管理層發言
Thank you for standing by, and welcome to the Fifth Third Bancorp Fourth Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to withdraw your question, again, press 1. Thank you. I'd now like to turn the call over to Matt Curoe, Senior Director of Investor Relations. You may begin.
Good morning, everyone. Welcome to Fifth Third's fourth quarter 2025 earnings call. This morning, our Chairman, CEO, and President, Timothy N. Spence, and CFO, Bryan D. Preston, will provide an overview of our fourth quarter results and outlook.
Please review the cautionary statements in our materials, which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward-looking statements about Fifth Third's performance. These statements speak only as of January 20, 2026, and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Bryan, we will open up the call for questions. With that, let me turn it over to Tim. Good morning, everyone, and thank you for joining us today. At Fifth Third, we believe great banks distinguish themselves not by how they perform in benign environments, but rather by how they navigate uncertain ones. Our priorities are stability, profitability, and growth in that order, which we achieve by closely managing 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 periods. Today, we reported earnings per share of $1.04 or $1.08 excluding certain items outlined on Page two of the release. We achieved an adjusted return on equity of 14.5%, 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 that have reported thus far. Adjusted fourth quarter revenues rose 5% year over year, driven by 6% growth in net interest income, 8% growth in commercial payments fees, and 13% growth in wealth and asset management fees. Fourth quarter average loans increased 5% year over year, driven by 7% growth in consumer loans and 7% growth in market and business banking C&I loans. Average core deposits grew 1% year over year, driven by 5% growth in consumer DDA and 3% growth in commercial DDA.
Net charge-offs were 40 basis points for the quarter, the lowest level in the past seven quarters. Nonperforming assets decreased for the third consecutive quarter. Our CET1 ratio increased to 10.8%, and tangible book value per share grew 21% year over year, thanks to strong earnings performance and the continued pull to par of our AFS portfolio. The fourth quarter capped a year of milestones for Fifth Third. In the Southeast, we opened 50 new branches, including our 200th branch in Florida and our 100th branch in The Carolinas. To put this in context, if Fifth Third Florida were a standalone bank, it would have the 44th largest branch network in the US, and Fifth Third Carolinas would have the 78th largest. Our De Novo branches continue to deliver deposit growth that is 45% higher than peer De Novo branches. Net new consumer households grew 2.5% year over year, with the Southeast growing households by 7%, highlighted by 10% growth in Georgia and 9% in The Carolinas.
Our sustained investments in digital transformation continue to set Fifth Third apart as well. In 2025, our consumer mobile app was recognized by J.D. Power as the top mobile banking app for user satisfaction among regional banks. We shipped over 400 updates to the app during the year, including features such as direct deposit switching, a financial wellness hub with cash flow insights and spending analysis, and free estate planning capabilities through our partnership with Fintech Trust and Will. In small business, a little over a year ago, we asked our Fintech to lead all of small business for Fifth Third. Since then, Fifth Third has become a top 20 national SBA lender for the first time in recent memory and finished number two in J.D. Power's 2025 national small business banking satisfaction study ahead of all other regional banks. In commercial payments, our software-enabled managed services Big Data Healthcare, Expert AR and AP, and DTS Connect, and our embedded payments platform, NewLine, continued to grow rapidly.
One in every three commercial clients we added in 2025 was a payments-only client with no credit extension. Newline revenues more than doubled compared to the fourth quarter of last year, and deposits increased by $1.4 billion. Newline's product team also finished the year strong, launching a model context protocol server to enable secure, standardized access to our API and documentation to AI agents. This is a key building block to support future AgenTek commerce applications and a first among US banks. In commercial, we delivered new quality relationships, granular loan growth, and recurring fee revenue in the middle market as we continue to add our own talent in strategic growth markets and benefit from hiring in prior years. New client acquisition increased 40% across all regions compared to 2024. Our emphasis on the Southeast, Texas, and California markets led to a 12% increase in RMs, producing 14% growth in C&I loans.
In wealth and asset management, fourth quarter wealth fees increased 13%, and assets under management reached $80 billion for the quarter. The strong performance was broad-based. Fifth Third Wealth Advisors' AUM and fees increased 50% from a year ago. Fifth Third Securities generated record fees. And our private bank had its second-highest level of gross AUM flows recorded in history. We continue to deploy technology and apply lean manufacturing to drive savings and enhance scalability. In 2025, our value streams achieved $200 million in annualized run rate savings. Cross-functional teams continue to be focused on reducing waste and improving quality, which strengthens our execution and provides funding for continued investment in our growth strategies. We are excited about our momentum as we enter 2026. Or as our partners at Kennesaw State like to say, there's a lot of action at the fraction.
As we announced last week, we have received all material regulatory and shareholder approvals to complete our merger with Comerica. 99.7% of Fifth Third votes and 97% of Comerica votes cast were in favor of the merger, an overwhelmingly positive result and a recognition of the value this combination will create. We expect to close on February 1. 2026 will be a busy year as we focus on successful conversion and delivering $850 million in expense synergies. Looking ahead, I'm even more confident in our ability to realize the benefits of the combination, which will support continued peer-leading returns and efficiency in 2027 and beyond. I'm also excited to get to work delivering more than $5 billion in revenue synergies over the next five years across four areas of focus: First, scaling Comerica's middle market platform and vertical expertise. Second, deepening Comerica's commercial and wealth management client relationships to reach Fifth Third levels of client wallet share.
Third, building out Comerica's retail banking business with the Fifth Third playbook and 150 Texas De Novo branches. And fourth, creating a differentiated innovation banking business by combining Comerica's second life sciences vertical and Fifth Third's Newline platform. Before I turn it over to Bryan, I want to express my gratitude to our team at Fifth Third and our new Comerica colleagues for the way you support our customers and our communities and for your commitment to getting 1% better every day. I'm thankful to everyone who will work so hard in the coming months to ensure 2026 is a success for the bank and its clients. I also want to thank those individuals from both companies whose hard work brought us to this point and who will not be continuing with us on this journey. All of you combined have made our company the special place that it is. With that, I'll turn it over to Bryan, who will provide more detail on the quarter and on our outlook for 2026.
Thanks, Tim, and good morning. Our results show what disciplined execution delivers in an uncertain environment. Record full-year NII of $6 billion and $9 billion in total revenue, improving asset quality, and top quartile returns and efficiency. With a resilient balance sheet and an operating model built to deliver repeatable organic growth and scale benefits, we are positioned to generate growth and shareholder value as we integrate Comerica. Diving into our fourth quarter performance, we achieved an adjusted return on assets of 1.41%, our highest level since 2022, and a return on average tangible common equity, excluding AOCI, of 16.2%. Disciplined expense management resulted in an adjusted efficiency ratio of 54.3%, a 50 basis point improvement from 2024. Adjusted PPNR for the quarter was over $1 billion, a 6% increase from the prior year. Our strong profitability enabled us to return $1.6 billion of capital to our shareholders in 2025 while also growing our tangible book value per share, including the impact of AOCI, 21% compared to the previous year.
Looking at the balance sheet and NII, net interest income was $1.5 billion for the quarter, a 6% increase over last year. Our net interest margin expanded by 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 by 5% year over year. Improving the granularity of our loan portfolio remains a priority. In middle market, we continue to add relationship managers in high-growth markets, which contributed to the 7% year-over-year increase in average middle market loans. In small business, we have extended the technology of Provide to all of small business lending. This expansion, combined with its core practice finance activities, drove a $1 billion increase in balances over last year.
While on a sequential basis, commercial average balances were flat due to a decrease in utilization, commercial production accelerated during the fourth quarter, rising 20% sequentially to a multiyear high. Indiana and The Carolinas led regional growth, and in our verticals, production was strongest in technology, healthcare, and metals material and construction. The utilization decrease coincided with the government shutdown during October and November but stabilized in December at 35%, down from 36.7% in the third quarter. Corporate banking and CRE were the primary drivers of this decrease in utilization. Industry loan growth continues to be lent to non-depository financial institutions, which represented approximately 60% of total industry loan growth and virtually all non-real estate and non-consumer-related loan growth in 2025. We continue to prioritize granular relationship-based middle market and small business lending.
Shifting to consumer loans, these grew by 6% on an average basis compared to last year. Auto and home equity lending accelerated in 2025, growing by 11% and 16%, respectively. In the fourth quarter, we achieved the number two origination market share in HELOC within our footprint, up from number four in the prior year, driven by improved branch performance and digital engagement. We expect home equity production to remain robust due to the strength of home prices, lower front-end interest rates, and low housing turnover. Turning to deposits, average core deposits increased 1% over last year, driven by 4% DDA growth, partially offset by slower growth in interest-bearing products. As we've managed funding costs in 2025, interest-bearing deposit costs were 2.28% in the fourth quarter, down 40 basis points year over year, representing a 50% beta during 2025. As I mentioned on last quarter's call, we are focused on strong deposit growth as we prepare for the close of the Comerica merger.
This resulted in a 3% sequential increase in average transaction deposits due to our growth bias and normal seasonality. As Tim highlighted, consumer household growth remained robust at 2.5% and continues to translate into strong consumer DDA performance, which increased 5% in 2025. Our proactive balance sheet management has enabled us to maintain a strong liquidity position and reduce overall funding costs as we prepare to integrate Comerica's balance sheet, which has a lower concentration of retail deposits. Growth in granular insured deposits provided flexibility to reduce wholesale funding, which declined 14% sequentially. This favorable mix shift lowered the cost of interest-bearing liabilities by 17 basis points. Our Southeast De Novo investments continue to deliver high-quality, low-cost retail deposits. Southeast consumer deposits increased by 4% sequentially, accounting for over 50% of the total consumer deposit growth for the quarter.
Overall, our total cost of deposits in the Southeast is below 2% and generates a spread of more than 175 basis points relative to the Fed funds rate. We opened 50 Southeast branches in 2025, including 27 branches in the fourth quarter. Additionally, we have now secured all locations for our Southeast De Novo program. We also have 43 locations in Texas with letters of intent either complete or in process as we begin to transition our De Novo program to these new high-growth markets. We ended the quarter with full category one LCR compliance at 123%, and our loan to core deposit ratio was 72%, down 3% from the prior quarter. Now on to fees. Adjusted noninterest income, excluding security gains and the other items listed on Page four of our release, grew 3% sequentially and year over year. Wealth fees increased by 13% over last year, driven by $11 billion in AUM growth and strong retail brokerage activity.
Capital markets capital market fees increased 5% sequentially, reflecting seasonal strength in M&A advisory. Commercial payment fees increased 8% year over year and 6% sequentially. This fee performance was driven by core treasury management activity and new line-related fees. New line-related deposits reached $4.3 billion, up $1.4 billion from a year ago. The securities losses of $5 million were from the mark-to-market impact of our nonqualified deferred compensation plan, which is offset in compensation expense. Moving to expenses, Page five of our release details certain items that had a larger impact on our noninterest expenses this quarter, including a $50 million contribution to the Fifth Third Foundation, $13 million in merger-related expenses, and a $25 million benefit from the adjustment to the FDIC special assessment during the fourth quarter. The larger contribution to the foundation this year relates to increased community investments we will make as part of the Comerica merger and tax planning in response to tax law changes impacting 2026.
Adjusting for these items, noninterest expense increased 4% compared to the year-ago quarter and 2% sequentially, reflecting ongoing strategic investments in technology, branches, marketing, and sales personnel. Savings from our value stream programs, through automation and process redesign, continue to help fund these investments. As Tim mentioned, our value streams reached $200 million in annualized run-rate savings. Our normal course daily focus on these operating disciplines has resulted in a 54.3% adjusted efficiency ratio in the fourth quarter and a 55.9% efficiency ratio for the full year while still investing for growth and maintaining strong regulatory standing. Shifting to credit, the net charge-off ratio was 40 basis points for the quarter, in line with our expectations and an improvement of six basis points from the fourth quarter of last year. Portfolio NPAs were down $4 million sequentially, and the NPA ratio remained at 65 basis points.
Since the first quarter of last year, portfolio NPAs are down 20%, and commercial NPLs are down 30%, consistent with our expectations from early 2025. Commercial charge-offs were 27 basis points, down five basis points from the prior year. Overall, we are seeing stable trends across industries and geography in our commercial portfolio. Consumer charge-offs were 59 basis points, down nine basis points from the prior year, with improvements across nearly all asset classes. The overall consumer portfolio remains healthy, with nonaccrual and over 90 delinquency rates stable to improving across all loan ACLs. The percentage of portfolio loans and leases remained at 1.96%, and the ACL as a percentage of nonperforming assets was also stable at 302%. Provision expense included a $6 million reduction in our allowance for credit losses, primarily reflecting the small decrease in end-of-period loan balances.
Our baseline and downside cases assume unemployment reaching 4.78% in 2026. We made no changes to our scenario weightings during the quarter. Moving to capital, CET1 ended at 10.8%, up 20 basis points, reflecting the strength of our capital generation and our decision to pause share repurchases until the Comerica transaction closes. The pro forma CET1 ratio, including the AOCI impact of the securities portfolio, stands at 9.1%. Since the first quarter, our unrealized loss on the AFS portfolio has decreased by 20% despite only a four basis point decrease in the ten-year treasury rate. This outcome is the result of our strategy to invest in bullet or locked-out structures, which represent 60% of the fixed-rate securities in our AFS portfolios. We expect continued improvement in the unrealized losses given the high degree of certainty in our principal cash flow expectations as a result of our investment portfolio strategy.
While 2025 was a more eventful year from a macroeconomic and policy uncertainty perspective than we expected, we are pleased with our disciplined operating performance and our ability to deliver on our financial commitments. Our full-year net interest income of $6 billion is 2.5% above our prior record. And our full-year operating leverage of 230 basis points is above the range we projected entering the year. We open 2026 with strong business momentum and a clear focus on the critical actions necessary to deliver a successful integration of Comerica. Now moving to our current outlook, as we announced last week, we expect to close the Comerica transaction on February 1. With systems conversion anticipated around the end of the third quarter. Additionally, our outlook uses the forward curve at the January, which assumed 25 basis point rate cuts in March and July. We expect full-year NII to range between $8.6 and $8.8 billion.
As part of the integration, we expect to take actions to better position the combined balance sheet within our rate risk appetite, including investment portfolio and hedge repositioning. We do not expect material one-time charges related to these actions. Based on the current rate outlook and our planned balance sheet actions, we expect NIM to increase approximately 15 basis points upon the close of the transaction. That increase is driven by four to five basis points of pickup from discount accretion on marked investment securities we will retain, another four to five basis points from repositioning the remaining securities with new positions, and three to four basis points from cash flow hedge repositioning. The remaining two to three basis points of improvement is driven by a combination of funding synergies and balance sheet mix. We also aim to accelerate retail deposit growth, with targeted analytical marketing in the legacy Comerica branches to improve the combined company's funding profile.
We expect full-year average total loans to be in the mid-$170 billion range. This increase is primarily driven by broad-based improvement in C&I. Our outlook assumes that commercial revolver utilization remains relatively stable throughout 2026. Full-year adjusted non-interest income is expected to be between $4 and $4.4 billion, reflecting continued revenue growth in commercial payments, capital markets, and wealth and asset management. We expect full-year 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 in 2026. In total, our guide implies full-year adjusted revenue and adjusted PPNR, excluding CDI amortization, to be up 40 to 45% over 2025, and another 100 to 200 basis points of positive operating leverage.
We expect to exit 2026 at or near the profitability and efficiency levels consistent with the 2027 targets we announced with the acquisition. Moving to credit, we expect 2026 net charge-offs to range between 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 repurchases in 2026, with the amount and timing dependent on balance sheet growth, final purchase accounting marks, and the timing of merger-related charges.
Given the magnitude of the impact of the merger on the first quarter, we are not providing first-quarter guidance at this time. We will provide our customary outlook on our first-quarter results in early March. In summary, we are excited about the opportunities to drive growth and profitability in 2026. As we continue our strategic investments and successfully integrate Comerica, these actions position us to deliver best-in-class performance in 2027 and beyond, creating lasting value for our shareholders and clients.
Thanks, Bryan. Before we start Q&A, given the time we have this morning, I ask that you limit yourself to one question and one follow-up. And then return to the queue if you have additional questions. Operator, please open the call for Q&A.
分析師問答
Thank you. We will now begin the question and answer session. Your first question today comes from the line of Ebrahim Poonawala from Bank of America. Your line is open.
Hey. Good morning. Good morning. I guess, Tim, maybe just going back to Comerica, from the outside in, it feels like there are three or four areas of optionality for Fifth Third, and you can choose to answer whatever you think is most impactful. But when we stack rank, being able to do more with Comerica clients, the Texas expansion, and then leaning into their tech and life science practice. Just give us a sense of where the biggest opportunity is, what's more near term versus longer term. Thank you.
Yeah. Great question, Ebrahim, and thanks for it. I think you have to think about these things in terms of time frames. Right? Because what I would say the most immediate near-term opportunity is 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-driven deposit marketing and product strategies will allow us to do in Comerica's branch network, followed by this sort of medium-term opportunity here, which is the build-out of the Texas markets from a retail distribution perspective. And then what I'll say is a medium to long-term opportunity, but a very exciting one, which is the ramp-up of the innovation banking business. So I had the opportunity in the fourth quarter to do five different in-person town halls with Kurt Farmer. And at those town halls, we saw probably a quarter of Comerica's total employees.
Kurt, Peter Sefcik, and the other business leaders were kind enough to ensure that I had the opportunity to meet several of the top client coverage people in each of the markets. And in every conversation, there was an example of a place where either funding constraints or competition for investment dollars on the technology front or otherwise had inhibited the ability of Comerica to achieve the natural growth they're capable of generating. You actually see that when you look back at the period prior to March Madness. They were generating solid top-line growth and C&I balance growth when they were not in a period where they were making some of these investments to get to be a category four bank or in a position where they were making hard trade-offs related to balance sheet size and margin. So, day one, when we get through legal day one on February 1, we are literally doing a bottoms-up review, name by name, to identify places where the broader balance sheet capacity or the ABL and equipment leasing and product capabilities will allow Comerica to grow more.
There are places where their investment committee policies at Comerica's clients inhibited the amount of corporate cash that could come on the balance sheet. We observe their technology investments that Fifth Third has been able to make to support commercial payments, and we expect to see near-term growth in those areas. The branch distribution is an important part of the strategy—it is one of three legs of the stool, the other two being our disruptive product offerings and digital marketing. Digital marketing, just to clarify, because mail continues to play a prominent role in what we do. We are going to drop a million pieces of mail within the first two weeks of legal day one to support consumer deposit marketing in Comerica's Western markets. This will be the first million of what will probably be 13 or 14 million pieces of mail that will go out over the year. That will be the first consumer deposit marketing campaign that the Comerica branches have seen in more than a decade.
We've demonstrated our ability to use rate as a mechanism to drive early connectivity with new households and to manage margin over time across the Southeast. The third thing I want to highlight is the point Bryan made in his script, which is we have secured over 40 of the 150 locations we intend to build already. The development partners have been a significant part of the Southeast build-out, and they came to us after the announcement and presented a lot of early opportunities. So, the brick and mortar will come out of the ground faster in Texas than it did when we started the Southeast expansion. It's all driven by the same selection criteria and discipline around what we are willing to pay relative to what we think we can generate over the first five to six years the branches are open. So, that's the early stuff. The blue-sky opportunity here is innovation banking because that will continue whether it is related to tech and technology, AI, software, or life sciences and the transformations occurring in healthcare over the next decade.
Those factors are the drivers of the American economy. We believe we have a unique value proposition there because of our payments capabilities and the broader balance sheet will allow us to grow that business without creating a concentration risk issue. I wouldn't be surprised to see that business become materially larger than it is today, but we have some work to do to ensure that we have the right guardrails around it, the right product offerings, and the right level of coverage.
Thank you. That was an in-depth answer. I'll step off. Thank you.
Your next question comes from the line of Gerard Cassidy from RBC. Your line is open.
Hi, Tim. Hi, Bryan. Hey.
Morning.
Tim, following up on your Comerica comments, can you give us an update on the integration? How is it progressing? And when will the customer conversion occur? Now that the legal closing has occurred, I think it was two months ahead of schedule, just what the timeline is.
Yeah. Great question. Thanks, Gerard. We are way ahead of where I think we had hoped to be at this stage, and frankly, way ahead of where we were at the same time with MB. The big driver here is that we received all the critical regulatory approvals less than seventy days after filing our application. So that is what is making it possible for us to get to legal day one on February 1. There really haven't been any surprises that have come out, which is what you would hope considering the thoroughness of the diligence that was done. We feel really good on that. The other thing, which I don't know that I appreciated, has had a significant impact, is the First Republic process was sobering for us because it came together so quickly. When First Republic didn't work out for Fifth Third, we decided we were going to ensure that, in the event that another opportunity materialized, we'd be ready. So we did some work on what we called doubling the bank, focusing on systems capacity and manual processes.
The real question was whether anything would break if the bank doubled in size. We began the work to close the gap assessment that we had done on category three readiness. Obviously, Comerica does not double us, but it's a big step larger. The things that we needed to ensure got done in order to support that are all completed. So that's a long way of saying we're going to get closed earlier and are in a good position from systems and processes. I think we're going to move the conversion up to Labor Day from what would have otherwise been a mid-October timeframe. This will be super important because we want to benefit from all Fifth Third technology and both revenue and expense synergies. It will also provide clarity to you because the fourth quarter of '25 will provide the last clean look at what the old Fifth Third was capable of delivering. The '26 should give you a very clear look at what the new Fifth Third can achieve, and as Bryan referenced, I think we can hit the return targets laid out in the deal model for the full year '27.
Very helpful. Thank you.
Your next question comes from the line of Scott Siefers from Piper Sandler. Your line is open.
Hey. Bryan, thank you for all the detail on the actions you're taking with the balance sheet at the close. Maybe could you talk about what the company's rate sensitivity is going to look like after those actions you discussed around the close? And then I guess just as the follow-up, will those immediate post-close actions kind of get you to 100% of where the balance sheet needs to be, or would it take a little more time from there just given the need to more fully transform Comerica's deposit base? In other words, how does that all evolve in your mind?
Thanks, Scott. You know, we're always targeting to be relatively rate neutral, especially in a normal environment. We're just not in a position where we want to make big bets. The balance sheet becomes a lot more asset-sensitive. Given the merger, think about our C&I loans: we're going to go from about two-thirds of our C&I portfolio being floating rate to close to 80% of our commercial portfolio being floating rate. We will take some action through swaps and 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 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 we've been striving for: a 60/40 commercial to consumer mix from a loan perspective and a 60/40 consumer to commercial mix from the deposit front. Both areas will take a lot of investment to get us back to those levels, which will be a multiyear journey.
This is part of the reason you hear us discussing investments in marketing and the build-out of the Texas franchise as big drivers for us. Today, the Southeast contributes to nearly half of our consumer deposit growth, and we're confident that Texas will also deliver considerable long-term consumer deposit growth for the franchise. Overall, we feel good about the positioning. The balance sheet will continue to grow, putting us in a stable position that provides ample optionality to manage the rate environment.
Yeah. Bryan and I were talking before the call. Like, our expectation going in is to grow Texas households at more than 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 least at the rate that we've grown the Southeast, given the similar starting points. The combined power of the DDA growth in our company, between the Southeast and Texas, and Direct Express, along with our capabilities in commercial payments, is going to be huge for managing the balance sheet for strong profitability.
Yep. Okay. Perfect. Tim and Bryan, thank you both very much.
Your next question comes from the line of John Pancari from Evercore ISI. Your line is open.
Good morning.
Morning.
Just on the deal, I want to see if there have you made any changes to your initial assumptions tied to the Comerica transaction outside of timing? But are there any changes to the assumptions that you provided at the announcement, the cost save expectation, the restructuring charges, or the related marks or P&L impacts?
No, made no material changes to any of the assumptions inherent in the transaction. The only major change was the timing of close, pulling forward the conversion date. We believe we will likely deliver slightly better than the 37.5% of the $850 million in 2026, given some of those timing changes. However, we also intend to invest a little bit more in growth as well. So we might approach $400 million of in-year expense savings in '26 if all goes well, but we are hoping to reinvest about $40 million of that. The original expectation was around $320 million of expense savings in 2026. We are feeling very good about the progress on the integration overall. Beyond that, loan marks and balance sheet marks are similar to our expectations.
Got it. Alright. Thank you for that, Bryan. And then separately, on the loan growth side, I appreciate the color you gave on the decline in the line utilization in the quarter. That decline seems more pronounced than that of many of your peers. I hear you on the shutdown and some of the balance sheet cleanup, but anything company-specific that you'd say exacerbated that? And then just separately, also on the loan growth front, 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 Comerica?
Yeah. Good question. I mean, John, it's got to be a little bit idiosyncratic and a little bit compositional. At this time last year, we saw a significant uptick in line utilization in the fourth quarter. Other peers did not report similar trends. We tried to temper enthusiasm regarding what that meant for '25, and then we gave back some utilization in the first quarter, while other banks exhibited growth. There are two visible factors contributing to this. One, the NDFI as a percentage of total commercial loans is much lower here than for most peers. The NDFI loans tend to fund and stay funded at a level higher than standard working capital revolving lines of credit. Secondly, leverage lending here has continued to decline over time, primarily funded by term debt. We have also been cautious with technology transformation. History shows there's never been an overbuilding when it comes to tech infrastructure. So, while our utilization dipped, we are focused on originating high-quality credit and ensuring we have the right team on the field. This is what we can control.
Okay. Great. Thanks. And as we think about where 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 over the last couple of years. We've been growing middle market loans consistently, including a 7% increase this year, as highlighted in our prepared remarks. We see ample opportunity there as well as leaning into the specialty verticals where Comerica historically has seen success. There are great synergies between their core business and ours, which is good for future loan growth.
Your next question comes from the line of Mike Mayo from Wells Fargo. Your line is open.
Hey, Mike. Hi.
Hey.
So it sounds like you're all set up for your merger prospect. Now it's just a matter of executing, I guess. But just to clarify, you said you look to get your 2027 targets in the '26 now? Is that right?
Yes.
Okay. So you have earlier closing, earlier targeted conversion, earlier metrics. So, is there any change in your targeted EPS accretion this year? I think you just said it will be kind of slightly accretive, and then you get the substantial accretion in 2027. Any changes to those numbers would seem implied to go higher?
Yes, it would be achieving the accretion earlier. We expect to deliver 9% EPS accretion from the deal in 2026, which we talked about for 2027.
Okay. It's your middle name is, you know, Tim Digital Spence. You know, Tim might think of you as, like, the digital banker. Then I hear you talk about 13 million pieces of mail. I mean, that sounds very last century of you. You're gonna—do you have billboards too? It sounds very old school. So, does that still work? It's just kind of intriguing.
There may be a billboard or two out there, Mike. The benefit of direct mail is that you can literally pick down to the individual household who receives the offer and who doesn’t. In a digital environment, you have more data, but you are ultimately optimizing around segments of the population with traffic patterns. We have a joint venture with one of the leading digital marketing firms to deliver a best-in-class digital acquisition funnel. For new household origination, marketing-linked household origination is about fifty-fifty digital and direct mail today. For rate offers, you want to get in front of specific people, not just rate shoppers—this is evident in affiliate marketing websites, which leads to less engagement. We can't go digital until we get through conversion with Comerica, as they don't have the ability to open digital accounts. Mail still works in credit cards and checking, which is why firms like JPMorgan utilize it. If we have a billboard, I promise you it will be a digital billboard.
No. I mean, whatever works. It seems like, you know, you kind of telegraphed that and made the point about how long will it take to get your other 110 or the 150 De Novo branches?
Oh, it's the opposite of slowly but suddenly. I think in this case, it's suddenly and then slowly, because we've been building for so long in the Southeast with strip center developers who are also building in Texas. We are going to see much of the low-hanging fruit come to fruition fast because our development partners who saw the announcement reached out and said, 'Hey. I'm doing four of these in Dallas and two in Austin, and one in Houston.' They understand our specifications, zoning expectations, and how well we perform as a tenant. We will see more locations come on board earlier. It's important that we don’t compromise the selectivity of these opportunities. As we fill in hotspots on the map, it naturally takes longer to get the last few locations. It is a robust market—a really stunning growth rate in MSAs like Dallas or Houston creates many opportunities to build branches in locations that are relevant today.
I look forward to the Investor Day in Dallas in a year or two.
Your next question comes from the line of Erika Najarian from UBS Financial.
Hey, Erica. Hey. Just one quick follow-up question for me, and I really want to know what Jamie's middle name is if yours is digital, Tim.
On the depository hawk. What that's worth—Red Hawk. It's Red Hawk in the middle.
So, Bryan, I'll make yours liquidity. Then. And speaking of, we heard a lot about the longer-term and medium-term deposit plans. But just wondering, what we should how we should think about average deposits that underpin your net interest income outlook for the year. And how we should think about, given Tim's comments about targeted rate offers, how we should think about, you know, deposit costs underpinning the 2026 outlook.
I would tell you, 2026 is really going to be a remixing year for the combined company. I think you're going to see something very similar to what we've been able to deliver on the Fifth Third franchise, which is targeted growth from a DDA and an interest-bearing perspective in particular consumer interest-bearing. We will look to optimize our balance sheet and funding costs from the Comerica balance sheet as it comes on board. They have had to run their processes since March 2023 to manage liquidity stress, and we will clean that up when they come on board. On a standalone basis, this means continuing what we saw in the fourth quarter, which is lower betas for Fifth Third legacy markets than in the past, as we are more balance-oriented. However, it will bring down overall funding costs for the combined franchise as we put things together. We do expect, as I mentioned in my net interest margin discussion, that there will be a couple of basis points of NIM pickup attributable to funding synergies and some balance sheet mix changes.
Got it. Thank you.
Your next question comes from the line of Ken Usdin from Autonomous Research. Your line is open.
Oh, hey, guys. I know this is 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 quite square the total overall? Thanks.
Yeah. Sure, Ken. It should be about $20 million a month in 2026 when the deal closes. And then it will be a sum-of-the-year-digit approach, so you should expect to see a $20 to $30 million reduction as you roll into year two of the amortization.
Perfect. Thank you. And just a step back question. I know it's all kind of in the total guide, but if you step back before you look at pro forma, how would you think just, like standalone Fifth Third momentum is as you think about last year's results on the standalone side versus the momentum on the standalone Fifth Third side? And whatever way you can kind of put it into context—revenue momentum, loan and deposit momentum, etcetera.
Yeah. Absolutely. We continue to feel good about what we are seeing from the core Fifth Third franchise. We would have been talking about mid-single-digit loan growth if you looked at the comparison from fourth quarter twenty-six to fourth quarter twenty-five in terms of what our core business is driving. This is a continued strength in middle market that would drive mid-single-digit C&I growth, as well as continued strength from the home equity and auto businesses being significant drivers from the loan front. We would be discussing revenue growth in that mid-single-digit to mid-upper single-digit range and expecting another 100 to 200 basis points of positive operating leverage, which would reduce our efficiency ratio into the low 55s on a full-year basis. We feel very good about that momentum. We've consistently been one of the most profitable banks among peers and across sizes this quarter.
Thanks, Bryan.
Your next question comes from the line of Manan Gosalia from Morgan Stanley. Your line is open.
Hey, good morning. I wanted to ask about the 19% plus ROTCE target. I mean, it looks like you're already at $19.06 as of April. Are there any areas that you think you're over-earning here? I mean, it seems that the core business is delivering nicely, and the Comerica acquisition should be accretive in twenty-seven. You're gonna resume buybacks in the 19% plus number in 2027, but just wanted to see if there's any offset that we should be thinking about.
Yeah. The two things that I would point out is just, one, the normal seasonality of our profitability, the first quarter tends to be a seasonally low quarter for us due to seasonal compensation items. The fourth quarter tends to be a seasonally high quarter for us from a profitability perspective. 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'd anticipate a little bit of a build every quarter. Those two items will impact the comparisons you're looking at.
Alright. Perfect. And then just on Direct Express, can you tell us what's included in the numbers for Direct Express in 2026? And does that hit full run rate by the fourth quarter, or is there more growth you expect as you get out into 2027?
Given the merger, the full run rate is in our numbers and is in the guide for the fourth quarter, given that we assume we’re maintaining business through the merger. The only thing that's missing right now is one month of activity for January. Comerica's standalone activity in January won't be in our 2026 numbers. It continues to perform at the $3.6 to $3.7 billion deposit range, along with roughly a $100 million a year in expenses and fees. The continuation of that is what's included in the guide apart from the month of January activity.
The upside here as we progress into '27 and beyond is that I relate the direct program to Social Security payments because it makes up the significant majority of funds loaded onto those cards. The Direct Express program is the Bureau of Fiscal Services mechanism allowing government agencies to transition from paper checks. For participants without bank accounts registering for ACH deposits, the president signed an executive order aiming to eliminate paper check distributions across government agencies for fraud reduction purposes. We believe that as our tech platform develops and we broaden functionality for direct participants, we can expand this program meaningfully. This will occur post-tech platform conversion and once existing program conversion is complete.
Great. Thank you.
And your final question today comes from the line of Christopher Edward McGratty from KBW. Your line is open.
Great. Thank you. Hey, Tim. Going back to capital, I noticed in your prepared remarks, you talked about dividend, organic growth, buybacks, but didn’t hear anything about inorganic growth. I'm wondering if the timing of the sooner closing conversion changes at all your timing about when you would consider another bank acquisition, although I know you've been clear about getting this one first.
Yes. That is the last thing on my mind right now for what that's worth. The upside opportunity here is significant, and there's a lot of work in front of us. So the focus doesn't change based on timing; it remains on ensuring we get the Comerica customers converted and taken care of while making our employees feel like one company. We have plenty to work on as it is.
Okay. Very clear. Thank you. And then the follow-up would be just on investments. You talked about, I think, $40 million going back into the business with the sooner cost takeout. Can you help us with tech spend pro forma, you know, rate of growth, what you're spending, you know, how you measure it? I think some of your peers have been walking that number up, but just interested in your thoughts on tech spend.
Yeah. We've grown tech spend over several years now in the high single-digit to low double-digit range, around 7% to 10% per year. I anticipate we're going to continue this trend. We've been able to fund franchise investments about half of them through other cost reductions. The year-over-year increase from December 25 back to '24 shows that headcount was flat at Fifth Third, but line-of-business and engineering resources and tech grew 2%. Staff and operations roles decreased by 3% as the investments we've made in automation and value streams continue to play through. We will keep making those investments. One of our fellow category three banks made the point in their call that you're either on offense or defense. We are on offense and plan to continue this approach for the foreseeable future.
Alright. Perfect. Thank you.
Yeah. Just one last thing before I hand it over to Matt to the thanks, Tim. And thank you, Rob. And thanks everyone for your interest in Fifth Third. Please contact the investor relations department if you have any follow-up questions. Rob, you may now disconnect the call.
This concludes today's conference call. Thank you for your participation. You may now disconnect.