Fifth Third Bancorp (FITB) Q4 2025 Earnings Call Transcript

Fifth Third Bancorp (NASDAQ: FITB) Q4 2025 Earnings Call dated Jan. 20, 2026

Corporate Participants:

Matt Curoe — Senior Director of Investor Relations

Timothy Spence — Chairman, Chief Executive Officer & President

Bryan Preston — Executive Vice President & Chief Financial Officer

Analysts:

Unidentified Participant

Ebrahim Poonawala — Analyst

Gerard Cassidy — Analyst

John Pancari — Analyst

Michael Mayo — Analyst

L. Erika Penala — Analyst

Kenneth Usdin — Analyst

Manan Gosalia — Analyst

Christopher McGratty — Analyst

Presentation:

operator

Thank you for standing by and welcome to the 5th 3rd Bancorp 4th Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you’d like to ask a question during this time, simply press Star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press Star one. Thank you. I’d now like to turn the call over to Matt Kiro, Senior Director of Investor Relations. You may begin.

Matt Curoe — Senior Director of Investor Relations

Good morning everyone. Welcome to 5th 3rd 4th Quarter 2025 Earnings Call. This morning our Chairman, CEO and President Tim Spence and CFO Brian 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 Five 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 Brian, we will open up the call for questions. With that, let me turn it over.

Matt Curoe — Senior Director of Investor Relations

To Tim

Timothy Spence — Chairman, Chief Executive Officer & President

Good morning everyone and thank you for joining us today. The 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 2 of the release.

We achieved an adjusted return on equity of 14.5%, an 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 4th 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. 4th quarter average loans increased 5% year over year, Driven by 7% growth in consumer loans and 7% growth in middle market and business banking CNI 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 non performing 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 Carolina’s would have the 78th largest. Our DE Novo branches continue to deliver deposit growth that is 45% higher than pure 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 5th 3rd 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 provide to lead all of small business for Fifth Third. Since then, Fifth Third has become a top 20 national FDA 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&AP and DTS Connects 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 agentic 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 RM 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 CNI.

Timothy Spence — Chairman, Chief Executive Officer & President

Loans in wealth and asset management.

Timothy Spence — Chairman, Chief Executive Officer & President

Fourth quarter wealth fees increased 13% and assets under management reached $80 billion for the quarter. The strong performance was broad based 5th 3rd wealth advisors, AUM and fees increased 50% from a year ago. 5th 3rd securities generated record fees and our private bank had its second highest level of gross AUM flows in recorded history. We continue to deploy technology and apply lean manufacturing principles to drive savings and enhance scalability. In 2025, our value streams approached $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 5th 3rd 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 1st. 2026 will be a busy year as we focus on successful conversion and delivering $850 million in expense synergies.

Looking ahead, I am 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 am also excited to get to work delivering more than half a billion dollars 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 tech and life sciences vertical and Fifth Third’s newline platform.

Before I turn it over to Brian, I want to say thank you to our team, both Fit 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 am grateful to everyone who will work so hard in the coming months to ensure that 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, but 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 Brian who will provide more detail on the quarter and on our outlook for 2026.

Bryan Preston — Executive Vice President & Chief Financial Officer

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 the fourth quarter of 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 multi year 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.

Bryan Preston — Executive Vice President & Chief Financial Officer

Drivers of this decrease in utilization.

Bryan Preston — Executive Vice President & Chief Financial Officer

Industry loan growth continues to be concentrated in 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 the second half of 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 managed. Funding costs in 2025.

Bryan Preston — Executive Vice President & Chief Financial Officer

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 DDDA 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 1 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 market fees increased 5% sequentially, reflecting seasonal strength in MA advisory. Commercial payment fees increased 8% year over year and 6% sequentially. This fee performance was driven by core treasury management activity and Newline related fees. Newline 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 a non qualified deferred compensation plan which is offset in compensation expense. Moving TO Expenses Page 5 of our release details certain items that had a larger impact on our non interest 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 6 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 5 basis points from the prior year. Overall, we are seeing stable trends across industries and geographies.

In our commercial portfolio, consumer charge offs were 59 basis points, down 9 basis points from the prior year with improvements across nearly all asset classes. The overall consumer portfolio remains healthy with non accrual and over 90 delinquency rates stable to improving across all loan categories. ACL as a percentage of portfolio loans and leases remained at 1.96% and the ACL as a percentage of non performing assets was also stable at 302%. Provision expense included a $6 million reduction and 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 4.7 and 8.4% in 2026.

We made no changes to our scenario.

Bryan Preston — Executive Vice President & Chief Financial Officer

Weightings during the quarter.

Bryan Preston — Executive Vice President & Chief Financial Officer

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 AFF portfolio has decreased by 20% despite only a 4 basis point decrease in the 10 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 portfolio.

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 opened 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 1st with systems conversion anticipated around the end of the third quarter. Additionally, our outlook uses the forward curve at the start of 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 onetime 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 4 to 5 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 3 to 4 basis points from cash flow hedge repositioning. The remaining 2 to 3 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 cni. Our outlook assumes that commercial revolver utilization or 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 non interest 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 synergies in 2026.

In total, our guide implies full year adjusted revenue and adjusted PP&R excluding CDI amortization to be up 40 to 45% over 2025 and another 1 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 30 and 40 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.

Bryan Preston — Executive Vice President & Chief Financial Officer

Repurchases in the second half of 2026.

Bryan Preston — Executive Vice President & Chief Financial Officer

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 and A. Thanks Brian. Before we start Q and A, given the time we have this morning, we ask that you limit yourself to one question and one follow up and then return to the Pew if you have additional questions. Operator, please open the call for Q and A.

Bryan Preston — Executive Vice President & Chief Financial Officer

Thank you.

Questions and Answers:

operator

We will now begin the question and answer session. If you would like to ask a question, please press Star one in your telephone keypad. As a reminder, we ask that you please limit yourself to one question and one follow up. Your first question today comes from the line of Ibrahim Punawalla from Bank of America. Your line is open.

Ebrahim Poonawala

Good morning.

Timothy Spence

Morning.

Ebrahim Poonawala

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’s the biggest opportunity. What’s more, near term versus longer term. Thank you.

Timothy Spence

Yeah, great question Ibrahim, and thanks for it. I think you have to think about these things in terms of timeframes, right? Because what I would say the most immediate near term opportunity is going to 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, analytically 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 Curt Farmer. And at those town halls we saw probably a quarter of Comerica’s total employees. And then Kurt and Peter Sefck 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, you know, 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 that 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 CNI balance growth when they were not in a period where they were making some of these investments to get to be a Category 4 bank or in a position where they were making hard trade offs as it related to, you know, balance sheet size and margin and Otherwise. So day one, when we get, when we get through legal day one on February 1st, we are literally doing a bottoms up review name by name to say where are there places that the broader balance sheet capacity or the ADL and equipment leasing and product capabilities will allow Comerica to lean more? Where are there places where there were investment committee policies at Comerica’s clients that were inhibiting the amount of corporate cash that could come onto the balance sheet? Where are there places where there were technology investments that Fifth Third have been able to make that support commercial payments that will 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 cni, I expect we’ll see that unlocked.

Second thing, you know, the branch distribution is an important part of the strategy at Fifth 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 going to 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 will 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. Okay. 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 going to happen quickly. I think the third thing I just would highlight here is the point Brian made in his script, which is we have over 40 of the 150 locations we intend to to build already secured because the development partners who have been such a big part of the southeast build out.

People who are doing the, you know, 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 H E B 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 actually come out of the ground faster in Texas than it did when we started the Southeast expansion.

Timothy Spence

And it’s all the same models, the.

Timothy Spence

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 going to be the early stuff. The blue sky opportunity here is innovation banking, because that will continue whether it’s technology, AI software, the things that are coming out of the valley, or life sciences. And the transformation that’s going to go on in health care over the course of the next decade. Those sectors 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 is going to 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 got to do to ensure that we have the right guardrails around it, the right product offerings and the right level of coverage.

Ebrahim Poonawala

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

operator

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

Gerard Cassidy

Hi, Tim. Hi, Brian.

Timothy Spence

Hey, morning,

Gerard Cassidy

Tim.

Gerard Cassidy

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.

Timothy Spence

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 with mba. The big driver here, obviously is that we received all the critical regulatory approvals less than 70 days after filing our application. So that is what is making it possible for us to get to legal day one at the beginning of 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’s 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 going to make sure that in the event that another opportunity materialized, that we’d be ready. So we did some work on what we called 2x in the bank, which focused on both systems capacity, but also manual processes, 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 going to get closed earlier. We’re in a good position from a systems and processes perspective. I think we’re going to move the conversion up to Labor Day from what would have otherwise been a mid October timeframe. That’s going to be super A. It’s important because we just want to be able to get the benefit of all five thirds technology and, and both revenue and expense synergies.

But it’s also, I think, going to be really useful for you all because.

Timothy Spence

The same way that the fourth quarter.

Timothy Spence

At 25 was like the last clean look that you were going to get at what the old fifth third was capable of delivering, the fourth quarter at 26 should give you a very clear look at what the new 5th 3rd is capable of delivering. And in fact, as Brian 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 4Q26 in terms of the return on tangible common equity, you know, of 19% and an efficiency ratio that was 53 ish percent or maybe a little better given seasonality.

Gerard Cassidy

Very helpful, thank you.

Timothy Spence

Yeah.

Bryan Preston

And Gerard, if you have any more.

Bryan Preston

Perspective, I think the only thing that Jamie’s more excited about than Miami 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.

Gerard Cassidy

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, new technology. You also pointed out, I think you said, one out of three of the payments customers, the commercial customers have commercial lines of credit with them. Can you give us a view on the C9 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 utilization turn more favorable and what do you see for the C9 loan growth?

Timothy Spence

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 mark of strength. It’s just reflective of the quality of what we’ve, you know, originated there. The big decline in utilization, as Brian mentioned, came from the corporate banking portfolio. What we’re hearing anecdotally, which is supported by 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 anticipation of either making big capital investments this year because of the tax reform or even more prominently, to be able to support M and A activity.

So, you know, and it’s probably worth mentioning in the first couple of weeks here, we’ve seen C and I loan balances come up, call it 8 or 900 million bucks already since January 1st, which really is being driven by utilization and some of the fourth quarter production, you know, funding up. The wild card here at the end of the day is going to be what, 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 think they feel the same or better about 26 than they did about 25.

And I think they’re all excited about tax reform. Rates have been helpful, but they really have been sort of a south to the, you know, accumulated increase in costs, you know, more than anything else in terms of the business. But they want to believe that they’re making multi year investments into an environment where the rules of the road are going to be stable. And so the question really is going to 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 CNI activity? So that’s, that’s sort of where we are.

And you didn’t ask it, but normally you do. I think the other drag for us was the NDFI balances were actually down, you know, 6 or 700 million bucks in the fourth quarter where they were the principal driver of growth for CNI across the banking sector. So we started with low exposure, actually declined as opposed to getting growth from that category.

Gerard Cassidy

I appreciate all those insights. Thank you, Tim.

Timothy Spence

Yep.

operator

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

Unidentified Participant

Morning guys. Thanks for taking the question. Hey Brian, thank you for all the. Detail on the actions you’re going to. Be 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 you complete those actions you discussed around the close? And then I guess, just as the follow up, will those immediate post close actions kind of get you to 100% of where you’d like the balance sheet to be? Or would it take a little more time from there just given the need to more fully kind of transform Comerica’s deposit base? In other words, how does that all evolve in your mind?

Bryan Preston

Yeah.

Bryan Preston

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 want to 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 CNI loans, we’re going to go from about two thirds of our C and I portfolio floating rate to closer to 80% of our commercial portfolio floating rate. So we are going to 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’ve about talked Talk about a 60:40 commercial to consumer mix from a loan perspective and a 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’ll be a multi year 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 going to 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.

Timothy Spence

Brian and I were talking before the call like our expectation going in is we’re going to grow Texas households at north of 10% on an annualized basis. It may take a couple of quarters post conversion to get the ramp, but there is no reason why we can’t grow Texas at 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 going to be huge in terms of managing the balance sheet for strong, strong profitability.

Unidentified Participant

Yep. Okay, perfect.

Unidentified Participant

Tim and Brian, thank you both very much.

Timothy Spence

Thank you.

operator

Your next question comes from the line of John Penkari from Evercore isi. Your line is open.

John Pancari

Morning.

Timothy Spence

Morning.

John Pancari

Just on the deal. Just want to 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, you know, cost save expectation, the restructuring charges or the related marks or P and L impacts.

Bryan Preston

Yeah, no material changes to any of the assumptions inherent in the transaction. I’d say the only major items was the timing of close pulling forward, the pulling forward, the conversion date. We do think that ultimately we’re going to likely be able to deliver deliver A little bit better than 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 26 if all goes well. But you know, we’re hoping to reinvest maybe 40 million of that.

The original expectation was going to be around 320 million of expense saves in 2020. So we’re obviously very 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 from what we would have expected.

John Pancari

Got it. All right, thank you for that, Brian. 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 declined to more pronounced 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 Comercial.

Bryan Preston

Yeah, good question. I mean, John, it’s got to be a little bit idiosyncratic and a little bit compositional, right? Because 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 quarter and other people kind of 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 standard working capital revolving lines of credit that would be secondarily leveraged Lending here has continued to decline over time and that’s funded term debt principally for most of the industry and a smaller share of the overall balance sheet. And then I think lastly, and we’ve talked about this, clearly we’re believers in the value 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 buildout 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 in there.

Again, that step is funded up pretty, pretty quickly 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.

Timothy Spence

And then John.

John Pancari

Okay, great, thank you.

Timothy Spence

And yeah, as we, 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 grew 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 going to create a lot of opportunity for us as we think about what loan growth could look like going forward from here.

John Pancari

Got it. All right. All right, thanks, Brian. Thanks for the color, Tim as well.

operator

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

Timothy Spence

Hey, Mike.

Michael Mayo

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 4Q26 now, is that right?

Timothy Spence

Yeah. Yes.

Michael Mayo

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

Timothy Spence

It would be, it would basically be. Achieving the accretion earlier. So we are expecting, we talked about 9% EPS accretion in 2027 and we would expect to be able to deliver 9% EPS accretion from the deal in the fourth quarter of 2026.

Michael Mayo

Okay. And then I’m just, you know, it’s maybe your middle name is, you know, Tim Digital Spence. You know, Tim, I 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 got billboards too, and it sounds very old school. So does that still work? It’s just kind of intriguing.

Timothy Spence

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 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. If you look at marketing LinkedIn household origination, it’s probably 50, 50 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 broader 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 JP Morgans 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 will be a digital billboard. How about that?

Michael Mayo

No, I mean, whatever works. I mean, I guess you’re saying it’s male, it’s digital, it’s branches. So for the last 110 branches that you need to secure, seems like, you know, you kind of telegraphed that and maybe, I don’t know, how long will that take to get your other 110 or the 150 de novo branches?

Timothy Spence

Oh, I, the, it’s the opposite of the slowly but suddenly. I think in this case it’s suddenly and then slowly because 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 going to 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 outlook? They know our specifications, they know what we expect from a zoning perspective. They know how well we perform as a strict center tenant and what we expect in our contracts for ground leases or purchases. And therefore we were always going to get more locations earlier. We’re not going to 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 you know, it’s a robust market. It’s just stunning to think that an msa, you know, 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 want to have them today versus where, where they were when they were built 30 years ago.

Michael Mayo

I look forward to the investor day in Dallas in a year or two.

Michael Mayo

Thank you.

operator

Your next question comes from a line of Erika Najarian from UBS Financial. Your line is open.

Timothy Spence

Hey, Erica.

L. Erika Penala

Hey. Just one follow up question for me and I really want to know what Jamie’s middle name is. If yours is digital Tim.

Timothy Spence

Right now it’s Red Hawk for what that’s worth at the moment.

L. Erika Penala

So, Brian, 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.

Timothy Spence

Yeah, I would tell you that 2026.

Timothy Spence

Is really going to be a remixing year for the combined company. I think you’re going to see something that looks very similar to what we’ve been able to deliver on the fifth third franchise, which, 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 of 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 standalone basis.

What it’s going to mean is a continuation of what you saw in the fourth quarter, which is our betas look a little bit lower for the kind of fifth third legacy markets than it 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 basis points of that’s just going to be attributable to the funding synergies as well as some overall balance sheet mix changes.

L. Erika Penala

Got it. Thank you.

operator

Your next question comes from a line of Ken Usden from Autonomous Research. Your line is open.

Kenneth Usdin

Oh, hey guys. I know this is going to 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 just, if you have it, can you give us what the CDI add from the deal is on the Comerica side so we can kind of just square the total overall. Thanks.

Timothy Spence

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 dollars reduction as you roll into year two of the average.

Kenneth Usdin

Perfect, thank you. And just to step that 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 standalone 5th 3rd momentum is as you just think about last year’s results on the standalone side versus kind of the momentum on the standalone fifth third side in whatever way you can kind of put it into context, you know, revenue momentum, loan deposit momentum, et cetera. Thanks.

Bryan Preston

Yes, absolutely. We continue to feel good about what.

Bryan Preston

We were seeing from the core fifth third franchise. We would have been talking about mid single digit loan growth if you would have looked fourth quarter 26, fourth quarter 25 comparison in terms of what our core business is driving and that’s really a continuation of continued strength in middle market that would drive mid single digitization CNI growth as well as continued strength out of the home equity in the auto businesses being big drivers from the loan front. We would have still been talking about revenue growth in that mid to upper single digit growth rate perspective and another one 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 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 faster 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 going to drive a nice financial outcome for 2026 and beyond.

Kenneth Usdin

Thanks, Brian.

operator

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

Manan Gosalia

Hey, good morning. I wanted to ask about the 19% plus ROTC target. I mean it looks like you’re already at 19.6% as of 4Q. Are there any areas that you think you’re over earning here? It seems that the core business is delivering nicely. The Comerica acquisition should be accretive in 27. You’re going to resume buybacks in the second half of this year. At this stage, it looks like you can come in nicely above that 90% plus number in 2027. But just wanted to see if there’s any offsets that we should be thinking about.

Timothy Spence

Yeah, the 2 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.

Manan Gosalia

All right, 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 that you expect as you get out into 2027.

Timothy Spence

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. January. So Comerica standalone activity in the month of January is the only thing that would not be in our 2026 numbers. And that’s. That continues to operate in that 3.6, 3.7 billion dollar deposit range as well as 100ish million a year in expenses and fees. That’s a continuation of that is what’s resident in the guide that we’ve provided other than the month. It’s January activity.

Bryan Preston

Yeah. The upside there as we get into 27 and beyond is in my head. I associate the Direct Express 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 onto our tech platform, as we broaden the functionality that’s available to Direct Express participants, that we’re going to be able to play a little bit of offense here and actually work with the Bureau of Fiscal Services to go agency to agency and 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 going to find more meaningful upside out of that program in terms of growing it.

Manan Gosalia

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

Timothy Spence

Yeah, we got to get the conversion done and the feature builds. That job one is take care of existing program participants. So that’ll be the majority of the work this year because we will be moving on to a different tech platform and that is being developed with fifth and fiserv. And once we’re there and we’ve got the existing program converted, you know, we’ll focus on how we expand the program.

Manan Gosalia

Great, thank you.

operator

And your final question today comes from the line of Chris McGrady from KBW. Your line is open.

Timothy Spence

Oh, great.

Christopher McGratty

Thank you.

Christopher McGratty

Hey Tim, going back to capital, I. Noticed in your prepared remarks you talked about 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 right first.

Timothy Spence

Yeah, that is the last thing on my mind right now. For what that’s worth. The upside opportunity here is really significant and there’s a lot of work in front of us so that the focus, it 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 that we get the expanded capabilities that both legacy 5th 3rd customers and Comerica customers are going to benefit from to market.

We got plenty to work on as it is.

Christopher McGratty

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 takeouts. 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 broadly.

Bryan Preston

Yeah, I mean.

Bryan Preston

We have grown for several years now. Tech spend in the sort of high single digit to low double digit range. Right. Call it 7 to 10% on an annualized basis. I anticipate we’re going to 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 that you’ll see in our disclosures on FTE is a good example of this. Like if you look year over year from December 25th back to 24, that headcount was flat at 5th 3rd, 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, you know, actually play their way through. So, you know, 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.

Christopher McGratty

All right, perfect.

Christopher McGratty

Thank you.

Timothy Spence

Thank you.

operator

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

Matt Curoe

Yeah, just one last thing before I hand it over to Matt. To the thousand fifth third employees in Indiana. Hoo hoo hoo, Hoosiers.

Matt Curoe

Thanks, Tim. And thank you, Rob. And thanks everyone for your interest in 5th 3rd. Please contact the Investor Relations Department if you have any follow up questions. Rob, you may now disconnect the call.

operator

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