Fifth Third Bancorp ($FITB)

Currently, we have Fifth Third Bancorp. With us today is Bryan Preston, Executive Vice President and Chief Financial Officer. Prior to this role, which he assumed back in January of '24, he served as Treasurer for Fifth Third for about 4 years. And to my immediate left is Kevin Khanna, who is the Executive Vice President and Head of the Commercial Bank at Fifth Third, a position that he assumed back in 2025 and heads up the commercial bank for the company. And as many of you know, Fifth Third is about $215 billion in total assets. That's as of the fourth quarter. Obviously, the CMA numbers will boost that up. And then also, it's got a market cap of just about $31 billion. We'll start off with some opening comments from Bryan, and then we'll go into a discussion, take it away.

About $290 billion in assets about $45 billion in market cap, depending on where the market is today. Yes. Thank you, Gerard, and good morning, everyone. This morning, we published a slide presentation on our Investor Relations website, which I'll reference in my prepared remarks. And afterwards, Kevin and I will be happy to answer any questions you may have. At Fifth Third, we prioritize stability, profitability and growth in that order. That discipline guides how we manage the balance sheet, how we allocate capital and how we think about delivering long-term value for shareholders. Since we announced Comerica, one question keeps coming up, what's next? Often, what people mean is, should we expect another acquisition? Growing up playing a lot of sports, I'm reminded of a lesson from coaches through the years. Don't chase, let the game come to you and be ready to move fast when it does. In banking, this means you stay disciplined, you stay in the details and you execute on what's in front of you. And what's in front of us right now is clear: deliver the Comerica integration. Today, I want to focus on 3 things. First, why Comerica is so important to Fifth Third's long-term growth. Second, how deliberately we are executing the integration; and third, the savings we are already realizing and expect to further realize over the remainder of the year. Let me start with the strategic importance of Comerica. This transaction is not about adding scale for scale's sake. It is about accelerating a growth strategy that was already working and improving the granularity and durability of Fifth Third. Comerica brings one of the strongest middle market franchises among regional banks built over decades around deep relationship-driven client engagement. Their platform is anchored by long-tenured bankers and high-quality relationships in a segment of the industry that can drive strong economics. The middle market brings full relationship value. In addition to granular loans, we generate treasury management, payments, wealth and capital markets opportunities. This aligns with our strategy of building deposit-led fee-rich relationships and not relying on balance sheet growth alone. Comerica also accelerates the most important strategic shift at Fifth Third over the past decade, the transformation of our footprint. 10 years ago, our deposit and commercial banking presence was concentrated in slower growth Midwest markets. Today, inclusive of Comerica and our Southeast and Texas expansion, we operate in 17 of the 20 fastest-growing large U.S. metropolitan areas. Texas is obviously the clearest new opportunity for Fifth Third. Comerica deepens our retail and middle market presence in a state where population growth, business formation and investment trends remain compelling. And in banking, 2 things matter most than most people appreciate, density and talent, and Comerica strengthens both. Just as important as where we are is how much runway remains. A meaningful portion of our branch network, particularly in the Southeast and soon to be in Texas, will be early in its life cycle. And our de novo branches have a track record of strong growth, gathering over $50 million of deposits per branch during their first 5 years, well ahead of peers. When you combine that kind of retail deposit runway with a scaled middle market franchise, you create embedded growth that is hard to replicate. Finally, growth only matters if it's durable. Relative to peers, we have a high proportion of sticky relationship deposits as part of our core funding, and they continue to grow. Our deposits are increasingly tied to primary households, commercial operating accounts and payments linked services, relationship attributes that drive stability. Turning to integration. Execution determines whether a transaction creates value. From day 1, we structured this integration around discipline and sequencing, not speed alone. We deliberately separated the process into 2 major milestones: Legal day 1 completed on February 1 and customer day 1 scheduled for the day after Labor Day. This structure is intentional. Legal day 1 was about governance, balance sheet control, financial and regulatory reporting and risk management. Customer day 1 is about experience, and every customer deserves a perfect conversion. From a people standpoint, we have not seen elevated turnover among key employees. Leadership teams from both banks are deeply engaged in readiness, communication and change management. This matters because we are protecting the franchise while integrating at pace. We took a details first approach to legal day 1. Before close, we completed more than 120 deep dive process reviews, mapped more than 95% of Comerica's applications for conversion or retirement and conducted legal day 1 dress rehearsals across all major work streams. Between now and September, we are running full-scale mock conversions, including end-to-end data migrations, system load testing and customer journey simulations. Each mock is designed to increase in scope and intensity, so we can find issues early, fix them and compress execution into a clean conversion weekend. This is repetitive testing, not a big bang approach. It is how you reduce risk in a complex conversion. Now let me turn to expense synergies. From a financial perspective, we are managing this integration with the same discipline we apply to the core business. We have clear line of sight to at least $400 million of expense savings in 2026, ahead of the original plan of $320 million. As we discussed on the earnings call, we expect to reinvest about half of this incremental savings into growth initiatives such as more direct marketing or accelerating sales headcount additions. We manage the details. We track synergy realization methodically, separating timing benefits from durable run-rate savings, and we measure progress against defined milestones with accountability embedded at the business line level. This level of transparency is how we deliver on commitments. Clear owners, clear milestones, no surprises. As we move through the year, our focus will shift from integration savings to how to further improve the run rate cost of the business. That discipline is what positions us to deliver peer-leading efficiency in 2027 and beyond. Turning to the outlook. This past month has been a reminder of the volatile and unpredictable nature of the macro and geopolitical environment. We still expect the tax bill to add to economic growth, but the return of tariff uncertainty and the global unrest may offset some of these benefits. As a reminder, our first quarter results will only include 2 months of Comerica activity. We expect first quarter average loans of $158 billion to $159 billion, with growth driven by production and commercial line utilization returning to more normalized levels. Net interest income is expected to be around $1.93 billion. The benefits from purchase accounting and securities portfolio actions, combined with the termination of Comerica's cash flow hedges will be partially offset by 2 fewer days in the quarter. We expect fee income to be between $0.9 billion and $0.93 billion and noninterest expenses are expected to be between $1.76 billion and $1.78 billion. As is typical, first quarter expenses include seasonal items tied to compensation timing and payroll taxes, which add over $100 million of expense for the quarter above the remaining 3 quarter run rate. Our expense guide also includes core deposit intangible amortization of $40 million and increased marketing expense, offset by early synergy realization and other efficiencies. Moving to credit. Net charge-offs for the quarter are expected to be between 35 and 40 basis points. For the full year, we are tightening our guidance ranges. These updated ranges also reflect minor netting within fees and expenses to conform Comerica and Fifth Third accounting conventions. Our PPNR outlook remains consistent with our January guidance. Our net interest income remains between $8.6 billion and $8.8 billion. Noninterest income -- the noninterest income range is updated to $4.0 billion to $4.2 billion, and the noninterest expense range is now $7.2 billion to $7.3 billion and includes approximately $220 million of CDI amortization. Our net charge-off outlook remains between 30 and 40 basis points for the full year. We continue to expect the fourth quarter to provide a clean view of the combined company's performance going forward. Given the normal seasonal strength of the quarter, we expect our fourth quarter efficiency ratio to be below 53%, which positions us well to achieve the 53% efficiency ratio and 19% ROTCE targets we originally set for the full year 2027. Let me close where I started. We're asked what's next? We understand why, but our mindset is consistent. We don't chase what's next. We execute on what's in front of us. And right now, what's next is the integration, a seamless conversion in customer day 1, realizing the synergies and protecting the core franchise while we do it. Beyond integration, what's next is compounding returns. Our investments build capabilities, these capabilities drive better outcomes, and those outcomes create more capacity to invest. Comerica increases our growth runway and earnings durability. Integration is how we convert that into results. And once we do, the playbook does not change. Invest consistently in a limited number of large opportunities, build density where we compete and keep delivering peer-leading returns through the cycle. Stability first, then profitability, then growth. With that, Kevin and I look forward to your questions.

Thank you, Bryan. A follow-up on one of your comments about the cost savings for this year. I think you did $400 million versus originally $320 -- at the time of the announcement, I think you guys said 30% of Comerica's costs could be taken out. Any update to that number? Or are you more confident 30% you're going to reach?

We are very confident in our ability to deliver the $850 million run rate savings. And that the fourth quarter, we will see the $212 million, $213 million achieved for the full fourth quarter to deliver that run rate savings. I would tell you that we do think there's a lot of opportunity to continue to optimize. And the trade-off for us is that we just think that there is so much capacity for us to continue to grow that excess performance, we're probably going to reinvest in or at least some portion of it in the growth initiatives to position us to continue to gain share.

And maybe, Kevin, shifting over on the commercial side. Comerica, of course, was well known as a commercial bank and not a consumer bank. What have you seen as you've integrated or started to integrate the commercial loan officers from Comerica into the Fifth Third way of doing business?

Yes. I mean we've seen a lot of different aspects. One is they care about their clients the same way we do. Culturally, we're very similar in terms of putting the client at the center, being highly specialized and providing the right underlying support. They're also in sectors that we're in, and we were in the same footprint from a region standpoint. And so we have a lot in common in terms of how we approach the market, how we approach national industry sectors, how do we treat our clients. There are some good synergistic relationships from areas of overlap like commercial real estate or traditional energy. And there's the ability to get into businesses that we like and find attractive like Dealer Services and Innovation Banking and our Tech Life Science platform.

Can you also share with us the expense, as Bryan just pointed out, the expense savings, deals sometimes offer revenue synergies, but they're generally -- we got to be careful because it's not as easy as getting the expense savings. But with your plethora of products, is there better opportunities for revenue synergies than maybe other deals?

Yes. I would say just looking at this transaction, there is a tremendous amount of opportunity for revenue synergies. There's certainly low-hanging fruit as we would put it. If you look at our ABL practice and our equipment finance practice, those are 2 products Comerica didn't have. And so our ability to bring those into their clients is -- there's been a plethora of opportunities that have already come up. The cross-selling of, for example, our new line offering into the PortCos and the Tech Life Science business, the number of people that have brought opportunities to the National Dealer Service business. So there really are between the product offerings, geography and the technology products that we have, there's a lot we can bring to bear.

Yes. And coming back to deposits, can you guys share with us both from the Comerica side, but your organic growth in the Southeast, what are you seeing in deposit competition? It hasn't really been a real risk to the banks for the last 2, 3 years because loan growth has been modest. But if loan growth from the H8 data is picking up, what are you guys seeing for deposit competition throughout your combined franchises?

Yes. I mean, loan growth is definitely picking up. January and February were very strong months from both a production and a utilization perspective, we are shifting back to more normalized utilization, and that is leading to a little bit more deposit competition. I would tell you that both across consumer and commercial, it is getting more price competitive. It is not irrational, but it is certainly getting tighter. The Midwest from a consumer perspective is the most competitive market by far. Right now, what we're seeing in our data is the Southeast is actually the least competitive. So it is one of the things where we like the mix of our footprint and our ability to be able to pivot across markets as we work through cost optimization as we're trying to raise deposits.

When we take a look at the shifts in the regulatory outlook, and we're all expecting in the next couple of weeks, the Basel III endgame proposal. How does that -- it's always a focus on the large money center banks. But when you guys look at it, how are you thinking about the benefits that could accrue to a company like Fifth Third from the Basel?

Getting long-term clarity around the rules is obviously incredibly valuable. There's a huge -- taking the risk off of the table of a meaningful increase in capital ratios, which we're all worried about a few years ago. There is real value to that and getting more rational capital that is risk-based where it's refined, I think its going to be helpful for the industry on better allocation of capital based off of the risk profile. I don't expect a huge reduction in industry capital ratios. I think whether it's equity analysts and other observers that are focused on TCE or the rating agencies, there is going to continue to be some pressure to maintain capital. But being in a position where you have a little bit more flexible regulatory capital framework would be helpful and having it established that hopefully, this is the long-term structure that we're going to manage to.

Correct. Speaking of capital, Bryan, I know at the time of the deal, Fifth Third indicated, obviously, the buyback was suspended until the deal was closed. You want to build up the capital ratios. Can you kind of walk through for us the path of getting back to a more robust share repurchase program when that may take place?

Yes. It's getting through and realizing the savings from an efficiency perspective. That is really the key. Basically, we're combining a 55% efficiency ratio company with a 70% efficiency ratio company, and we're going to get to where we're turning it into a 53%. And it takes a little bit of time for us to get there. And then throw on top of that all the purchase accounting and merger charges that we know are coming. Once we're through the majority of those, we will be then back on the path from an organic capital generation perspective. You think about -- and it's always interesting how the math tends to work out this way. But our priorities are always -- we're going to pay a strong and stable dividend. And for us, that has typically meant try to maintain a low 40s, high 30s dividend payout ratio, support organic growth because the organic deployment of capital is our best use of capital to drive long-term shareholder value. And what that is -- and that typically takes if you're trying to target a GDP plus a point or 2 loan growth. That typically takes about 1/3 of our capital as well. And then that leaves about 1/3 of capital generation that's excess. And post all of the integration work and when we're at the new run rate, that's probably a $300 million, $400 million, $500 million a quarter type range that people should be thinking about for share repurchases.

Kevin, Bryan touched on the retention of some key employees at Comerica. How about from the commercial customer standpoint, what are you seeing versus your expectations when you went into this? And what type of attrition you might see with some commercial customers or your competitors being more aggressive as you guys go through this integration, trying to pick off some of the commercial customers?

Yes. I'd say it starts with the retention of commercial bankers, right? And then that flows into the retention of the commercial customer. And I'd say we've seen very little outflow thus far. Part of it is if you're a commercial banker coming from Comerica, you're excited about the platform, right? The product offering, how we're positioned as a bank, our cost of funds, everything is a plus for them, and they're sharing that with their clients. If you're a client, what you want to know is you're going to have a consistent experience on the transition. We've done a lot of work in communicating both with the commercial RMs at Fifth Third and Comerica about what the transition is going to be like for the client, therefore, enabling them to communicate to the client. So far, so good on that front. If you look at the attrition, you look at the conversations we're having, -- we've also done a lot to get the groups together, the groups that have been combined into one large industry vertical, the groups that are part of the same region have had get togethers in their local areas. We've had the full management committee together in Cincinnati, Ohio. And that message spreads, right? And as that spreads, that gives a lot of reassurance to the employees on a combined basis. And again, reassurance to the clients that we have. So we've seen very, very little attrition so far.

Yes. Obviously, your -- part of your day is now integrating Comerica, but you also have to run the bank the rig. Kevin, can you share with us just how -- Bryan already touched on January, February utilization rates ticking up a little bit. Where are you guys seeing commercial growth geographically? Is it from Tennessee? Or is it Ohio? -- of the franchise?

Yes. I'd say on both areas of commercial, we're seeing overall positive growth just about everywhere, right? And where you have high areas of GDP growth, right, the Southeast, which we've always talked about or large -- significantly large portions of GDP as a country, right, Texas, California, we're seeing areas of growth. And then nationally, if you look at our industry areas, right, a lot of them are actually relatively immune from some of the concerns, the thematic concerns that people have been talking about, right? They're heavy on asset, they're low on AI vulnerability. And it could be a restaurant franchise, it could be environmental services, it could be aerospace and defense. And so we're seeing a lot of activity and growth in those areas. And probably the only area of softness is that technology area, right, that's mostly software focused. Other than that, if you look at the geographic region, our footprint and if you look at the national areas, as Bryan mentioned before, both from a utilization, but also from hitting kind of our planned organic production growth, we're looking quite active.

Yes. Bryan, coming back to the Southeast expansion that you guys, of course, have executed on, more banks seem to be following that path that you guys have paved into the Southeast of opening up branches down there. When you think back to the early days of that growth, -- now I would assume there's more competitors, have you seen any change in how quickly the deposit growth is for new branches today versus 5 years ago?

It's actually been accelerating, -- like every new vintage has been doing better. So '23 was better than '22, '24 is better than '23, '25 has been our best vintage ever. So we're actually seeing a nice pace. And some of that is we're just continuing to learn how to do this the right way, whether it's site selection, how we support it with marketing, the -- how we think about from a hiring plan perspective, I mean, it is an integrated system. It is not a build a branch and the deposits show up. There is a science and art around executing the right way. And our team, especially the retail team, they have really optimized how to deliver the best performance out of these investments. And I don't see the performance slowing down anytime soon. The sites that we're getting are -- today are -- we would tell you are better sites than what we've had in the last 5 years from a weighted average kind of quality perspective because of all the learnings that we've had on the last 200 that we've built. These next 200 and the branches we're building in Texas, we're really excited about.

So the branches are not the Field of Dreams, build it, they will come.

They are definitely not the Field of Dreams, but the presence is necessary, right? It's -- there's -- they are billboards. They do attract -- you have to have the relevant amount of density and presence in the market for a customer to consider you. But consideration is just the first step. You still have to get them to pick you. And I think that's what we've done a good job of being where we need to be and knowing how to drive customers to the branch to acquire them.

Yes. There's been some disruption recently in the private credit markets. We're all obviously well aware of it. First of all, what's your guys' read on that? And then second, what kind of loss content could there be in this private credit markets and the impact to the economy?

Yes. I mean my read is -- and I know you had some people here yesterday pretty crowded. So there's clearly curiosity around that topic. I mean there's clearly challenges happening in that space, right? The first word gives away part of the opaqueness of it, right? It is private and so figuring out to what extent. I think what I would say is I don't think there's contagion in the credit market, right? And that's good news. I think there's a lot to -- when you look at the structures, the leverage points, the lack of covenant that they have in a lot of those transactions, that's creating a big part of the challenge. To what extent, I think time is going to tell us a little bit more about to what extent that is a problem. And it's clear that it's not just software related. It's clear that there's other sectors that are going to be impacted in the private credit markets. I would tell you, I think if you look at banks in general and particularly ours, of course, as well, we're not impacted in the same way, right? We have a different leverage point for a lot of those same sectors. We have different covenants that we have in place to track cash flow and how it gets deployed. So I think it's hard to draw a line from private credit to bank lending. And it's hard to really decipher at this point to what extent the problem is going to be for those private credit lenders because a lot of them are very large and have a lot of capital and can do some of their own working out. But I think everyone has their version of channel checking, whether folks are familiar with that, I know in the audience. But if you talk to some of the lawyers that are involved with these private credit funds that are particularly focused on restructuring, they seem pretty busy.

Yes, no doubt. And just speaking of credit overall, Bryan, you gave us the charge-off outlook for the year, of course. But what trends are you guys seeing? I've been called [indiscernible] trying to look around the corners and the outlook looks pretty darn good for you in the industry, obviously, separate from this geopolitical development. But what are you guys seeing on the credit front, both consumer and commercial real estate, et cetera?

Yes. If we have been -- we were talking 3 weeks ago, I would tell you, we are feeling really good about what we're seeing from a credit perspective. We -- we're pretty productive on the economy this year. We think that there are real tailwinds that are helping consumers. We've actually seen some inflection points on -- in the deposit accounts for some of our lowest deciles of the consumer portfolio that they are seeing stability and even some growth from an average deposit perspective. And you think larger tax refunds, you think withholding tables that were changed at the beginning of this year, like there was real money that was hitting people's pockets immediately. And so those were all very good trends. Today, we're obviously cautious about what does persistent $100 oil potentially mean because those are -- some of those segments are the ones that would be potentially more at risk. But from a broad big picture perspective, the portfolio continues to be healthy. We're not seeing any broad-based industry weaknesses. And everyone seems like they've done a lot to better position themselves. And you've seen continued strength in this post COVID both excess government stimulus world that has been retained both on corporate and on consumer balance sheets now for some time.

Yes. One of the trends we're seeing, and we heard from some of your peers that commercial real estate mortgage is inflecting. Are you guys seeing that yet? Or is that just not a priority and it's more C&I lending, which I know that's a dominant part of the portfolio.

From an origination perspective...

Yes, correct. So the balances will start to grow in the commercial mortgage area.

Yes. I would say -- I would agree with that statement that there's an inflection. It's a relative term, right, about where we've been. But I would say there's some degree of optimism there about the origination that's occurring in that space.

Yes. And before we wrap up because we're running out of time, Bryan, can you touch on payments because that's one of the areas that differentiates you from your peers, embedded finance, in particular. How is that going in winning new customers and new businesses and share with us some of the color in that business.

Yes. It continues to go really well. And we talked about payments for us is going to be a -- it's a $1 billion fee caption for us now going forward. Comerica brings real capabilities for us to continue to grow in the space. They've got some relationships that were priorities that we're going to continue to deepen on. We continue to attract good players to our platform. And what we like about it is. One, we're attaching ourselves to companies that are growing at a faster natural pace. So we're getting the benefit of their growth. And two, our capabilities in our product offering and how they access like Tim talked about our MCP server and being one of the first banks to do that. I'm not going to pretend that I fully understand everything there. But what it really means, though, is that we're giving our customers in this space who are the most innovative customers in the payment space, the ability to build new product on our platform. So not only our ability to grow with them at their faster customer acquisition pace, but our ability to benefit from their innovation in the space as they continue to grow and take share. And that has been a key theme to the strategy. And the fact that we have more customers of these high-end payments, these prestigious payments names that want to be on our platform, it makes us feel good about the technology that we have and that we're going to continue to invest in it so that we will be the bank of choice to grow with them.

Yes. And in fact, can you follow on with -- is it Direct Express? How is that -- it gets overshadowed by the company.

Yes, it does. It gets way overshadow. A great opportunity. I mean it's -- it's nearly $4 billion of DDA. It's a program that continues to grow when you think about it from a demographic perspective. And the Comerica acquisition actually allows us to simplify the customer conversion because now we don't have to change the account numbers for the cards, which is so helpful for the customers. So it is continuing to progress, and we will be transitioning to our new processor later this year.

Got it. And then we're pretty much run out of time. But maybe just to wrap up, what's the message you want to leave with investors today from this fireside chat?

Yes. I mean the main message that we want to make sure that everybody understands is that there is so much embedded growth in our platform today. The franchise we are today is so different than we were 10 years ago, and we are positioned to execute against it. And part of that is what's going to be a big driver for us to continue to deliver long-term returns for shareholders. We are focused on delivering for the shareholders that stick fire side in good times and bad and deliver those long-term outcomes and compounding book value at a faster pace today because the capacity that our platform now has for organic growth.

With that, please join me in a round of applause for Bryan and Kevin...