

Timothy N. Spence: Together, we’ll have a presence in 17 of the fastest-growing large US metro areas. In our regions, our focus on middle market and wealth is delivering new quality relationships, granular loan growth, and recurring fees.

Matt Curoe: In the third quarter,

Timothy N. Spence: 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,

Matt Curoe: adviser headcount rose 10% year over year, while fees climbed 11%.

Timothy N. Spence: And assets under management reached $77 billion in the quarter. Post close, we will rely on the same recruiting discipline investment capacity, and one bank sales approach to help Comerica accelerate the growth of their

Matt Curoe: crown jewel middle market franchise.

Timothy N. Spence: In our CIB vertical, franchise finance had another standout quarter. Over the past year, we have served as the lead arranger on 24 transactions totaling $3.9 billion.

Matt Curoe: Including eight in the third quarter alone. Over the past two years,

Timothy N. Spence: 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 America’s strong verticals to our existing expertise including in national dealer services, environmental services, and tech and life sciences, among others.

Matt Curoe: In commercial payments, fee growth reaccelerated to

Timothy N. Spence: 3% sequentially in the third quarter.

Matt Curoe: Newline increased revenue by 31% year over year and grew deposits

Timothy N. Spence: by more than a billion dollars. We expect New Line to sustain its growth as transactional activity ramps

Matt Curoe: from the rollout of Stripe treasury and many other category defined with payments customers, who build on Newline’s API. We’re also seeing strong early activity from our acquisition

Timothy N. Spence: of DTS Connect. 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 preordered branch change order at a major bank. With over 2,000 branches. On Direct Express,

Matt Curoe: our merger with Comerica should simplify the transition for its 3.4 million program participants.

Timothy N. Spence: We also anticipate additional growth opportunities stemming from the president’s executive order mandating the transition to electronic payments for all federal disbursals. Lastly, we continue to deploy technology and lean manufacturing principles

Matt Curoe: produce savings and boost scalability.

Timothy N. Spence: From our peak staffing level in early 2019,

Matt Curoe: total headcount of Fifth Third is down 8% while adjusted revenues are up

Timothy N. Spence: 20%. Percent.

Matt Curoe: The investments we’ve made will help us to efficiently scale the business and achieve our synergy target as we integrate Comerica. Before Brian provides further detail on our outlook, I’d like to revisit the commitments we made

Timothy N. Spence: beginning in the year. To deliver record NII regardless of the rate environment

Matt Curoe: and to produce 150 to 200 basis

Timothy N. Spence: points positive operating leverage for the full year.

Matt Curoe: We will deliver both.

Timothy N. Spence: 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 open next year the sustained excellence of our J. D. Power award-winning digital experience and differentiated payments products the incredible new colleagues geographies, and capabilities Comerica becoming

Matt Curoe: part of our company.

Timothy N. Spence: 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

Matt Curoe: Fifth Third and Comerica who will work so hard in the coming months to make our partnership a success.

Timothy N. Spence: And in particular to our clients who entrust us with their well-being.

Matt Curoe: 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 new line, 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 continued 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. 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 to 3% from the second quarter. Despite only an eight basis point decrease in the ten-year treasury rate unrealized losses on our portfolio improved 9% sequentially. Underscoring the benefit of our bulletin locked out securities These positions provide certainty of cash flow 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 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 the year over year and sequential basis. Production levels are stable to improving in 11 of 14 regions, with the strongest performance in Central Ohio, Georgia, Texas, and the Carolinas. Provide our fintech lending platform for practice finance, continues to drive growth. With balances up nearly $1 billion over the last year.

This growth in middle market C and I and provides helps offset paydowns in our CIB and CRE portfolio. Where average loan balances declined modestly as clients accessed 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 two q. Pipelines for middle market and corporate banking remained strong heading into year-end. Commercial line utilization helps steady throughout the quarter, and ended in the mid 36% area. In total, end of period commercial loans are up 5% over last year. Consumer loans grew 2% on an average basis, and 1% on a period-end basis from the prior quarter.

We once again saw growth in nearly every major consumer lending category. Led by continued strength in auto and home equity lending. Shifting to deposits, Average core deposits increased 1% sequentially driven by DDA and money market growth. Average noninterest bearing deposits grew 1% sequentially and 3% over the prior year. Led by consumer DDA growth of 6% as we continue to drive strong household growth. Through our de novo investment. 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 cost. 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 one point. Our Southeast De Novo investments continue to deliver high quality low-cost retail deposits. Locations open to 2022 and 2024 are significantly outperforming expectations. With deposits per branch at month 12 averaging over $25 million. Outpacing our model target. And as Tim mentioned, our total cost of deposits in the Southeast is only 1.93%. Generating 200 plus basis points of spread relative Fed funds. We remain on track to open 50 branches this year with 23 opened year to date. We have secured approximately 85% of the locations for the additional 200 Southeast branches that we announced last November.

We ended the quarter full category one LCR compliance at a 126% and our loan to core deposit ratio was 75%. Down 1% from the prior quarter. Moving on to fees. Adjusted noninterest income excluding security gains, and Visa swap impacts, grew 7% sequentially and 5% over the last year. Wealth fees rose by 11% over the year on $8 billion of AUM growth. And strong retail brokerage activity. Capital markets fees rebounded up 28% since sequentially, and 4% over the last year, driven by higher activity in loan syndications and m and a advisory. Commercial payment fees increased $5 million or 3% sequentially including a $2 million negative impact from higher earnings credits on demand deposit growth. This fee performance was driven by core treasury management, and new line related gross fees.

New line related deposit hit $3.9 billion. Up $1 billion from a year ago. The securities gains of $10 million were from the mark to market impact of our nonqualified deferred compensation plan, which is offset in compensation expense. Moving to expenses. Adjusted noninterest expense, increased 3% compared to the year-ago quarter, and 2% sequentially. Reflecting continued strategic investments in technology, branches, and sales personnel. Even with the headcount additions of 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 By year-end, we anticipate $200 million run rate annualized run rates savings associated with our value stream Shifting to credit.

The net charge off ratio a 109 basis points for the quarter. Which includes a $178 million in net charge offs from Tricolor. NPAs declined 10% sequentially, as expected and the NPA ratio decreased 65 basis 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% to sequentially, and 30% since the first quarter. Consumer charge offs were 52 basis 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.

Expected. The broad consumer portfolio remains With nonaccrual, over 90 delinquency rates. Stable and 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 improvement, our baseline and downside cases assume unemployment reaching 4.88.4% in 2026, respectively. We made no changes to our scenario weightings during the quarter. ATL as a percentage of our portfolio loans and leases decreased 13 basis points to 1.96%. The ACL as a percentage of nonperforming assets increased to 302% due to the decrease in NPA. Moving to capital. CET one ended at 10.54%. Consistent with our near-term target 10 and a half percent.

Timothy N. Spence: The pro forma CET one ratio

Bryan D. Preston: including the AOCI impact of the securities portfolio, is 8.8%. We expect continued improvement in the unrealized losses at 62% of fixed rate securities in our AFS portfolio. Are in bulldozer lockout structure. 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 twenty-five basis point rate cuts during the fourth quarter. We expect average total loan balances to be up 1% due to normal seasonal growth strong C and I pipeline, and continued broad-based momentum in consumer lending. We expect adjusted noninterest income to be up two to 3% due to seasonal strength in capital markets, and continued commercial payments growth.

Fourth-quarter adjusted noninterest expense is expected to be up 2% due to the opening of 27 financial centers in the Southeast and incentive compensation related to the growth in capital markets fees. In total, our guide implies full-year adjusted revenue to be up nearly 5% and PPNR to grow 7% to 8%. Moving to credit, Fourth-quarter net charge offs are expected to be around 40 basis points. Finally, turning to capital. We will be pausing share repurchases until the close of the Comerica acquisition. Which is currently expected around the end of 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,

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press 1 and your telephone keypad. If you would like to withdraw your question, simply press 1 again. Your first question today comes from the line of Gerard Cassidy from RBC Capital Markets. Your line is open.

Q&A Session

Gerard Cassidy: Good morning, Tim. Good morning, Bryan. Morning, Gerard.

Timothy N. Spence: Tim, can you

Gerard Cassidy: 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

Timothy N. Spence: they’re

Gerard Cassidy: going to be obviously part of Fifth Third in a short while. And then second, as part of that, how the process is going with the regulators we’re seeing an incredibly expedited timeline on deals that have been announced before your deal being improved and approved in less than six months.

Timothy N. Spence: Yeah. Happy to do that, Gerard. And I think in general, I it it’s just been, I think, in positive all the way across the board. So I just to start with regulators, first,

Bryan D. Preston: I think we’re making good progress on the regulatory filings Expect to have them complete by the end of the month. And then at for you, the s four that should be filed shortly after we get the q out. I think the controller or the currency’s public commentary actually was attached to a new charter approval recently, but about accelerating the review of both new charter app

Timothy N. Spence: and merger applications is clearly a very positive development and consistent with what we’re seeing in other deals. And all the early engagement that we have done with the regulators has been constructive.

Bryan D. Preston: So 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 in Comerica. I think the when the number one question that we’re getting is what the name of the Detroit Tigers Stadium is gonna be at the end of all this, that’s a pretty good sign about what about what we’re dealing with. So I I and I think what has rung through to folks is this idea that we’re gonna be able to accomplish things together that neither company was gonna be able to do on their own. You know, there was a a one one of the other CEOs on another call talked a little bit about their philosophy on m and 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. Like, if you’re gonna do a deal and you want it to be successful,

Timothy N. Spence: it either has to be strength bearing strength.

Bryan D. Preston: Or strength pairing opportunity. You can’t have places where both companies are weak, be credit cold, a deal outcome. And and the beauty of what we’re doing

Timothy N. Spence: with Comerica is

Bryan D. Preston: 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 gonna be able to do a lot there.

Timothy N. Spence: They have a fabulous granular middle market loan franchise. We

Bryan D. Preston: price more granularity in our commercial business. So there’s gonna be a really nice complement there. We’re both strong in different ways in the payments business and in wealth management, so there’s a strength strength match. I just think there’s a lot you know, positive there. And I think, you you know, that what we are going to try to do either late 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. I we are feeling very good about our ability to get the outcomes When you when you look at the synergies, as a percentage of Fifth Third and Comerica combined, which is really the right way to look about it look at it

Timothy N. Spence: that’s the way that we’ll be approaching. This exercise. They’re quite manageable. And I think well defined.

Bryan D. Preston: But I just in general, I the reception has been like, it’s it’s I we we the teams on both sides were small because of the focus diligence.

Gerard Cassidy: Effort.

Timothy N. Spence: So that

Bryan D. Preston: I the the first announcement Monday morning was wow. You know, followed by, I think, in general, a lot of excitement about what we’re gonna be able to get done together.

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

Timothy N. Spence: Yeah. I appreciate you being the one to give the history lesson. Time around. Normally, feel like it has to be me on this So thanks for that. And you’d be happy to know I assigned the book Belly Up as reading to a new executive at Fifth Third. There’s a lot of familiarity with the oil patch bus in Texas and Oklahoma.

Bryan D. Preston: Around the shop here. And

Timothy N. Spence: I I think one of the challenges we have on the NDFI fund is while the Fed’s reporting was designed to be helpful here, the categorization is a little bit confusing. So Schroeck is prepared to talk a little bit about maybe an easier way to understand what’s in NDFI across the industry and in our portfolio in particular. So I’m gonna turn it over to him.

Greg Schroeck: Yeah. It’s a great question, Gerard. Thank you. I’ll start by saying it’s portfolio that we have maintained low levels. We’re the lowest in the FI concentrations of of large banks were at about 8%. Of the total portfolio. As Tim said, the call report categories can be pretty generic. So I’ll I’ll I’ll provide a breakdown. Contained in that portfolio. I’ll start with REITs. So REITs and other mortgage related facilities make up 33%. Of our NDFI balances. And represent the largest portion of the

Timothy N. Spence: portfolio.

Greg Schroeck: Represents one of our oldest asset classes within our ABS portfolio. We have processes, procedures, and structures that been tested through the cycle, and include robust monitoring of lean, We’ve not had any losses in in this portfolio over the last ten years. So really solid portion of the portfolio that makes up our largest component. Next, about 24% of the NDFI balance are payment processors. Insurance companies, brokerage firms, SBIC firms. Balances in this category are primarily related to large players well recognized names, and not at all related the conversations going on in the market in the market right now. Next would be our subscription facilities at 18%. Of NDFI funds represent exposure to high net worth individuals and other private capital investors.

Who have capital commitments to these funds. Third, percent of the balances are loans to private capital warehouse facilities. This category has been an area rapid growth in the industry. However, we’ve been really intentional in limiting our growth in these vehicles. We only we have one lender where we have a deep relation This is a portfolio where we have deep relationships with the lenders typically lending into one of their portfolio companies. And that’s that relationship orientation is key we look into that that portion of the NDFI portfolio. The smallest share of NDFI balances are loans to non-real estate and non-private credit related warehouses Of our balances. It’s about 9%. Put the tech that category includes our exposure to consumer asset classes, Gerard, you mentioned three calor Tinep, it’s in that broad issue.

It’s in that portfolio and has received significant scrutiny. As part of our comprehensive review of portfolio. Given that comprehensive review, if you’ll very confident in the quality of the remaining clients. It’s 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 market 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 George, 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 portfolio balances will be 7%. So down from our fifth or overall 8%. So we feel really good about the ongoing diversification

Gerard Cassidy: Thank you for the thorough answer. Appreciate it.

Operator: 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

Ebrahim Poonawala: with credit and outside of the NDFI issue, 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 it cut through all this noise at the moment. Yep. Yeah. Yeah.

Timothy N. Spence: I think

Bryan D. Preston: unfortunately, the answer to that is yes.

Timothy N. Spence: On on on both points. I the the quota that quarter, I I was out in

Bryan D. Preston: several of our markets. I got to visit about three dozen of our commercial clients.

Timothy N. Spence: And the quarter to quarter went to the client who referred to his Outlook

Bryan D. Preston: as, quote, nauseously optimistic. I the the tariff uncertainty absolutely continues to weigh on any clients that are exposed That that said, I would tell you, in general, people are more optimistic than they were in the second quarter. In 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, our significant sources of the supply chain for folks in materials and manufacturing and you know, the construction and the other sectors that are you know, big big in our footprint. The the the question mark really has been what would be the who would bear the brunt of the tariff? And I I would take say now on balance, it’s a sort of a shared pain approach here where the supplier, the intermediary, and the customer each absorbing about of the third a third of the increased cost.

But the supplier and the intermediaries have also been clear whenever we talk to them. That their intent is ultimately to get back to prior margins, which would mean over time, you would see continued price increases as a mechanism to move the

Timothy N. Spence: you know, the cross

Bryan D. Preston: that through. That the the bright spot here is really one that’s just the Fed resuming rate cuts

Timothy N. Spence: I think people have been more optimistic about they’re more front end focused. Than I think I would have said I believe them to be they’re more optimistic about what the value of

Bryan D. Preston: you know, a total of 50 to a 100 basis points of cuts. You know, we’ll have on client demand and also penciling out of their own investments. There there’s also another reality here. Which is a lot of our clients when the tariff announcement hit, deferred capital expenditures and have been renting, either renting excess space or renting equipment. And we are getting requests now. For financing that are reflected in the pipeline in the middle market business in particular. To support the sort of shift from rent to own. So I think that’s 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 know, wheels of the economy turning. And we’re we’re hearing from logistics clients that there hasn’t exactly been a huge rebound, but that they activity has stabilized and is you know, moving on the you know, the ups ups the upswing I the the folks that are that having the most robust demand, obviously, are the people who are either attached to the big government infrastructure invest investments, things like bridges and roads that are moving forward or folks that are attached to AI, And there’s so much demand there because with one of our clients is in the concrete business, it did not 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, meaning the margins are really great. And the other end of the I think residential construction, auto still slower.

Ebrahim Poonawala: Okay. Cool. Thanks for that. And I guess just a separate question. Think back to Comerica, I think if you don’t mind spending some time around, and you talked about this when you announced the deal, Just the optionality that Comerica provides. So you’ve talked about opening the branches in Texas. But Comerica also had a big technology life science practice. And Cisco to Newline’s been leaning in there. Just either it’s that or either it’s double clicking on the existing footprint and deepening relationships which may have kind of sidelined a bit over the last decade. What’s that potential to unlock and accelerate growth for the combined entity as we look out a year from now.

Timothy N. Spence: Yeah. I think thanks for asking on that one. I’m yeah. You know, I like, one of my fundamental beliefs is if you don’t wanna grow by sacrificing pricing, or risk discipline, you have to attach yourself to segments of the economy that have a secular tailwind. And the innovation economy is the the most pronounced, you know, profound secular tailwind on the, you know, on the business side. Of our business. In The US. So I am quite excited about the potential on tech and life sciences. Historically, the OCC looked at that business a little bit differently than other people did, but I think the early signals coming out of the OCC are that they want national banks. To be able to compete in all markets. And I I am optimistic that we’re gonna be able to do some interesting things there.

I you know, Michigan is about creating finishing off the play in terms of a fortress position in the Midwest. Texas for us is gonna be about investment. I think we can continue to add a lot more middle market bankers and clearly the branches are there. California really will be a more business focused strategy. And and between New Line, 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, You know, we have credibility having been in that market. Like, the the there’s a really interesting thing to be done there because post SPV to point, you have you know, First Citizens still active, you have JPMorgan active, you have a couple of investment banks active. That really are leading on the m and a advisory and capital raising front.

And then you have foreign banks. And and a fragmented market like that will be you know, is is good hunting for people like us.

Ebrahim Poonawala: I the thing that’s

Timothy N. Spence: probably important to remember with Comerica is I think they’re running a four to one deposit to loan ratio, three to one, four to one deposit to loan ratio in that market. So one of the things we may do very early on is just focus on the ways in which we can leverage Newline to drive even more deposits on platform as well.

Operator: Well, thank you so much. Your next question comes from the line of Scott Siefers from Piper Sandler. Your line is open.

Scott Siefers: Good morning, guys. Thank you for taking the question.

Timothy N. Spence: Hi.

Scott Siefers: Hey, Tim. So, I mean, based on all you’ve said, I I don’t get the impression that there’s any change or or impact

Bryan D. Preston: to your de novo expansion plans while you go through the Comerica transaction. But I was just hoping you could spend a moment discussing sort of how you balance the the planned organic expansion with the large integration just to make sure nothing sort of slips through the cracks.

Timothy N. Spence: Yeah. No. That’s great. So I think you you have probably have to think about it in in two ways. One is just what resources did the it did, you know, did the two sort of separate growth areas of focus drawn So the the De Novos are in the Southeast footprint. There is gonna be I well, there are some really wonderful Comerica bankers in the Southeast, but they don’t have a branch presence. So we’re not gonna have disruption in those markets. So the regional leaders who have to be on top of driving the daily, weekly, monthly activity in the Southeast are not gonna be disrupted. That’s the first thing. Secondarily, the people inside the bank who find the location who build the locations, and who run the locations are three different groups.

So 85%, as Bryan said, of the locations have been found. Meaning, that that group has the capacity to be able to be looking for locations in Texas. And if you just do the math on the 40, we will have built in the second half of this year. The 60, we just said we’re gonna 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 gonna be freed up. You know, from the Southeast to be able to shift their focus onto the you know, the acceleration of the openings in Texas. And and lastly, because of the scale we have in the Southeast, the the draw on human capital and the need to drive recruiting and otherwise to be able to the new branches is substantially lower because the majority of the folks we put into the de novos are people who have trained up and come through our other retail financial centers And and therefore, the Southeast is sort of on the flywheel of being able to feed itself.

So there there really is not an overlap in terms of the critical resources to be able to do those two things. 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, I you know, I wait. That that has been the point I’m trying to make whenever I say we haven’t built a 100 branches. We built one branch a 100 times.

Bryan D. Preston: It’s

Timothy N. Spence: a consistent site selection model It’s a consistent retail format, meaning there’s no need for additional engineering re resources. Or otherwise If if we have experience at this point with the essentially every zoning jurisdiction, and set up that you would want to experience in the zoning rules in general in Texas are much easier than they are in the Southeast and certainly than the the the Midwest. So it’s not like we’re gonna have to learn on the fly here. We just have to find the locations, and we have the people to do that. And we gotta build same thing we’ve been building and we know how to do that, obviously. And, you know, and then the focus really is gonna be on making sure that as we do the conversion in Texas, the initial experience that Comerica’s existing retail clients have is really, really strong.

And then that we are doing the recruiting that we need to do to be able to support the larger you know, the larger base. Lastly, it’s probably worth noting that I think we were at we’ve we were building a fair number of de novos in ’19 when did the MB conversion. We didn’t have any problem juggling both of them. Those either.

Scott Siefers: Mhmm.

Ebrahim Poonawala: Okay.

Scott Siefers: Perfect. Thank thank you for that. And then with regard to direct Direct Express, you know, you noted the merger should simplify the transition for their customers. I imagine it really eases things for you all as well. I know there was already you know, a sense of urgency to get the balances moved. Before the the merger was announced But was hoping you could just sort of spend a moment at at least at a a top level on you know, how I presume it’s all still going to switch to Fifth Thirds rails. You know, how how will what are the sort of the plans for for that to take place?

Ebrahim Poonawala: Yep.

Timothy N. Spence: So the the transition schedule that we talked about when we announced the Direct Express win that, you know, 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, you know, still progressing as planned. And and I and I feel good about all that. The the dynamic here that’s most important is that we were gonna have to issue out of our own bins or buy Comerica’s bins in order to be able to make the card numbers. Work. Right? And Mhmm. That when when the deal closes, again, provided that it closes as as we expected to and in advance of when we were planning the back end conversion, The the the factor that would have driven new card issuance would have been the need to use a bid range.

So we Kurt and I had actually talked about this or buying the bins. From Comerica prior to commencing the discussion on the the the merger itself. We were looking at the possibility of being able to simplify that aspect. For the program participants. And clearly, we get the deal closed, the bins are ours, and we’ll be able to continue the issue. You know, out of them and and maintain existing cards.

Scott Siefers: Yeah. Perfect.

Ebrahim Poonawala: Okay. Good. Thank you very much.

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

Manan Gosalia: Good morning. I you you touched on direct Express right now. I was wondering if you could talk about

Bryan D. Preston: the opportunities

Manan Gosalia: there on the income statement and the contract

Timothy N. Spence: there.

Manan Gosalia: And I think on the CMA deck, you adjust about a 100 and and 10 million in NII. But can you touch on what the full opportunity is there how do you expect expect that to grow? The the fee contribution that you expect

Bryan D. Preston: Yeah. Happy to happy to talk, Manan. You know, the big question when we announced the program was really about the win of the program was about the timing of when we would see the balance transitions over, and that was one of the reasons why we said we provide more information in the fourth quarter. Obviously, the the Comerica transaction provides a lot more certainty around how the balances will hit the third. Balance sheet. Know, it’s three on average, it’s about 3 and a half billion dollars 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, you know, 15 to 20% type margin on the fees relative to the expense load.

And you’re probably looking at something that is in the range of a 100 to a $110 million type. Expense level. That’s primarily related to the processing cost. And the fees. The there’s a gross up on the fees associated with the interchange that comes through. We do have some revenue share with our processing partners. That’s why there will be a fairly direct link on that. And then the growth for us primarily gonna be related to transaction activity in the future as well as growth in the programs. And we are excited about the potential for incremental growth in the program due to the executive order trying to limit more to limit the amount of paper checks that are issued And this is the government’s program for electronic disbursement. So we do believe there’s even more upside in the program over time.

Manan Gosalia: As the government

Bryan D. Preston: continues to try to find efficiencies and it’s dispersion. Process.

Manan Gosalia: That’s very helpful.

Timothy N. Spence: Maybe if I can pivot over to credit. Yeah. Excluding the credit that you called out, I think, as you know, we’re about 52 basis points.

Greg Schroeck: Points this quarter. And you’re guiding for about 40 basis points. Points. In the fourth quarter. I know you talked about some of the sentiment and what you’re hearing, but can you to what gives you the confidence that NCOs will step down from here? And how we should think about that? Going into 2020? ‘6?

Bryan D. Preston: Yeah. It’s Greg. Great question. So I look at it a couple different ways. One of them, even indicators, right, criticized assets. As Bryan mentioned. Our criticized assets are down are down again. 4%. This quarter. I also looked at predictability. We’ve been we 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 not seeing NPA surprises The the the losses we’re taking are are reserved. Think we’ll continue to getting out ahead of some of these problems and dealing with them timely. So I feel good about that. The consumer portfolio continues to to perform very, very well.

Manan Gosalia: Delinquencies are just six basis

Greg Schroeck: points. Below even pre-COVID levels. Consumer loss rates stable at 52 basis points. That’s consistent with our ten-year average.

Bryan D. Preston: So

Greg Schroeck: the portfolio is

Bryan D. Preston: playing out.

Greg Schroeck: And I still feel really good. I mean, excluding the three caloric fraud-related issue, Range. I still expect full-year charge offs to land midpoint of our original guidance. And assuming no significant changes in the environment, based on what I know today, continue to be very confident that commercial loss rates return to that mid

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

Manan Gosalia: Thank you.

Bryan D. Preston: Appreciate that.

Manan Gosalia: Yep.

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

Ken Usdin: Hey, Ken.

Bryan D. Preston: Hey, guys. Good morning.

Scott Siefers: 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 in the curve in terms of the the benefits and how long out you have line of sight onto that?

Bryan D. Preston: Yeah. Thanks, Ken. Great question. You know, 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, you know, a decent compression in the yield curve this quarter. In particular, two to three-year point in the curve has come down about 40 basis points. We talked with you as part of July earnings. And that obviously has a decent impact on the indirect auto business, which is has been a big driver of our fixed rate asset repricing. We’re still seeing 4 billion to $5 billion a quarter of fixed rate assets that are repricing. And it’s picking we’re picking up now around a 100 basis points. And we expect that 100 basis points to persist you know, basically through the end of next year.

The end of this year and end of mid to late next year. So we do feel good about trajectory that we’re seeing there. Even with some of the compression that we’ve seen from a curve perspective.

Ken Usdin: And then, honestly, for 2026,

Bryan D. Preston: when you think about NII trajectory, the Comerica transaction has such a meaningful impact on overall balance sheet positioning and as we’ve as we’ve talked as part of that announcement, you know, fairly decent pickup from a profit standpoint. Perspective and then now NII.

Ken Usdin: Is going to be a good component of that as we

Bryan D. Preston: 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. And so we feel very good about the trajectory that on. We are heading into next year intentionally running a little bit heavier on cash and a little bit more balance on from a deposit perspective. Because we do wanna 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 years. And so you are gonna see us a little bit more balanced on from a retail perspective. We’ve always been very focused on keeping our retail contribution. To be the primary funder of our balance sheet. And that’s something that know, we’ll wanna continue to do as we bring the Comerica Comerica balance sheet on board.

Ken Usdin: Yeah.

Scott Siefers: Great. And that was actually dovetails to my follow-up, which was just

Bryan D. Preston: you know, it’s been great to see the

Scott Siefers: noninterest bearing growth over the last couple of quarters. And still a little increase in the

Timothy N. Spence: IBD

Scott Siefers: cost. So 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 betas on on the IBD side? Thanks.

Bryan D. Preston: Yeah. For the next I would tell you for the next couple quarters, the fourth quarter and into first quarter, we’re gonna be a little less aggressive than we have been. We delivered a low sixties, beta. On the first 100 basis points cuts. Prior to the Comerica transaction. You know, I had high confidence that we were gonna be able to deliver kind of mid-forties to low fifties beta. Which would kept us

Scott Siefers: which which would have kept us in a good position.

Bryan D. Preston: But given the point of trying to stay balanced on 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 when we utilize the optionality that our funding position will give us. Next year to deal with some issues on the combined balance sheet. Gonna we are gonna run a little lower on our betas. Here. So I would expect that for the fourth quarter and the first quarter, for our betas to be in the more like 30%. Range. And so that’s a little bit of the rationale when we talk about a kind of a stable to up 1% NII forecast for the

Ken Usdin: Yep.

Scott Siefers: That that makes sense. Okay. Thanks for that, Bryan.

Operator: Your next question comes from the line of Christopher Edward McGratty from KBW. Your line is open.

Christopher Edward McGratty: Hey, Chris. Hey.

Timothy N. Spence: Hey. Good morning. Sean Culhane actually on for Chris McGratty. Quick question just on the expense growth

Bryan D. Preston: expectations. You touched on near-term expense growth elevating as you continue to invest in the branch expansion. But just longer term, how should we think about operating leverage from here?

Timothy N. Spence: And maybe more specifically, how 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 Southeast But versus kind of like the synergies and the offsets from both the merger as well as prior AI expense. Lot of good questions. Embedded in there. So a couple of things. One, the the the branch expense is seasonal. Right, for us. So we I think we said we were gonna get about 50 branches opened this year, so 40 is a 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. And that’s actually an improvement for us. It used to be here 80 or 90% of the branches got opened in the fourth quarter.

Bryan D. Preston: So

Timothy N. Spence: 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 you know, guidance range because that corresponds with the numbers that we provided for the combination of Fifth Third and Comerica and you know, the outlook there was 19% ROTCE, or better and, you know, getting down to the low to mid-fifties mid call 53% in terms of the efficiency ratio, and we’ve printed from 54 this quarter. The guide implies 54 next quarter. So 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.

I mean, we bought a payment software company in this past quarter that feathered into the run rate. I think what 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 Now that’s principally been automation, leveraging technology to drive people cost down and to improve scalability. And those investments are gonna be super helpful as I mentioned in my prepared remarks. As as we integrate Comerica. But it it’s it’s allowed us to just look at it over five years. I mean, I think we bought now five fintech companies during that period in time. We’ve built more branches than anybody other than JPMorgan during that period time.

We’ve been growing the Salesforce by five to 10% across the you know, regional footprint during that period of time, making big investments in tech platforms and otherwise. And despite all that, we’ve had I think, something that’s on the order of the lowest cumulative expense growth. Across our peer group. So we are gonna 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 and life sciences like you bring that. Earlier.

Bryan D. Preston: But

Timothy N. Spence: we also expect ourselves to have to pay as we go in addition to asking in invest investors. To back it, and that’s why you get the operating leverage

Scott Siefers: at the end of the day.

Operator: That’s great color. Thank you.

Timothy N. Spence: Appreciate it.

Operator: Your next question comes from the line of Michael Lawrence Mayo from Wells Fargo Securities. Your line is open. Hey, Mike. Hey. I I have kinda one negative question, one positive question. So the negative question, if you could just double click on the the tricolor category. I think it was 9% of your total NDFI

Bryan D. Preston: Just elaborate more on what contained that category. And the deposit question is, you talked about the team that will be in charge of the integration of Comerica You have Jamie. We also don’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, but you have a lot of

Timothy N. Spence: talent at the top of the the house. I like to hear how they’re they’ll be deployed for the integration, but but first, more elaboration on the the Tricolor

Bryan D. Preston: category.

Greg Schroeck: Yeah. I was gonna say we’ll start there because now I’m gonna go get Darren out of his office and demonstrate that he’s has free to move. Around the building. Go ahead, Greg.

Timothy N. Spence: So if I can

Greg Schroeck: it’s primarily consumer asset classes. So consumer auto, consumer finance companies is And there’s a reason why it’s our lowest category from a concentration standpoint, and we’re watching that consumer very, very closely. Clearly impacted with higher interest rates, unemployment, inflation, etcetera, but that’s primarily what makes up that category.

Timothy N. Spence: Yeah. And it’s not, I think, dominated by relationships with the largest players, the long tenure in their in their having been through all these names myself, as I mentioned at Barclays, I find confidence that Trifor is unfortunately, it it is unique there in terms of yeah. I I I think we have an an excellent team. And I think Comerica is bringing really excellent executives to the table in terms of what we’re doing here. So the integration advisory council jointly staffed. Jamie, is on on point since the third. Megan Burkart from Comerica, their their chief administrative officer from Comerica. Folks like Darren, and Pete Sefzik from Comerica the IT leaders, folks from operations and otherwise all all involved here Darren, it it is focused Darren’s worked very closely with Peter in thinking through how we integrate the middle market bankers.

Darren’s responsibility here is regional banking. So Darren Darren’s had wealth management. Middle Market, and Business Banking. Peter will take on wealth management. Darren’s taking on the expanded middle market business banking. Side of the equation. So they they have been working through a few roles. Taking opportunities where we’re allowed to do so to meet people. And to

Michael Lawrence Mayo: you know,

Timothy N. Spence: make sure that everybody knows that if you talk to customers, you’re in good shape in terms of the you know, being able to look forward to, you know, a a broader quality product set and more capacity to invest in in in growth The other thing I’d tell you I’m really optimistic about is we have a really outstanding IT organization The IT group here is essentially entirely been since 2018 or 2019. It is led by people who were Fortune one fifty CIOs, people who founded businesses, that ended up being taken out by major players in information security. And people who have actual engineering background. So they’re not vendor managers, or IT maintenance people. They’re people who understand architecture and software engineering.

You know, and otherwise, that’s been a big part of the success. Drew Tram, our CIO is the one that’s led the value streams. Work over the course of the past several years inside the company that has helped to drive all savings. That So there there’s a really good bench of people around the table here. To ensure that we you know, retain what is great about both companies. And execute a seamless conversion and get the cost out. You know, as we need to. And now that the dust has settled a little bit, one

Michael Lawrence Mayo: challenge that you think you’re really gonna have to gear up for that you it’s more in your face and you

Timothy N. Spence: maybe underappreciated or you just like, hey. This is we’re gonna have to do this right and one positive. That you said, hey. This might be better than we thought.

Greg Schroeck: Yeah.

Timothy N. Spence: Think the the challenge is we’re set that Comerica had a a public consent order attached to the trust business and specifically a conversion they did there. I would tell you that’s I don’t perceive that to be an an like, a challenge in the sense that I’m worried about being able to get it done. But it’s clearly priority one is ensuring that we have the trust business on stable footing. As part of getting this conversion done because we like the businesses. That they’re in. I think they’re quite complementary to the segment of the market that we serve in our custody business.

Greg Schroeck: But

Timothy N. Spence: we we gotta get that work done expeditiously and well. So that that remains you know, big point number one. I think the thing that I’m probably most optimistic about is the the we’ve a lot of former Americans here. They have a lot of former fifth herders there. They seem to have done well. In both places. I can speak to the former Comericans that are here. You know, they they’ve been big parts way that we’ve driven the growth in the expansion markets. They have leadership roles here in payments. And have have led businesses like Business banking you know, corporate social responsibility, otherwise. Like, so I’m I’m most excited about our ability to unlock the Comerica bankers that we now that we can provide a broader funding base and there isn’t a competition from an investment perspective on needing to invest in sort of LFI level you know, control environment.

That is the thing that that more I talk to folks, the more you feel There are a lot of good ideas here. There are places where we have the ability to grow that they just there there was an inherent limit because they were trying to balance more priorities than we’ll need to balance as a combined company.

Michael Lawrence Mayo: So it sounds like some

Timothy N. Spence: ex-frenemies will become colleagues They had worked together before.

Greg Schroeck: Yep. That’s the he that’s right.

Michael Lawrence Mayo: So we we we from frenemies to friends again, maybe.

Timothy N. Spence: There we go.

Operator: Alright.

Michael Lawrence Mayo: Thanks a lot.

Gerard Cassidy: Yeah.

Operator: Your next question comes from the line of Peter Winter from D. A. Davidson. Your line is open.

Peter Winter: Hey, Peter. Thanks, Tim.

Timothy N. Spence: Hey. Just at Barclays, following the the Tricolor

Peter Winter: announcement. You mentioned

Timothy N. Spence: that you’re going to take a step back look at the processes to see if you could have done anything differently. And, of I’m I’m just curious what you discovered, and you need to make any changes.

Greg Schroeck: Yes. Thanks for asking that. Greg will give you some detail there.

Timothy N. Spence: Yeah. So obviously, a lot of time given the surface circumstances that we’ve spent. While we still think it’s an isolated event, we treated it with the seriousness of the We completed a comprehensive review of that entire asset-backed finance portfolio, tracing cash flows, collateral movements in and out of our facilities then into securitizations. The work included a full inspection of our processes, our procedures, our policies, underwriting, portfolio monitoring, It was it was an end-to-end inspection. By by our leaders. We’ve identified a couple of things that we’ll start to implement from an enhancement standpoint. We’ll continue to do that and we’ll continue to reinforce some of the of the ongoing monitoring that that that needs to take place in that space.

Couple of things I would point out is is 92% of the ABF exposure is through bankruptcy remote SPV securitizations. Structures. They’re nonrecourse or self-liquidating They’re they’re they’re underwritten. Through the structure through advanced rates. To a triple b or better. So investment grade type of of underwriting. We also engaged a third-party firm to validate a 120,000 vehicle identification number VINs tied to our consumer collateral or loan collateral. The results were conclusive 99.99% of of the VINs have been verified as valid. With only two exceptions. We’re tracking those two exceptions down.

Greg Schroeck: As in two hands. As in two VINs. Two cars. Yeah. The the overall exercise to your question confirms that that

Timothy N. Spence: we we still feel very good about the overall portfolio as portfolio not had losses. In the past in any meaningful way? Clearly, the tree core was a broad do a little differently. Going forward based on the inspection. But based on the inspection, the the the house to house search that we did I still feel I still feel very good about about the portfolio.

Peter Winter: Come on.

Michael Lawrence Mayo: Thanks. And then just a quick follow-up.

Timothy N. Spence: With the Comerica deal, you’ll have roughly $290 billion in assets and become a category three bank. Does that happen when the deal closes or is it kind of a four-quarter average before you become category three? And

Michael Lawrence Mayo: does that

Timothy N. Spence: involve entail

Bryan D. Preston: additional expenses

Timothy N. Spence: maybe risk management controls? Yeah. We so at the end of last year, we’ve actually been going through a process for some time in terms of preparing for category three readiness. This is something that we actually kicked off back in when we’re in the process of March Madness associated first Republic of making sure that we really understood what that path looks like. And at the end of last year, we actually hired a third party to come in and do a catheter readiness assessment for us and to help us build out the compliance work plan as we were gonna head down either on an organic path or some reason the transaction were to occur that was accelerated it? So we have a good sense of

Michael Lawrence Mayo: what that path

Timothy N. Spence: looks like and the cost associated with it. You know, clearly, there’s certain things we’ll have to do some investments in terms of enhancing some reporting capabilities, things like 2052 a, the the of reporting and the time turnaround of that reporting accelerate. From a a t plus 10 reporting to t plus two. There’s some new credit reporting that we’ll have to do. But all of those things are known and manageable. What’s interesting about this process is that there are a number of different CAT III requirements, and they’re actually all the discussed with regulators and agreed to conversion and compliance timeline as a agreed with regulators on that line item by line item. Perspective on the individual requirements. Twenty fifty-two a recording being one of the first So those are all things that we’re working through right now, all contemplated in the financial numbers that we’ve provided. And from a cost perspective, we’ll be managing

Operator: Thank you. Your next question comes from the line of Erika Najarian from UBS. Your line is open.

Erika Najarian: Hey, Erika. Hi.

Timothy N. Spence: Hey. So just wanted to make sure that we’re

Erika Najarian: taking away the right message from a funding strategy perspective. Tim, it really struck me when we you did the Comerica announcement conference call that you said that it was funding that was really preventing them from fully realizing their growth potential. And then you know, Bryan noted, you know, it’s a 30% deposit beta from here. As we think about, you know, the go forward both from a standalone company and and together, should we should we now think, okay, the priority has to be you know, retaining the the funding and that’s more priority growth in deposits and retention of deposits. It’s a bigger priority over over price. And by the way, that’s okay because the power of the combined NII from both the bigger balance sheet and the purchase accounting will supersede sort of the lower reprice.

Timothy N. Spence: Yeah. Great question. No. I I think I would say that the priority here is is replacing the funding And then so it supporting the right level of growth beyond that. We have run at a loan to deposit ratio that’s a little below where we need to be. So that we we are in good shape in terms of being able provide some excess funding But I’ve talked a lot about the fact that we prize a $60.40, like, living inside a fixed a $60.40 mix. We like balance. We we like diversity. Diversification. And and that’s gonna mean that that we have to grow retail deposits at a rate that will allow us to essentially remix out of some higher cost corporate cash. And other funding sources, Intrify deposits, and otherwise over time.

That are on Comerica’s balance sheet. And into a more retail heavy mix. The good news is we have like, what I would argue is the best retail deposit engine in the retail bank. Sector and the tailwind of all these branches in the Southeast plus what we’re gonna be able to do just leveraging Comerica’s existing branches where they hadn’t done any consumer deposit marketing, as I understand it, for over a decade. K? And we bring an analytic engine and a JD Power award-winning product set that will hit those branches day one and make them more productive. Plus then the network benefit that you get out of the build-out in Texas. That really is meant to provide a catalyst where retail deposit growth, exceeds you know, the the overall balance sheet growth and allows us to drive a remix So that Erika, I’ll

Bryan D. Preston: I would I would think about it for you guys and in two horizons. One, which is where do we want to be at close of the transaction? Because we know things always come up around close. You know, for example, we have shared customers in the commercial portfolio and, you know, they have a lot of times customers pick two different banks because they want diversification. So we know that there could be a little bit of outflow around that. So we wanna make sure that we have a good source of liquidity and optionality to deal with unexpected things that occur but also to help manage through the the funding cost of the company. From a longer-term perspective, I would tell you that the total funding cost for the combined company will be better going forward than the two individual companies.

And, you know, you can look at things as simple as our cost of interest-bearing liabilities versus cost of interest-bearing liabilities. We are, you know, 50, 60 basis points better in total on them, and it’s back to the mix of our deposits. So, yes, we’re gonna lean a little bit more on retail right now because we also know that we are able to manage to very very strong and profitable long-term retail deposit cost. We just wanna be in a good position from a short-term perspective to make sure that we’re ready to to navigate You know, obviously, uncertain environment and from a economic perspective, between the end of the year and and the close at the beginning of next year and to make sure that we’re positioned for anything unexpected that could come up as part of the clause.

Erika Najarian: And my second question, and I didn’t realize we’re moving you were closer to $10.15. This is for you, Tim, and maybe if Jamie is also in the room. Since he’s head of integration. So clearly, the financial benefits are obvious. You know, you talk very passionately about the cultural and strategic fit. We have seen in the past some of the larger deals that have been announced previously been hampered by sort of poor back-end execution, right, in terms of how they approached the tech integration And we haven’t talked much about that Tim and Jamie. I’m just wondering if you could maybe give us a sense of your approach for the back end and tech into integration and how you would prevent that in terms of, you know, prevent, like, slippage in terms of expenses or delay in expense synergies and all of that. That has have hampered peers. Yeah.

Timothy N. Spence: Great question. You’re gonna have to make do with me because Jamie is so focused on the back-end conversion that he’s off working with the team. So he will be at NAB, Erika. So I would encourage you to ask the to ask the same question then and and you’ll get the benefit in his answer. I you know, the conversion is the moment of truth because it’s the first thing that you do to has a very material impact on customers if you get it wrong. Right? And the the work that has to be done on making sure that the receiving environment is clean and that you’re not making any changes so that there aren’t any unanticipated hiccups doing the data mapping. So that you are able to ensure that what you convert populates correctly and then managing the customer experience.

I mean, simple things like you know, so many customers use biometrics today. To log in that I not everybody knows their password. And as a byproduct, when you ask them to download a new app and tell them their username and app and password, ported over, you know, that you you run into issues. So there there is an incredible amount of detailed work that has to get done just on the mapping and the communication and then the pre-conversion actions that you can take to ensure that the conversions themselves go smoothly. And I’m coupled then with I think, having the right level of staffing on hand, whether it’s in the branches, in the call centers, or otherwise. So they you don’t have a situation where something unanticipated comes up. Like, maybe a customer’s mobile phone number is out of date, and when they go into change it, it locks them out of using Zelle for two weeks or something like that.

You know, those are the sorts of things that you have to be in front of to make sure that, you know, the the conversions go well. The one thing that I will tell you is maybe different here than some of the other larger deals where there have been issues. Is there is no debate about which technology we’re gonna use. So the is not gonna be a scenario where we go through and try to pick the best of both companies and then reintegrate them. The the Comerica customers and business are gonna move from the Comerica platforms to Fifth Third with the exception of the National Dealer Service business, where we don’t have a platform The reason we had to get out of the business five years ago, we have always liked it. We just we didn’t have the scale to be able to you know, to to support the the platform.

So we know our environment. And that our you know, should be in a substantially better position because we’re not doing systems integration and conversion on top of one another It’s just a conversion exercise. And they don’t have there’s not a single platform they have that we haven’t converted before. You know, in terms of the key the key platforms. And in many cases, they’re on the same platforms. That that that we are.

Erika Najarian: Perfect. And thank you, Greg, for all of that color. It’s never fun when you’re popular, but I think investors appreciated the color.

Timothy N. Spence: I don’t know. I it’s it’s good for people like Greg to feel good. Feels like they’re popular once in a while. Right? I went through middle school profoundly unpopular too. And the second I got a moment in sun, I feel pretty good about it. I think that wrap on that note, we probably should wrap it up.

Bryan D. Preston: Yeah. I think so.

Timothy N. Spence: Thank you. And thanks everyone for your interest in Fifth Third. Please contact Investor Relations department if have any follow-up questions. Rob, you may now disconnect. Disconnect the call.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.