Fifth Third Bancorp (FITB) Q2 2026 earnings call transcript

I will now hand the conference over to Matt Quiro, Director of Investor Relations. Please go ahead. Good morning, everyone. Welcome to fifth, third, second quarter, 2026 earnings call. This morning, our Chairman, CEO, and President, Tim Spence and CFO Brian Preston will provide an overview of our second quarter results and outlook. Please review the cautionary statements and our materials, which can be found in our earnings release and presentation.

These materials contain information regarding the use of non-GAP measures and reconciliations to the GAP results, as well as four looking statements about fifth, thirds performance. These statements speak only as of July 17th, 2026, and fifth, third, undertakes no obligations to update them. Following prepared remarks by Tim and Brian, we'll open up the call for questions.

With that, let me turn it over to Tim.

Morning, everyone, and thank you for joining us. At fifth, third, we believe great banks distinguish themselves not by how they perform in benign environments, but how they navigate uncertain ones. In a strong macro environment like this one, our job is to stay disciplined and to build durable franchise earnings. Now, simply do enjoy the cyclical business. As we always say, it's stability, profitability, and growth in that order.

Today, we reported earnings per share of 83 cents or a dollar two excluding certain items outlined on page two of the release.

When we announced our merger with Comerica nine months ago, we made three commitments to produce no tangible book value per share dilution to become an even more profitable company and to create an even better platform for long-term growth. While we are still in the middle of integration, and not every metric is yet where it will be, our trajectory and long-term potential are visible in this quarter's results.

Tangible book value per share increased 10% year over year, 1% sequentially and 7% since the announcement of the transaction.

Our adjusted return on tangible common equity improved to 19%, our adjusted return on assets improved to 1.3%, and our adjusted efficiency ratio improved to 57%, even with most of the expense energies still yet to be captured.

As importantly, our organic growth strategies continue to deliver on the broader footprint and opportunity set that fifth-third and Comerica together possess.

End of period, consumer and small business deposits increased 4% sequentially, driven by strong new customer acquisition. In the southeast, consumer checking households grew by 7% year over year, approximately four times the rate of underlying market growth. We opened more than one branch per week during the quarter and remain on schedule to open 55 new branches in the southeast for the full year.

Encouragingly, Comerica, Texas, Arizona, and California markets grew checking households by 4%. The first net new household growth in several years and added $2.5 billion in deposits was a double the $1 billion expectation that we shared in our last earnings call. We also opened our first fifth-third branded branches in Texas and California during the quarter. Following conversion, we expect southwest household growth to accelerate further, as Comerica's existing branches see the full benefit of fifth-thirds products, digital channels, and analytically driven direct marketing. We will also see the pace of new branch opening accelerating Texas, having now secured 101 of the 150 additional locations we targeted to build by the end of 2029.

Turning to commercial lending, end of periods C&I loans grew 2% sequential. Comerica's legacy markets and specialty verticals grew C&I loans with Texas, California, Michigan, environmental services, dealer services, and tech and life sciences all showing growth. Overall, we continue to see demand in factors and markets benefiting from infrastructure investments as well as in aerospace and defense.

Our largest fee businesses hit important milestones during the quarter, with commercial payments and wealth and asset management each achieving a $1 billion plus annualized fee run rate and capital market fees reaching 600 million annualized pace.

New line continued to drive growth in commercial payments, with fee revenue increasing 35% year over year. And the technology behind it earned a 2026 top financial innovation awards from both the American Banker and Global Finance.

We also shipped the first direct express cards in our new platform during the quarter, with 66,000 new beneficiaries and all participating federal agencies now live. Behind the scenes, our products and technology teams had a strong quarter, both in terms of integration and innovation. On the integration front, we executed our second mock conversion in June with good outcomes.

We remain on track to execute systems conversion on Labor Day weekend, the last step to unlock the $850 million of annualized run rate synergies we committed to the liver in the fourth quarter.

On the innovation front, new line extended its model context protocol server capabilities with skills, standardizing how AI models can use our tools and workflows. And our consumer team shipped a new AI-powered interface within our mobile app, designed a streamlined navigation and task completion for our customers. We also launched fifth third for business during the quarter, a banking experience designed to help small businesses manage working capital and get paid faster.

This solution includes several differentiated, tech-enabled elements, including credit and eligible payments such as merchant receivables and government payments up to two days early for free, enabling business customers to accept payments via ZEL and TAP to pay directly on their smartphones and providing access to working capital through the same award-winning digital interface that powers provide.

Internally, fifth third colleagues continue to make significant use of AI tools to boost quality and productivity, executing more than one million prompts in the month of June alone. In technology, the prompt accepted rate per new code was 45% during the quarter, and over 87% of unit testing was automated by AI. While it's early days, and we have much yet to learn about how best to harness the power of these tools, and looking forward to what we will be able to do after our technical conversion is complete.

Before I hand it over to Brian, I would like to take a moment to thank our team members. The work you do is detailed, demanding and important, especially now as we serve existing customers and communities along with executing the largest merger in our history. We are building a fifth third that is not just bigger, but better, more differentiated and more resilient.

That's why earlier this morning, your money recognizes you as the best US bank in 2026. Congratulations. With that, I'll turn it over to Brian.

Thanks, Tim, and good morning. Our second quarter results reflect a core franchise that kept compounding and the earnings power of the combined company beginning to show through, in the margin, the fee lines, and the expense discipline.

The comparisons to the prior quarters remain distorted by the acquisition. So let me review the key themes in two parts. First, our organic engine kept executed. And second, America broadened the runway ahead of us. Starting with our organic performance, Net interest income and margin show the benefits of the continued discipline execution in addition to the acquisition benefits.

Net interest income was $2.22 billion, and Net interest margin expanded six basis points sequentially to 3.36%. The margin moved breaks down cleanly. The additional month of America contributed three basis points, and the remaining expansion came from the continued benefit of fixed rate asset reprising, loan growth, and deposit performance. Loan growth was broad based and granular. Period and portfolio loans of $179 billion grew 1% sequentially, with commercial loans of $2 billion or 2% on production across middle market and corporate banking.

Line utilization was stable at 40.8%. Flat with the first quarter. Clients remain active despite continued market volatility. Shared national credits remain a modest 26% of total loans, consistent with our focus on granularity. In addition, our provide syntax platform grew loans approximately 4% sequentially. We are realizing the benefits from expanding provides leading digital experience and practice finance into a broader small business lending platform, where we have moved from number 31 and SBA lending nationally a year ago to number 15 today.

Period and consumer loans grew steadily, with the mix continuing to shift. Home equity balance increased 3% sequentially, and we were the number one originator of home equity lines across our legacy footprint. This growth maintains the same credit discipline, with an average FICO of 774 and a loan-to-value ratio of 63%. Given the rate outlook, we expect continued momentum in this product, where we have been building share.

Our funding discipline shows in the deposit book, where we saw granular deposit growth and well-controlled deposit costs. Average quarter deposits were $229 billion in the quarter, and period and quarter deposits were $231 billion. We remain focused on improving the composition of our deposit base towards our long-term goal of retail deposits, contributing 60% of our quarter deposits.

During the second quarter, consumer deposits grew nearly $5 billion, and offset the intentional reduction of higher-cost, non-relationship deposits, and normal seasonality and commercial.

The $2.5 billion of consumer deposit growth in the Southwest that 10 described was a meaningful driver of that growth, and reflects early traction in our newer markets. Average non-interest bearing balances were 28% of quarter deposits, up from 25% a year ago, reflecting Comerica's commercial DDA franchise and our own consumer DDA growth. On a legacy fifth-third basis, households grew 3% over the past year, and as Tim highlighted, even faster in the Southeast markets, translating into 5% consumer DDA growth, reflecting relationship-based, not rate-driven growth.

Total deposit costs sell four basis points sequentially to 1.54%, a favorable outcome relative to industry trends. Interest-bearing deposit costs also improved down to basis points sequentially.

Our balance sheet management posture has unchanged. We prioritized granular, insured deposit funding, and we continue to hold meaningful liquidity buffers. We maintained a Category 1 LCR ratio of 107%, and a low to quarter-positive ratio of 77%. We have and will continue to actively manage our overall funding costs through pricing and mix. A discipline that has allowed us to expand them this quarter while continuing to fund growth.

The fee business performance carried the same breadth, with not one line, but three delivering solid outcomes. The same three that we have invested in for years, and the returns are compounding. Adjusted non-interest income, excluding security gains, and other items listed on page four of the release, was $1.04 billion.

Wealth and asset management revenue was $256 million on higher personal asset management fees and favorable market performance. Total assets under management were $120 billion, and on a legacy fifth-third basis, AUM was $85 billion, up 16% from the prior year. Within wealth, fifth-third securities continued its momentum with retail brokerage revenue of 18% from the prior year.

Commercial payments revenue was $254 million, led by strength in new line and core treasury services. As Tim noted, new line fee revenue was up 35% compared to the prior year, and related deposits were $5.3 billion, an increase of $2.1 billion from the prior year. Direct Express contributed $22 million in fee income, with average deposits of $3.7 billion in the quarter.

Capital market fees were $154 million, on client financial risk management and loan certification activity, an annualized pace in line with a $600 million run rate 10 described.

Now to expenses where the benefits from America and the integration progress are already being realized. Total adjusted non-interest expense of $1.86 billion was better than our expectations as we continue to realize synergy benefits ahead of schedule. Page five of our release details to certain items that had the largest impact on non-interest expense this quarter, primarily $203 million in merger related charges.

The full $850 million of annualized run rate expense energies is on track for the fourth quarter, with systems conversion over Labor Day weekend, the next major step. Given that conversion timing, we expect to realize the majority of the remaining synergy benefits in the fourth quarter. The adjusted efficiency ratio was 57.1%, a strong improvement from the first quarter, and we remain confident in achieving a run rate efficiency target of 53%.

On credit, trends were benign and improving. The net charge off ratio improved seven basis points sequentially to 30 basis points at the bottom of a range in the lowest level since the second quarter of 2023. Commercial net charge offs were 21 basis points, down five basis points sequentially, with stable trends across industries and geographies despite the continued market volatility.

Consumer net charge offs were 53 basis points, down five basis points sequentially, and consumer delinquency trends remained stable. Non-performing assets were relatively stable, up three basis points from the first quarter, and commercial criticized assets decreased during the quarter.

Where we grow is the choice, and so is where we don't. Our exposure to non-depository financial institutions is approximately 7% of total loans, well below the industry average. Concentrated in subscription and capital call facilities, corporate facilities to traditional financial institutions, and secured lending to mortgage related entities. In each of these areas, we have deep underwriting history and structural protections that provide significant loss absorption before we would recognize the dollar in loss.

On private credit, our loan growth does not rely on lending to private credit vehicles and business development companies, which together are less than 1% of total loans. A deliberate decision given the structural complexity that is harder to assess through a cycle. On software and data center lending, we believe in the long-term demand for AI infrastructure, but a state selective. At less than 1% of total loans, that exposure is intentionally limited in performing in line with expectations.

The ACL ratio ended at 1.76% of portfolio loans, down three basis points sequentially. Reflecting continued strength in the risk profile of our book, particularly in CNI lending. Provision of $129 million with down $98 million from the prayer quarter, which included an $83 million day one Cecil bill for Comerica acquired non-PCD and non-PSL loans.

Our baseline and downside economic cases assume unemployment reaching 4.6% and 8.5% respectively in 2027, consistent with the prior quarter scenarios. We made no changes to our macroeconomic scenario waiting during the quarter.

Moving to capital, CDT1 ended the quarter at 9.93%, an increase of four basis points sequentially, despite strong period and long growth and absorbing $175 million of after-tax charges related to the merger and other items. Our CDT1 ratio, including the AOCI impact of our securities portfolio, was 8.7% and tangible common equity, including AOCI, improved to 7.3%. We expect continued improvement in the unrealized losses in our securities portfolio, given the bullet lockdown structure as approximately 55% of the fixed rate securities in our AFS portfolio have a defined principal repayment schedule.

A portfolio construction choice that gives us a high degree of certainty around the timing of the AOCI accretion back into capital.

Finally, there was no shared purchase activity in the first half of the year. Moving to our current outlook, our outlook reflects the forward curve at the end of June, which assumes the 25 basis point rate hike in September.

Given the updated rate outlook and actions we took during the quarter, we are increasing our full year NII guidance to a range of 8.74 billion to 8.8 billion dollars. Those actions, repositioning $4.5 billion of securities and adding $3 billion of forward starting received fixed swaps as a cash flow hedge on our commercial loan portfolio added to the NII outlook while beginning to reduce our asset sensitivity.

We are refining our average loan guidance range to $174 billion to $176 billion. As a reminder, the average balance for the year will only include 11 months of America.

We are raising and narrowing our full year non-interest income guidance to a range of $4.06 billion to $4.16 billion, reflecting continued growth in commercial payments, capital markets, and wealth and asset management.

We are also lowering and narrowing our full year non-interest expense guidance to a range of $7.22 billion to $7.26 billion. This outlook excludes acquisition-related charges.

Taking together, our guidance implies full year adjusted PP&R growth of more than 40% versus 2025, including the impact of CDI importization. We remain on track to exit 2026 at profitability and efficiency levels consistent with our 2027 targets.

For credit, we expect second half net charge-offs of 30 to 35 basis points, which replace our full year performance in the bottom half of our 30 to 40 basis point range.

Turning to capital, our CDT1 operating target is 10 to 10.5% and we are effectively there, with capital continuing to build through our earnings power.

Our capital priorities remain unchanged. Maintain a strong dividend, support organic growth, where we see the highest returns on deployed capital, and then return excess capital through share repurchases. Consistent with that approach, we expect to resume regular quarterly repurchase activity in the second half of this year.

For the third quarter, we expect NIA to grow 2% to 2.5% from the second quarter, driven by the continued benefit of fixed rate asset repressing and day count. Average loans are expected to be up approximately 1%, led by growth at CNI, home equity, and auto.

Adjusted non-interest income is expected to increase 1 to 3%, while adjusted non-interest expense is expected to decrease 1 to 2% as expense energies continue to be realized.

The second quarter turned the integration thesis into results. The earnings power of the combined company isn't a forecast anymore. You can see it in the margin, the feed lines, and the expense discipline. The core grew on its own, America widened the runway, and with the Labor Day conversion just weeks away, the earnings power is landing on the schedule we set.

With that, let me turn it over to Matt to open the call for Q&A. Thanks, Brian. Before we start Q&A, given the time we have this morning, we ask that you limit yourself to one question and one follow-up, and then return to the queue if you have additional questions. Operator, please open the call for Q&A.

Sure. Thank you. And good question a lot there. So yeah, I think we feel very good going into the Labor Day systems conversion. I think we've talked before about the fact that the mantra here on any sort of a big program, whether it's a thing like this or the organic expansion, is think flow act fast. And so we elected to do three mocks as opposed to two, which I think is generally where people are. So we got through the second mock in June.

And that went very, very well. We eventually have built some pretty cool tech tools for this conversion, effectively an intelligence layer that sits on top of the Microsoft project plan hardback that is able to monitor the conversion in real time and then help the teams coordinate, including having AI essentially listening into the teams or Slack feeds. And monitoring for any sort of sign that there may be a delay and then helping us to think through the contingency and whatnot. So we feel very good about being able to get the conversion done in Labor Day, which then to your point, you're in unlocks.

The last large wave of synergies, both as it relates to real estate and to people. And then obviously to the elimination of the systems.

We are, if you just look at it mathematically running a good bit ahead of the 850 million in synergies, our plan, assuming that the environment holds the way that it has, has been to redeploy anything above the 850 into supporting revenue growth, unless we just don't have opportunities to be able to do that. So at least as it stands today, the intent would not be to allow the additional synergies to fall directly to the bottom line in form of incremental efficiency.

It would be investing. The deposit campaigns in the Southwest went obviously extraordinarily well. I think when we talked to you in January, we said we were hoping post-legal day one to be able to get a half a billion, the three quarters of a billion out of the Southwest market. So we did the earnings call and the programs were tracking at a plan. We said we hope to get a billion, a two and a half billion dollars of incremental deposits into those Southwest branches.

And so we're eager post-conversion to be able to turn on the checking household acquisition marketing. And we expect to do very well. Like the unannualized sequential checking household growth in the Southwest was 4%, as I mentioned in my prepared remarks, which, you know, whatever, I won't make an effort to calculate the compound rate. Like just multiply that by 4%, it's 16% annualized growth in incredibly robust markets.

And that's without the product, the checking products, you know, the fifth third will bring and the incremental household marketing. I think the other areas we intend to turn on the jets and the product specialists and in the relationship manager sales force, we're ahead of the game on mortgage. We were able to move earlier there because Comerica really didn't have a large mortgage platform.

We did the same amount in production in the Comerica footprint in two months. That Comerica did in last in 12 months last year. And so that is evidence of where I think we'll be able to see, you know, pick up. We had some sizable commodities hedging relationships in metals and recycling, come online, align to Comerica's vertical, is Comerica's verticals in the second quarter.

About 10% of the Comerica payment sales force production was fifth-third products that Comerica didn't previously offer. I think that could be a lot more. That could be 50% by the time, you know, that we've done there. And the ABL product in particular, in addition to equipment leasing, continues to be quite successful. We had Comerica bankers win new quality relationships, so not just servicing existing relationships, but when new relationships with those products. So I'm of the view that given that those things are materializing today, pre-conversion, you know, when it's still a little bit crucial to be trying to manage client relationships across two technology stacks, that when we get through to the other side of this, we should be able to show a pick up in both loan production, but in particular feed production on the commercial side of the equation next year.

And that there's no reason not to take the household growth rates and to multiply it by four for the Southwest, because we will invest in an environment where, you know, whatever deposits continue to be important, where the demand continues to be ample, what incremental we generate above and beyond the 850 in the bottom line, drive up the tangible book value per share, bro.

Yeah, we would tell you the environment certainly is competitive, and that's not unexpected. And what is now really shifted into a long growth environment. You know, long growth obviously creates deposit growth for the industry as well, but there's a lot of sorting that has to occur. So we are certainly seeing an uptick in the competitiveness across the footprint. I would tell you the consumer deposit franchise is probably the most competitive area right now across the Midwest Southeast, across all the Midwest South East and Southwest. We've tested a lot of different rate offers over the last six months in the first half of the year, and it certainly is getting more expensive to grow deposits.

But what we feel really good about is our ability to manage overall deposit costs, which you see in our results as quarter. We've done and remained disciplined on our ability to recycle interest expense into new opportunities. I think one thing that is hard to see in the numbers is that we're still maintaining in the area of about $100 billion what we would refer to as high beta balances, that we have the opportunity to recycle some of that cost through some cuts and into growth strategies. And that has been a real focus of us for quite some time on how we actually deposit costs disciplined this quarter. And so we see that trend continuing. And what we're excited about is the opportunities in the Southwest markets in particular.

Because we have such low share in those markets, we have the ability to go to those markets and drive for some good growth opportunities that have really limited cannibalization costs for us from a book perspective. And that really helps us manage the overall marginal cost of those deposits, which has been a key part of the strategy. So we think it's going to continue to be competitive.

On the commercial front, I wouldn't say it's as competitive as what we've seen in the consumer books, still competitive. People are obviously trying to be positioned on the commercial front to be able to be in a position to take advantage of the rate hikes. We obviously, one of the ways we've managed through that is making sure that our index portfolio is structured the right way, which we feel good about right now. But I don't think people are at this point overly focused on the hikes because I think people are kind of a coin toss if we're going to see something. But it is something we're keeping close on right now.

Yeah, if I just add one thing, I think environments like this one favor people who have some sort of differentiated strategy, right? If you're just in the commodity markets for deposits, the competition dictates your margins, when you have differentiated platforms, in particular ones that are operational in nature, because they're just harder to build quickly, you have optionality that others don't. So you know well that like a billion dollars is a yard in the bond lexicon. If you go through the numbers, this past quarter, like we got two yards a year over a year from Newline. We got three from consumer, most of which from the southwest and the southeast, and then four yards for direct express.

We got one more yard and we are at a first down, right? It's just, but those are things that not everybody can play. And in the case of direct express, it's a unique attribute. In the case of Newline, it's highly differentiated. And there's a lockout. In the case of consumer, you know, there are a lot of people who will build branches, but not a lot of people who have been building branches and therefore have the benefit of the 150 in the southeast that have been built over the last handful years, you know, coupled with the fresh territory that we have in the southwest, to be able to just grind away. Three yards in the cloud of dust, right?

You get your first down and four. Thank you both.

Morning, Manan.

Yeah, we feel very good about where we're going to end the year, right? And Brian reinforced it, you know, whatever, the glide path, we are almost at on the ROTCE, the original target we sat for 2027, and then said we could get to in the fourth quarter, and we made a huge step from first quarter to second quarter toward the target efficiency ratio.

I remind everybody seasonally, the fourth quarter tends to be our most efficient quarter, so we should do better than the 1953 that we had set for 2027 in the quarter. And when you take our guidance and work it through your models, I know it'll show that. Our belief is that at the level of profitability we are running at today, that maintaining that level of profitability, which means showing enough operating leverage to continue to support this sort of 19% plus ROTCE, you know, essentially compensates for the roll-in of the ALCI into tangible common equity. And then driving tangible book value per share growth is the best way for us to generate long-term value for shareholders. So we do intend to accelerate the pace of investments that we make in AI.

I'm very proud of our tech and product teams for having shipped all the things that I mentioned earlier, because for all the obvious reasons, their principal focus is making sure that we deliver, you know, a flawless conversion. But there is a lot more we're going to be able to do when we can move out of an environment where the workflow applications here are effectively on a code freeze to drive more efficiency into the business. It's just we have a lot of proving strategies that generate low-cost deposit growth, the generate fee growth, that are a better, I think, path for us, given our position in the ecosystem, then focusing on trying to go from, you know, I'm going to make it up here, but 19% to 19.5% to 20%, you know, on the sort of core profitability spectrum.

Yeah, so there are sort of the two stages here, right? There's front book, back book. So the front book products live all new beneficiaries in the federal government that go into the direct express program are going on that new platform, and that platform will effectively grow at the rate that new beneficiaries who elect not to have their benefits routed to a checking account are added. There then, secondarily, will be a back book conversion that we will be commencing this year that will scale the new platform, but that essentially is moving deposits off of the old platform that Comerica operated onto the new solution that Fifth Third and Pfizer are offering. We are seeing pretty good underlying growth in deposits.

Brian, you may want to reference the sort of pace with which deposits are growing if you just look at the direct express portfolio in total. But in general, we're at the right point, like the retirees are a good place to be focused on, given the shape of the demographic pyramid in the U. S. And the byproduct of that is I actually think we're going to see pretty nice secular growth tailwinds there.

Yeah, and if you were to look back on a multi-year view of this, in 2024, this program averaged closer to $3 billion in balances, and as it continues to scale, you know, it's sitting at $3.7 billion today, we would expect that kind of growth to continue. When you think of the makeup of this program, which is obviously it's retirees and it's sectors of the economy that we think are going to continue to grow in terms of the unbanked effectively that don't have traditional bank accounts. There are some good demographic trends here that should continue to deliver stronger from a DDA perspective in this portfolio.

Hey, Ryan.

Yeah, Ryan. You know, when we look at the numbers, it's I do want to highlight it is hard to see the moving parts, just given that we're now comparing a full quarter impact of America to two-thirds of a quarter impact as well as now and layering on top of that normal commercial seasonality. We saw, if you look at, and again, this is information that is a little harder to see, June average balances versus March average balances for the month. We saw one percent sequential growth, including a recovery of DDA balances from the normal seasonality that we associate with tax seasons with DDA balances being up. So, when we think about a mid-single digit kind of growth rate, we think that's the trajectory that the company can be on for some time, and we can accelerate faster than that, depending on the speed that we want to deploy at marketing dollars to grow more balances.

A mid-single digit growth that supports what we talk about in terms of mid-single digit growth in the loan portfolio, that really is the foundation of how we think about it coming together, and we think we have a long runway in front of us. We've talked for a bit now about the $4 million deposit opportunities in front of us, the maturing of the Southeast network, the growth associated with now the Southwest network, the build-out of our small business product, getting it into that place where we should be from a market share perspective, and then the tech and life sciences growth from an innovation banking perspective. That's a $40 billion opportunity that we think we can achieve within the next, you know, better part five, six, seven years as the network matures out.

So, we think that tailwinds associated with the deposit franchise are there, and as Tim mentioned, what we're excited about is it's not just a single play. We have a very diversified franchise that gives us a lot of abilities to grow in different areas, both geographically and from a business perspective, and we've delivered, and hopefully you feel like you've seen it in our numbers, good outcomes. The consumer franchise continues to deliver, and the investments we've made from a branch perspective continue to pay off.

When you look at our overall deposit costs, you know, the consumer core franchise, $116 billion of deposits that are at 125 total costs of deposits right now. We feel very good about the profitability that that franchise is kicking off, and what you see is the ability to attract new customers, and rate is often part of that. But when you can provide a customer with leading product, great service, and convenient locations, we're able to maintain those customers as we price them down over time. And so they're getting a great experience at the third. We think that business model could continue for some time.

Yeah, I feel pretty good about our ability to sustain the low growth pace going forward, barring the material change in the macro. Like when you look at the commercial clients that we have, adding confidence is up on a pretty broad basis. Like it really is not sector focused. Now that was based through the quarter on the belief that the situation in the Middle East was de-escalating. And also, I think the fact that the tariff confusion is settled out. So clearly, we have some retrenchment on the Middle Eastern front. But the tariff confusion has settled. Like a simple example there, one of the metal stamping businesses that I had the opportunity to talk to in Michigan had stopped bidding at market rates, just given input cost uncertainty and had to resume bidding during the quarter.

And I think clients across the board indicate that demand is pretty stable. In some cases actually had been improving. The sector is linked to infrastructure, capital investment and data centers, places where there is real evidence of re-shoring activity like automotive, where you have foreign OEMs building plants here in the U. S. is where the business is moving. I think most strongly, the folks that are focused on more value oriented consumers are probably the places where you've seen more hesitancy.

But at least as it relates to us, like if you just disaggregate the C&I loan growth, legacy fifth third was up by more than 2%. The big driver there is the fact that new quality relationships are running about 20% ahead of where they were in the prior year. And that is informed by the year ago. The legacy Comerica, business lines and markets grew C&I loans by about 1% sequentially after having been basically stable or flat for the past three or four years. So there's a nice step forward. They are in the verticals in particular. The specialty verticals were the standout.

They grew 6%. And the energy and talent of the bankers there is really exciting. I think as we go through the conversion, there's no reason to believe that both teams will converge around the same growth rate. So good underlying demand attached to secular things more than sort of specific points in the cycle. And just both the added feed on the street on the fifth third side and then the continued re-acceleration of the rate of growth that Comerica had demonstrated it was capable of prior to the last three or four years. And you have a pretty nice sustained low growth outlook for the bank.

Yeah, I think the mid-single digit growth rate is a fair growth rate for us from a long-term perspective and given that's aligned with what we're trying to do from a longer perspective and keeping our balance sheet core deposits funded. From the second half of the year perspective, there's a little bit of deposit seasonality that you'll see. We typically have a little bit of a ramp in the end of the fourth quarter as commercial balance is billed heading into your end. That's the only thing I would caution you on just to pay attention to normal seasonality on that front. But that is the right kind of core long-term growth rate to think about for us. And there's nothing that causes us to look at what's happening in the second half of the year to think that you should expect anything different.

From a cost perspective, we do think that more of the balance growth just given where we are from a rate environment perspective will come in in an interest-bearing product. So I do think that you're in a stable to maybe slightly up rate perspective for deposit costs from here on out even if you were in a flat fed funds world.

But we're able to manage through that obviously with continued asset growth as well as the fixed period asset reprising that continues. And then we would benefit from a balance sheet perspective given our asset sensitivity if we were to see a hike. Obviously it would have an impact on deposit costs from here, but the reprising of the asset side of the balance sheet would outweigh that which would be a benefit for us from an AI perspective.

Yeah, we are exactly where we need to be from a balance sheet perspective from an LCR requirement perspective. And so any LCR relief would create some value from a long-term margin perspective. And the concept there is that you could ultimately hold a smaller security portfolio, and in particular, a smaller level 1 allocation, which would obviously be NAMM accretive and a margin accretive. So we do feel good that that would be a good outcome.

It's tough to say at this point of what that would look like from a quantification perspective. There's a lot of speculation out there on allowing for credit from a discount window perspective in those calculations. But what we've not really seen at this point is sizing of what does it look like from a minimum security portfolio size perspective? If you look at our disclosures, we keep a lot of collateral placed at the discount window well above what our security portfolio is. So we don't believe we could take our security portfolio in the near zero. So it's really going to come down to what those floors look like. From a capital perspective, obviously we feel very good about where we are from a Basel III end-game perspective on a fully phased end basis.

We're above nine and a half from a TET1 perspective. Taking into account the phase-in on the AOCI, we would be north of 10 and a half at this point. So capital is in really good shape. We're having the conversations around whether we would adopt the expanded risk-based calculation approaches, which is about a 10 basis points difference between the standardized approach.

So that is an option that we live in front of us. But we feel like we are in good position from a capital perspective and without some optionality in front of us.

Morning, Gerard.

Yeah. No, great question. I think going into next year, I don't think we have to wait for next year. We're tracking all of this stuff in a pretty detailed way. Hence, my point earlier about, like I said, I think I said roughly 10% of new productions, exactly 8% of new TM production from Comerica TMOs. It's 5th third products that Comerica didn't offer previously. Like, it's down to the deal level that we're measuring all these things. What I would say is the focus will shift when we get past conversion from the sort of job one, which is protect what we have and get the expense energies out to job two, which is energize the combined team around the opportunities to drive growth.

The job one, we talked about the expense energies. I think the other thing maybe that is worth mentioning that I didn't is 99.4% of the customers that Comerica had in commercial at the beginning of this year are still clients today. So we're actually running ahead of normalized client attrition. Like, we're doing better from an attrition perspective than you normally would in this sort of equation. So the teams have done an incredible job of ensuring that the existing relationships understand why they're better off with the combined company than they would have been with either company being independent.

But we've done the product innovation roll out. We have added specialists and several of the markets will continue to do more of that. And they think as we get into the fourth quarter this year and we're looking forward to next year, we'll give you a view of what we think from a growth perspective is coming from sort of legacy fifth third strategies versus what's coming from the application of those strategies to new markets or leveraging Comerica capabilities across the broader fifth third platform. And we'll just transparently train currently what you see it.

Yeah. I mean, you know that we worry about that. Like I just given the time that I spend technology like that one guaranteed rule is that we will miss estimate the amount of capacity which means you don't have a normal market structure, which means you have more people trying to gain share than there is share to be gained, which by definition means there will be some overbuilding. You know, now my own view on this is that there's a possibility that that capacity gets absorbed just over much longer time frame than people anticipate.

But it makes being on the construction financing side of that equation a little bit dicey. That said, given the composition of the of the client portfolios that Fifth Third and Comerica have, which tend to be real economy businesses disproportionately, right? We have lots of relationships with people who are engaged in constructing data centers. Like I did the chance at one market that I did out west to meet an HVAC contractor who mentioned that they have a five-year backlog equating, you know, like $300 million in incremental backlog, you know, due to hyperscaler demand. We have clients that we bank that are in, you know, the exotic businesses of quarrying aggregate or mining line that, you know, goes into concrete tickets poured into the foundations and otherwise.

I don't know that it would be possible for us to do a portfolio level look at the sort of second to revenue exposure, but we do that work every time we re-underwrite an individual client. Like we look at the concentration risk that exists in their revenue composition. We look at the, you know, stress scenarios as it relates to sort of demand overall as well as idiosyncratic scenarios. And the benefit of banking the people constructing data centers as opposed to making the construction loan for data centers is to the point you made earlier. There is an underlying business there, you know, that given the length of the relationships we have with these clients was doing fine on a regular basis prior to the data center bill.

No, no, $850 million or more will drop to the bottom line. The or more question will be a function of our ability to, whether we have the ability to drive better value for shareholders by reinvesting into revenue growth, or whether we think the environment is such that we're better off just continuing to run a more efficient company.

The consumer franchises up, it's net up. It's like one is 102% or something like that of what it was at the beginning of the year. So, certainly, we flatten Michigan up 4% in the southwest markets.

Yeah, sure. I mean, I think that loan growth accelerated, right? And my own view is that there's no reason to believe barring a change in the environment that it will decelerate from here. Okay.

Legacy 5th, 3rd, CNI up more than 2%. I think that compares pretty favorably. America from flat the last three years to up 1% sequentially during a period of time, where appropriately what we are asking our teammates to do is to make sure that we take care of existing customers and get them through the migration process. And that's all production.

We didn't get a lift in utilization quarter to quarter. So, there is not a nice production trend there. Commercial real estate, we were softer than I think I have seen at least thus far from others. We were up half a percent. I think many others are up a little bit more than that. Our general view there, as you know, is to live in a slightly more conservative place in the ecosystem.

We have not been providing back leverage to a lot of the private credit funds that are out there in this market. I think that is the place where we've seen structure and pricing, deteriorate and CNI. It's actually remained pretty consistent. So, we've elected not to chase some of the stuff that has either stretched recourse or on LTV or otherwise.

And then the other, I think if you flip and look at the consumer side of the equation, which you didn't ask about, but I'll give it to you anyway, home equity has been really strong for us. The indirect auto business has been a source of growth the last few years. The market there is, as you know, is very efficient. Pricing has come in and we've sort of reflected that in origination levels. But to the extent that pricing or the balance sheet needs changed, there's no reason why we couldn't continue to run at the levels that we were running previously. So, I don't disagree with you. I would like the whole company to be running at the 2% plus level that Fifth Third did, but we'll get there.

We're going to get through the conversion, get everybody on the same platforms with all the same products. And I do think at that point, you will continue to see an acceleration of the blended combined Fifth Third Comerica CNI growth rate.

So, it's normalized rate of attrition on the legacy book, which would be 10 to 12% on an annualized basis, coupled with a real pick up in production. And on the commercial side of the equation, it's 99.4%, meaning a half a point, 0.6% of attrition since the beginning of the year. And then the new production has resulted us being over 100% on that basis there. So, that would be the comparable to your point.

Hey, John.

Yeah, I'll take the branches and then Brian can hit the, the repurchases. So that the unique thing about Michigan, considering the size of the branch network that both banks had, there is Comerica was having in the eastern part of the state, fifth third to western and northern part of the state. So, there are just over 70 consolidations that will happen in Michigan. They've all been announced. There are no others that are contemplated at this point in time. Many of those locations literally share the same parking lot in the same strip centers. So, we're not moving people very far. And the intent at this point in time is to execute those consolidations, get customers settled. And then we will look the way that we do across the rest of the Midwest on an ongoing basis at where growth pockets are.

And we'll add next-gen financial centers there. We'll move branches down the road to the extent that we can get a better pad or otherwise. But I would just, for all intents and purposes, I would say Comerica customers will have 60% more branches. Fifth third customers will have 40% more branches. And that's sort of the plan of Stasis. California, the branch, we have a couple of other de novos that we will add there. They are in the Central Valley and in places where we have commercial operations where neither Comerica and by definition, since Fifth Third had no branches nor Fifth Third had any locations. Beyond that, there really is in the plan to add or subtract at this point in time.

We got 150 to build, I guess 149 now, to build in Texas along with finishing off the southeast. And as we get, you know, call it into the end of 27 or 28, we're looking for her to what 2029 will build. That's the point in time where we'll reevaluate, you know, whether there's a different strategy for us on the ground out west.

And John, on capital, from a pacing perspective, the third quarter will be a smaller quarter than the fourth quarter. Obviously, with some more significant deal charges coming again in the third quarter associated with system conversion and the branch closures that Tim mentioned, that's probably a $50 to $100 million range, but also dependent on what happens from a loan growth perspective. We sell some nice into period loan growth in the second quarter. We're seeing some good activity, so we do think that obviously that could have an impact from a capital return perspective. And in the fourth quarter, we should be back to our more normalized pacing, which is we view as a $200 to $300 million a quarter kind of pacing.

Yeah, here I think you were going to say the questions were myopic because your eyes are blurry after this many bank earnings releases in a single week. I think there's a sort of a simpler explanation here, which is I am sympathetic to all of you who need to try to model the cadence of expense synergies and an environment where deals close mid quarter and where conversions happen in the first week of the last month of a quarter. I honestly, when we looked at it, just in the anticipation of the question on the call, I think it's a pacing of the expense synergies coming out because while the conversion is happening in the third quarter, for all intents and purposes, you're not going to get any real benefit to it.

It's not like we're going to send people home the day after Labor Day weekend. We're going to make sure that things are stable, but it's not like we're going to decommission legacy platforms until we have a couple of weeks of water flowing through the pipes. That as much as anything changes the trajectory and the other element of it, just purely on the revenue front, is we want people focused on helping clients get through conversion this quarter. In the fourth quarter, you're going to see a real pickup in regular way production across the entire company as opposed to it just being regular way production in unaffected markets and others. I'm very happy with how far out ahead we are on customer communications.

We are pretty data-driven here. The TM conversion, the payments conversion is always among the most complicated in these businesses and that's an important part of the already working through a pre-conversion date, concierge conversion process and two-thirds of the other is already engaged and moving toward that date. That stuff takes work, but it's the way that you stick the landing and preserve the value of what you got. I don't think it's the sort of conventional hockey stick of the third quarter is easily soft because people go away from vacation on August and then you got to pick up an activity in the fourth quarter, although there is always a little bit of that. So much as it just is, it's hard for people to model a deal closing in the middle of the first quarter and then converting in the first week of the last month of the third quarter.

I would just boil it down to that. The message we'd like you to take away is that full-year PPNR were increasing our outlook and this is the first time we've given you the split from 3K to basically that once you see 3K to 4K.

I think my own view is it'll carry forward, but it's mixed driven. The Comerica portfolio was more heavily weighted commercial and to see an eye in particular. Then the fifth third portfolio where you have a lot of consumer assets and even though we're a super prime lender, your loss rates on consumer assets are structurally higher than they are in your commercial business lines. We lowered the range for the second half of the year, which obviously reflects the continuation and the immediate term. My own view is that barring a more fundamental shift in the mix of the portfolio that you should expect that to carry forward. There's nothing going on there like no outsized recoveries or things like that.

There's no meaningful impact to purchase accounting or otherwise that's driving the outlook hence the reason you see it carrying forward from there.

Morning Ben.

Sure. So I think like we look at these things on a branch-to-branch basis, right? So that's the easiest way to say, you know, can you get paid? Jamie, Diamond gave a talk that several of us watched, you know, not too many months ago now where he talked about the fact the reason he loved the branches is because he scaled them and they make two million a year to infinity. And that obviously is the goal, right? Is you make the capital investment to build a building, you create operating expense and marketing and people to operate that building on an ongoing basis and you build up the book and you get an annuity out of it. So like take the southeast.

So in 2018 when we started the southeast expansion at pacing we had like 278 branches and a rounding error to 10 billion in deposits. Today we have 420 plus branches, so like plus 150 right up to an important 22 or 23 and a little over 20 billion, like maybe 21, 21 and a half billion in deposits. So the branch count has gone up by 60%. Deposits have more than doubled, meaning average deposits per branch have obviously also increased. And even though you have a bunch of new branches there, right? So which means you both have higher market share because you've got more branch count, more deposits across branches, but also better profitability per branch. The profitability in the southeast today is just under half what it is in the Midwest branches because of the dynamic on average deposits per branch and the fact that the southeast is continuing to grow.

So you've got a tailwind that we are happy to provide detail on from just the continued maturation of what we built in the southeast already plus then the incremental 150 that are coming in the southeast and the incremental 150 that are coming in the southwest. America's southwest network looks stunningly like 200 branches there. It's about 6.1 billion in deposits or at least it was at the time that we close. So the average deposits per branch in America's southwest markets if you just run the map are sort of in line with where they were in the southeast for fifth, third in 18. Now we learned a lot of lessons along the way. I don't think it's a seven-year journey to get America's southwest markets to look like fifth, third southeast markets.

We intend to do that much faster, but then you have the same dynamic of the branches that will layer on top. So we'll continue to give you data on the no-go performance, but average deposits per branch are today, certainly the single best proxy for are hitting break even and then achieving that ideal Jamie Diamond two million dollars to infinity and beyond sort of a run rate.

Hey, Ken.

Yeah, we're certainly more assets sensitive than we've historically been. And you can see that in the disclosures in the back of our presentation, but we have done some work to take that down. And that included some actions that we took in the security portfolio, which was repositioning about four and a half billion during the quarter. There was some nice entry points that we felt like it makes sense to go out and we put on moves and things from about a one-year duration to a four-year duration. So that was a nice trade as well as the three billion dollars of swaps that I mentioned. And you can see the details on that in the presentation as well.

And that took us just under 10% from an asset sensitivity perspective. If you look at our disclosure, we'd like to continue to make progress. That's something that over time we'd like to get into the mid-single digit range, but we want to do it in a very measured way. Just give them the volatility that you're seeing in the market right now. We just know how impactful entry points are on some of these investments associated with duration. So a good progress on that front, but certainly still a little bit more assets sensitive than we would normally be. And that is, in this environment, we feel comfortable with that position, but it is something we'll work down over time.

The preponderance of the sort of investment into the business right now is focused on the consumer deposits. So it's the continued expansion of the branch network plus the direct marketing programs, digitally in mail that will support that sort of growth, the addition of sales force. And I think that has included in the past two, three, four years specialists who are sector experts to support the build out of the M&A advisory practice as an example in the capital markets business, but also payments and otherwise. And then into the technology, like we're big believers in the value of product differentiation and digital world in particular, what we're going to be able to do on the AI front.

So we are pleased with having the $2 billion fee income platforms. We were pleased to have capital markets crest above 600 million. The investment in the capital market side is really going to be in real estate capital markets next, right? I think it's appropriately so with as much focus as there's been on Comerica, people are looking past the fact that we closed on the acquisition of a home street mechanics dust lender. And we're very excited about what we're going to be able to do in turning that into a multi-agency platform and in generating real estate capital markets fees on a go forward basis. So there will be some investment there too.

Thank you, Alexandra. And thanks everyone for your interest at Fifth Third. Please contact the investor relations department if you have any questions.