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Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2026 Fifth Third Bancorp Earnings Conference Call. Today's conference is being recorded. Operator instructions. At this time, I would like to turn the conference over to Matt Curoe, Director of Investor Relations. Please go ahead.
Good morning, everyone. Welcome to Fifth Third's First Quarter 2026 Earnings Call. This morning, our Chairman, CEO and President, Tim Spence; and CFO, Bryan Preston will provide an overview of our first 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 April 17, 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 thanks for joining us today. At Fifth Third, we believe great banks distinguish themselves based on how they perform in uncertain environments, not in benign ones. We prioritize stability, profitability and growth in that order. We deliver them by finding ways to get 1% better every day while investing meaningfully in the future. Today, we reported earnings per share of $0.15 or $0.83 excluding certain items outlined on Page 2 of the release. Results reflect the February 1 closing of the Comerica acquisition. Revenue was $2.9 billion, up 33% year-over-year and adjusted net income was $734 million, up 38%. Credit performance was in line with expectations with net charge-offs at 37 basis points. Both NPAs and criticized assets improved modestly. In the quarter, we closed the largest M&A transaction in Fifth Third's history. We delivered an adjusted return on assets of 1.12% and an adjusted return on tangible common equity of 13.7%.
Our tangible common equity ratio rose to 7.3% and tangible book value per share increased 1%. We are the only bank among our peers who have reported to date to increase both of these key metrics during the quarter. Fifth Third's legacy strategies are continuing to produce broad-based growth while we execute the Comerica integration on plan and on schedule. In commercial, legacy Fifth Third C&I loan balances grew 6% year-over-year. Production remained healthy with the strongest activity in manufacturing and construction supported by reshoring and infrastructure investments. Commercial payments acquisition more than doubled, led by our Southeast markets, and 35% of new clients were fee-led with no extension of credit. Importantly, our commercial loan growth continues to come from relationship-based lending and not from nonrelationship sources. In commercial payments, NewLine continues to scale with revenue up 30% and deposits up $2.7 billion year-over-year.
During the quarter, a client launched a new payment product built on NewLine, joining other marquee clients like Stripe and Circle, and we advanced preparations for the second quarter launch of the new Direct Express platform. In Consumer, the legacy Fifth Third franchise delivered 3% household growth and 4% DDA balance growth. Southeast households grew 8%, led by Georgia and the Carolinas, and we opened 10 additional branches in the region during the quarter. Consumer and small business loans grew 7%, led by auto, home equity and our Provide fintech platform. Now turning to Comerica. Thanks to timely regulatory approvals, we closed earlier than originally expected on February 1 and have continued to make progress at an accelerated pace. Our top priority is our people, and we're working hard to become one team. Since Legal Day 1, leaders have been on the ground in Comerica's major markets nearly every week, and we visited every branch in the Comerica network.
We've also hosted product showcases to highlight the breadth of our combined capabilities. Organizational design and leadership decisions are complete, and I'm very excited about the caliber of our combined team. On technology, we remain on track to convert all systems over Labor Day weekend with our first full core conversion later this month. As a result, we remain confident that we will deliver $360 million of net cost savings this year and reach an $850 million annual run rate by the fourth quarter. We're also already building a strong pipeline of revenue synergies. In commercial, we're seeing early wins by bringing capital markets, payments and specialty lending to existing relationships. In the first 60 days, our capital markets team completed fuels and metals commodity hedges and executed an accelerated share repurchase for Comerica clients. We also booked our first Comerica-to-Fifth Third loan win in asset-based lending while Fifth Third referrals helped to build the largest ever pipeline in Comerica's National Dealer Services business.
Commercial Payments has presented our managed services solutions to over 100 Comerica clients with 65 of them interested in moving forward. In Consumer, we launched our first Comerica-branded deposit campaign in Texas in February. Response rates and average opening balances were broadly consistent with the results that we generate in our legacy Fifth Third markets, and nearly half of new savings customers also opened a checking account. We've hired more than half of the mortgage loan officers and auto dealer representatives that we plan to add this year in Comerica's footprint and pipelines in each of those businesses are building. We'll open our first Fifth Third-branded branches in Dallas and Fresno this month, and we now have letters of intent in place or in progress for 81 of our targeted 150 de novo branches in Texas. As I wrote in our annual letter to shareholders, the global economy is a complex adaptive system and such systems react to change in unexpected ways.
We're closely evaluating the direct impact of the situation in the Middle East on energy and other commodities as well as the implications for prices, interest rates and customer activity. In an environment where we may not see the macro tailwinds that many expected at the start of the year, the Comerica merger expands Fifth Third's organic opportunity set, and we do not need a perfect backdrop to deliver on our commitments. Before I turn it over to Bryan, I want to take a moment to say thank you to our colleagues. Earlier this month, we surpassed $300 billion in total assets for the first time — an important milestone that reflects the work we do together to serve customers, support communities and show up for one another. I know many of you are putting in extra effort to support the integration, whether it adds helping customers, learning new products, meeting new teammates or navigating change.
Your commitment to getting 1% better every day and your dedication to our clients and to each other is what gives me confidence in what we're building and the opportunities ahead. With that, Bryan will provide more detail on the quarter and the outlook.
Thanks, Tim, and good morning. Our first quarter results reflect the strength of what we have built and the discipline with which we are executing. Results exceeded our March expectations, driven by stronger NII, disciplined expense management and integration execution on plan. Adjusted ROA was 1.12% and adjusted ROTCE excluding AOCI was 13.7%. The Comerica acquisition closed without tangible book value dilution and TBV per share grew 1% sequentially and 15% year-over-year. The earnings power of the combined company is intact, and the integration is on track. Given the magnitude of the acquisition, standard year-over-year and sequential comparisons obscure more than they reveal this quarter. What matters is how we exit: a larger, more granular loan portfolio, a lower cost deposit base and larger diversified fee income businesses. Each of those is a deliberate outcome and each positions us to generate stronger and more durable returns as the integration delivers.
Now diving further into the income statement, starting with NII and the balance sheet. Net interest income was $1.94 billion for the quarter, above our March expectations. Net interest margin expanded 17 basis points to 330 basis points, driven by the impacts of the Comerica acquisition. That includes 7 basis points from securities portfolio marks and repositioning, from cash flow hedge termination, and 2 basis points from purchase accounting accretion on the loan portfolio. A full quarter of these impacts will benefit NIM by a few additional basis points in the second quarter. End-of-period loans were $178 billion, up 2% sequentially from pro forma combined year-end balances. Average total loans were $158 billion, reflecting the February 1 close. The growth was broad-based, strong middle market production, a rebound in line utilization and continued momentum in home equity, auto and our Provide fintech platform.
In commercial, line utilization ended the quarter at 40.7%, up approximately 120 basis points from the pro forma combined year-end level and notably held steady throughout the volatility in March. Clients are cautious, but active. On a legacy Fifth Third basis, commercial loans grew 6% year-over-year. Combined with the Comerica addition, shared national credits now represent only 26% of total loans, a deliberate and ongoing reduction in concentration risk. On the consumer side, first quarter auto originations were the highest in 2 years with average indirect secured balances up 10% year-over-year. Home equity balances grew substantially, supported by both the acquisition and strong underlying production. We achieved the #1 HELOC origination market share in our legacy Fifth Third branch footprint. With an average portfolio FICO of 773 and average loan-to-value of 64%, the production strength is real, and the credit discipline behind it is equally real.
Turning to deposits. Average core deposits were $207 billion, and the end-of-period core deposits were $231 billion. Noninterest-bearing balances comprised 28% of core deposits at quarter end, up from 25% at the same point last year. That improvement reflects the combined benefit of Comerica's commercial DDA franchise and our continued organic consumer DDA growth. The household growth we're seeing is showing up directly in our funding costs. On a legacy Fifth Third basis, consumer household growth of 3% over last year supported 4% consumer DDA growth. Total deposit costs, including the benefit of noninterest-bearing balances were 158 basis points in the first quarter, a funding cost profile that compares favorably across the peer group. Interest-bearing deposit costs were 215 basis points, down 27 basis points year-over-year, reflecting both that organic deposit mix improvement and the benefit of the Comerica balance sheet.
Despite the larger balance sheet, our approach to balance sheet management is unchanged. We prioritize granular insured deposit funding over large wholesale holds. We maintain strong liquidity buffers, and we proactively manage the overall cost of funds. That discipline showed up again this quarter. Average wholesale funding declined 3% year-over-year, even with Comerica balances included. That favorable mix shift lowered the cost of interest-bearing liabilities by 36 basis points. We also maintained full Category 1 LCR compliance at 109% and a loan-to-core deposit ratio of 76%. Now turning to fees. Adjusted noninterest income, excluding securities losses and the other items listed on Page 4 of our release was $921 million, slightly above the midpoint of our March expectations. The most significant milestone here is that both wealth and commercial payments are now generating fee income at the run rate necessary to deliver $1 billion each in annualized noninterest income.
That outcome reflects years of consistent, disciplined investment in both businesses and the recurring nature of the revenue. Looking further at wealth, fees were $233 million and total AUM ended the quarter at $119 billion. Legacy Fifth Third AUM trends remained strong, up $10 billion or 15% over last year. Fifth Third Securities delivered strong retail brokerage results, with revenue up 15% year-over-year. These are businesses that we have been consistently investing in and the returns are compounding. Commercial payment fees totaled $218 million for the quarter. Direct Express contributed $14 million in fees for the quarter and approximately $3.7 billion in average deposits for the month of March. NewLine continues to drive strong fee growth of 30% year-over-year and related deposits reached $5.5 billion, up $2.7 billion from last year. Capital markets fees were $134 million, up 11% sequentially.
Increased hedging activities in commodities and FX and strong bond underwriting fees combined with two months of Comerica activity were the primary drivers of this growth. Turning to expenses. Page 5 of our release details certain items that had a larger impact on the noninterest expense this quarter, primarily $635 million in merger-related expenses. Adjusted noninterest expense was $1.77 billion, consistent with our guidance. The adjusted efficiency ratio was 61.9%, which reflects the addition of Comerica and normal first quarter seasonality associated with the timing of compensation awards and payroll taxes. On the synergy front, we remain confident in our ability to achieve the $850 million of annualized run rate cost savings in the fourth quarter of this year. Integration activities are progressing as planned against our established milestones and savings are being realized. The expense benefit will build steadily over the first three quarters of this year with a more significant increase in the fourth quarter once the system conversion and branch consolidations are completed in early September.
Shifting to credit. The net charge-off ratio was 37 basis points for the quarter, in line with our expectations and the lowest level in two years. The NPA ratio was 57 basis points compared to 65 basis points last quarter. Commercial net charge-offs were 26 basis points, also a two-year low with stable trends across industries and geographies. Consumer net charge-offs were 58 basis points, down 5 basis points from last year. The consumer portfolio remains healthy with nonaccrual and over-90-day delinquency rates relatively stable across all loan categories. We have been deliberate about where we choose to grow. Our exposure to nondepository financial institutions represents only 7% of our total loan portfolio, well below the industry average. Our three largest categories are subscription lines supporting capital call facilities, corporate credit facilities to traditional institutions such as payment processors, insurance companies and brokerage firms, and secured lending to residential mortgage-related entities.
These are long-standing portfolios. We have deep underwriting expertise in each of them, strong collateral visibility and structural protections where needed, including borrowing base requirements and advance rates that provide significant loss absorption before we would recognize $1 of loss. On private credit, we have chosen not to participate meaningfully in lending to private credit vehicles and business development companies, which combined represent less than 1% of total loans. That was a deliberate decision, not a missed opportunity. The structural complexity embedded in these exposures introduces risks that are harder to assess through a cycle. We would rather grow in categories where we have more transparency to the collateral and have direct relationships with the underlying borrowers. On software and data center lending, we have maintained that same disciplined posture. We believe in the long-term demand for AI infrastructure, but we have also seen how quickly these build cycles can overshoot.
We have remained selective and our exposure is intentionally limited. Software-related exposures is less than 1% of total loans, with the portfolio performing in line with expectations with no material migration in the quarter. ACL as a percentage of portfolio loans and leases decreased to 1.79%, primarily reflecting the Comerica acquisition. The ACL as a percentage of nonperforming assets increased to 316%. Provision expense included $83 million for merger-related day 1 ACL build. Our baseline and downside cases assume unemployment reaching 4.5% and 8.5%, respectively, in 2027. We made no changes to our macroeconomic scenario weightings during the quarter, though a qualitative adjustment was applied to reflect the direct impacts of the elevated energy and commodity costs as well as the broader implications for economic growth, inflation and unemployment in the current geopolitical environment.
Moving to capital. CET1 ended at 10% reflecting the impact of the Comerica transaction and strong RWA growth. Under the proposed capital rule, our estimated fully phased-in pro forma CET1 ratio is 9.6%. The RWA benefit to capital ratios associated with the new rule is nearly a 100 basis point improvement, primarily due to credit risk RWA reduction. The proposed rule recognizes the granular, well-secured and relationship-based nature of our loan portfolio — the same portfolio characteristics we have been deliberately building toward over the past several years. The proposed rule should expand the ability of the banking industry to support the economy through increased lending capacity. Additionally, our tangible common equity ratio, including the impact of AOCI and the Comerica acquisition increased to 7.3%. Over the last 12 months, the impact of unrealized losses included in regulatory capital under the proposed rule has decreased by 16%, a 25 basis point improvement to the pro forma capital ratios despite an 11 basis point increase in the 10-year Treasury rate.
That is the direct result of our strategy to concentrate our AFS portfolio in securities that return principal on a known schedule, which represents approximately 55% of the fixed-rate holdings within our AFS portfolio. We expect continued improvement in the unrealized losses as the securities mature. Moving to our current outlook. Our outlook reflects the forward curve at the end of March, which assumes no rate cuts or hikes in 2026. Given the updated rate outlook and our more asset-sensitive balance sheet, we are updating our full year NII outlook to a range between $8.7 billion and $8.8 billion. We will continue to take actions to move the balance sheet to a more neutral rate risk position over time, which could include investment portfolio and/or other hedging actions. Our outlook for full year average total loans remains in the mid $170 billion range. Full year noninterest income is expected to be between $4.0 billion and $4.2 billion, reflecting continued revenue growth in commercial payments, capital markets and wealth and asset management.
Full year noninterest expense is expected to be $7.2 billion to $7.3 billion, including the impact of $210 million of CDI amortization and $360 million of net expense synergies in 2026. This outlook excludes acquisition-related charges. In total, our guide implies full year adjusted PPNR, including CDI amortization, up approximately 40% over 2025. We remain on track to exit 2026 at or near the profitability and efficiency levels consistent with our 2027 targets. For credit, we expect full year net charge-offs between 30 and 40 basis points. Turning to capital. With the release of the proposed capital rule, we are updating our CET1 operating target to a range of 10% to 10.5%. We expect to resume regular quarterly share repurchases in the second half of 2026 with the amount and timing dependent on the balance sheet growth and the timing of the remaining merger-related charges. Our capital return priorities are unchanged: pay a strong dividend, support organic growth and then share repurchases.
For the second quarter, we expect average loans of $178 billion to $179 billion, driven by growth in C&I, home equity and auto, NII is projected to be $2.2 billion to $2.25 billion with NIM expanding another 3 to 5 basis points. Noninterest income is expected to be $1 billion to $1.06 billion, and noninterest expense is expected to be $1.87 billion to $1.89 billion. Finally, net charge-offs are expected to be 30 to 35 basis points. The first quarter established the foundation. NII above expectations, tangible book value per share growth intact, credit at a two-year low, integration on track and early revenue synergies beginning to show. Those results matter, not just for what they are, but for what they signal. The core business is performing. The integration is delivering. And as we move through the year, the financial profile of Fifth Third will continue to improve in ways that are visible, measurable and consistent with everything we have committed to when we announced this combination. We have the balance sheet, the business mix and the team to get there. With that, let me turn it over to Matt to open up the call for Q&A.
Thanks, Bryan. 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.
Operator instructions. We'll go to our first question from Mike Mayo at Wells Fargo.
分析師問答
As you highlighted, this is the biggest acquisition in your firm's history. And it sounds like it's on track from your prior guidance with the Labor Day integration and $850 million run rate savings by the end of fourth quarter. I think we kind of knew that already, but what's incremental in the last three months or since your last presentation that you think is maybe going better than expected? Is that any of that higher NII guide due to the expansion in Texas and the promotions? And also, where are you seeing some of the snags? There's always issues with these things, what do you need to make sure you work out and doesn't kind of let down the progress?
Yes. Mike, it's Tim. I'll take an initial crack at that one, and then I'll let Bryan clean it up. So yes, I mean, we think we did a pretty good job of summarizing the past. As you know, when it comes to these large transactions, the absence of any surprises is a positive. So getting one quarter closer to a point where we're operating on a single common platform is an important milestone unto itself. In terms of just the core integration, I think things have gone really well. There really haven't been big surprises. We completed the Walk-the-Wall planning exercise that we run on the customer day and the deliverables have been locked. I think there are 46 applications that are new to Fifth Third, which, as we mentioned, from a technology perspective previously primarily supported the Tech and Life Sciences business and the Dealer Services business, plus a couple of things in payments. I think the data strategy and the data conversion work is completed.
All the risk-based process reviews we needed to get done, which are essentially the drill-down from the work that got done in diligence, have been completed, and we know where the product gaps are that need to get filled. The org charts are done, as I mentioned in my remarks, and we've selected the key leaders. I'm pleased — it's very early days. So this is not by any stretch of the imagination a declaration of success. But attrition is actually running a little bit below historical levels. So we're not seeing any sort of elevation in attrition. I think the positive surprise is actually what is happening in Texas and even more broadly across the Southeast related to promotional activity. We got a lot of questions after we announced the deal about whether the playbook that's worked so well for Fifth Third in the Southeast would work in Texas and in the Southwest more broadly. So that initial mailing that I referenced in my prepared remarks was a test.
It was the test-and-learn process so that we could reground our targeting and expected balance models on empirical data in Texas. We mailed 700,000 households. Response rates were good. The fact that more than half of customers opened checking accounts even in an environment where all the legacy tech limitations that Comerica had are still in place is very good. But maybe the more exciting thing is that having regrounded the models, we dropped the subsequent mailing on the 10th to 11th of this month to 6 million people and the very early results there are super positive. With the regrounding of the analytic models, we're getting three times the response rate that we see at this stage in our campaigns. And we actually expect that campaign alone to generate $1 billion in deposits across Texas, Arizona and California, which would be great. Now that is all incorporated in the guide to be clear.
That's not above and beyond the guide. But it just speaks to, a, the fact that the tactics that we are using in the Southeast are going to work in the Southwest and, b, the fact that Comerica had not run any sort of external consumer marketing in 13 years means it's a relatively unsaturated market for us. Then in terms of what's not working: we got a little bit of an internal civil war here between people who like their chili with beans, no beans or on spaghetti. So that's something we're going to have to solve before we can truly say we're one company.
All right. That's kind of like my weakness as I work too hard. But okay, I'll follow up. So just, I guess, it's interesting: you said Comerica had very old systems and you did these mailings and stuff, but 6 million mailings it sounds like you're getting $1 billion of deposits that will pay off. But how does — this is all Comerica accounts right now, right? And so after Labor Day, they're all going to become Fifth Third accounts. And so it seems like that transition has some risk too, going from Comerica to actually branded Fifth Third. How do you manage that transition?
Yes. I mean the tech conversion, as you know, is the single largest point of risk in a transaction because I think we've got a very good employee value proposition here. We've got, on a combined basis, more capability than either company had to serve clients and those things are good for people. The Code Red event that could occur would be if you made a mistake on the tech conversion and either people couldn't access their accounts or you had service issues or processing issues. So we're definitely always mindful of that. Assuming that we execute the conversion well, the way that we did with prior conversions as an example, then I actually think the tech conversion is a positive. There'll be a bake-in period where people will need to learn to navigate new interfaces, whether that's the consumer mobile app or the commercial portals. But the capabilities that are embedded in Fifth Third digital channels are much broader than exist inside Comerica's current channels.
The point I made about the managed services — those are software solutions that we offer in commercial payments. The fact that we've shown those things to 100 Comerica clients and have two-thirds of them as qualified leads in the sales pipeline speaks to the tech quality. What the conversion will allow us to unlock though, is all the digital marketing channels. The reason we're not doing digital marketing to support the Southwest markets today is because Comerica can't open consumer deposit accounts digitally. And therefore, there's no sense in using them. Once we're under the Fifth Third brand and on the Fifth Third tech stack, the 50% of our direct marketing that gets done via digital today suddenly becomes viable in the Southwest and all the household growth tactics that we use in addition to deposit growth tactics in the Southeast become viable as well.
We'll move to our next question from Scott Siefers of Piper Sandler.
Maybe Bryan, hoping to start with you: could you speak to some of the underlying drivers in the core margin? I think I know you suggested the reported level should expand another few basis points in the second quarter due to the full quarter's impact of Comerica. But maybe you could sort of speak to dynamics such as overall rate positioning, which I think you touched on, but maybe competitive dynamics on the loan and pricing side — just those kinds of things that you're seeing?
Yes. Absolutely, Scott. Thanks for the question. As I mentioned in my prepared remarks, we are asset sensitive today. That is certainly a factor that we are focused on as we think about trying to move to a more neutral position over time. We feel very good about how we're positioned, and that's obviously one of the things that's gone well for us with the current volatility in interest rates — it's given us some opportunity to do some things in the investment portfolio and put a few positions on in the quarter at pretty attractive levels. So we do feel good about that. From a driver perspective, we do expect some additional improvement from fixed-rate asset repricing over the remainder of the year. From a magnitude perspective, it's a little bit less impactful than it has been because one-third of our balance sheet was effectively repriced with the Comerica acquisition. So we are still seeing some good trends there on the legacy Fifth Third portfolio.
But obviously, that's just a smaller percentage of the balance sheet now. That's probably a 1 to 1.5 basis point kind of pick up each quarter through the end of the year and we feel good about the trajectory that gets us approaching exiting the year closer to 340 basis points from a NIM perspective. So a lot of things going well from a net trajectory perspective. The environment is competitive — we're in an industry that is always competitive, both on the lending side and on the deposit side. I would tell you that it is competitive but not irrational right now. Loan spreads have come in a little bit, but aren't crushing at this point. And we are just seeing normal deposit competition with the Midwest continuing to be the most competitive deposit market that we're seeing from a consumer perspective, more competitive than the Southeast, and we're still trying to get a better sense of what the Southwest looks like, but it does not look like it's going to be an outlier relative to other markets.
Okay. Perfect. And then maybe a higher level question here. You all talked about the fourth quarter of this year representing sort of the time when we really see the full run-rate accretion, returns, efficiency — basically, all the benefits from the Comerica transaction. Basically, all your numbers are going to be at or near best-in-class. As we start to look to a post-Comerica time like into next year when those benefits have really become realized, how will you sort of think about balancing additional improvement in profitability, returns, efficiency? Or will those at that point represent sort of steadier states as you do things like invest to just ensure that the levels you reach remain durable over time?
Yes, that's a good one. And we've been getting a variant of that over the last 90 days about, 'are the synergies durable? Or do they need to be reinvested?' I have been telling people if you have to spend it in some other way, that's not an expense synergy. It's a capital application play. So we absolutely believe we can sustain the level of profitability that we expect to achieve in the fourth quarter and continue to improve it. I grew up around distance running and motivational posters on my wall as a kid. So the view here is there's no finish line; we just have so much in front of us. You want to generate a strong return on equity under any circumstances. But then you want to make the decision at the margin. So if we're at 19%, and we've got a 53% efficiency ratio, the decision on the margin should always be: do we utilize continued strength in operating performance to drive higher profitability and boost TBV per share — or do we focus on growing tangible book value per share or do a little bit of both?
I just think we're going to have the ability to continue to do both. When I got here 11 years ago, one-quarter of the U.S. population lived in our footprint. Today, more than half of the U.S. population does; as Bryan mentioned in his remarks, 17 of the 20 fastest-growing large metro areas in the U.S. are now in the footprint, and we have a credible top-five market share in all of them. I think we have the freshest branch network. If you just look at it by age, any of the large banks, we probably have one of the youngest branch networks. We've got this payments business now that's benefiting when nonbanks actually take share from banks, which is great. And we have this huge influx of bankers from Comerica who have the shackles off in terms of not being capital or liquidity constrained. And I'm proud of the track record we have for tech innovation. So we will always continue to invest in the core business with the expectation that at 19% ROTCE is great. And if we run out of ideas, then we'll focus on getting 19 to be 20 or 21 or 22. Otherwise, it will be about growing book value per share.
Next, we'll go to Gerard Cassidy at RBC Capital Markets.
Tim, did you have a similar poster too with Steve's poster?
I had a couple of those posters. At my height and given my lack of foot speed, you had to go with the field athletes as well. So yes, I had them.
Got it. Good for you. When I look at your utilization trends that you gave us, and you touched on it in your prepared remarks, in the appendix, I think it jumped up nicely from 34.9% in the fourth quarter to 40.7%, and then you give it ex-Comerica. Can you give us some color in two areas: one, legacy Fifth Third, what you're seeing there? And then also legacy Comerica — what are they seeing?
Yes. From a utilization perspective, Gerard, I would tell you it's fairly consistent what we're seeing across the Fifth Third platform and the Comerica platform, which is middle market customers are starting to show a little bit more activity there. We also saw a nice rebound from a corporate bank perspective. I do think part of it was some of the activity that we were seeing from a capital markets perspective because we did see less paydown this quarter from a capital markets payoff perspective. But it was really the rebound that we were expecting associated with some of the tax bill benefits coming through, where we just saw some more active spending happening as customers were working through the environment. And then later in the quarter, we did see some impacts associated with the situation in the Middle East.
Maybe the one thing I'd add there, that based on the cursory read I did of other banks that have reported thus far, one thing we didn't see that a lot of other people saw: we didn't get a lot of the loan growth from private equity or private capital. So if you look at the growth in loans, less than 10% of it, in our case, came from private equity or private capital. My quick read is that may be as high as 80% for a lot of other places. One of the things that's comforting about the Comerica portfolio is they're a lot like Fifth Third in the sense that we bank real-economy businesses — primarily privately held businesses. People make things or move them or warehouse them or sell them, or provide core services like health care. Between the two of us, we were both on the low end of the 'private credit as a share of total' tables. It just hasn't been a growth focus for us. I think the other thing I might flag there, since I know it's come up, is we have less than $100 million of funded exposure to data centers.
We have been on the more skeptical end of the spectrum on that front. We talk internally about the fact that we wouldn't underwrite an energy loan without a petroleum engineer looking at the projections. I don't think there are a lot of banks employing AI researchers at the cost they are to help underwrite data center facilities. There's such a long history of overbuilding tech infrastructure anytime there's a platform shift. The obligors can be less clear than we would prefer. So that is where the growth wasn't coming from in our case.
Very good. And then just one follow-up on the credit quality: the guide for NCOs is very good and the numbers in the quarter are good. One question in the commercial side of the portfolio — the 30 to 89 delinquency numbers, even though low, when you look at the commercial and industrial going to 38 basis points or the CRE going up, is there anything there that we should keep an eye on? Or is it just because of the combination of the two companies and people maybe didn't know where to send payments? I know that sounds kind of strange, but any color there?
It's not quite as basic as they didn't know where to send payments, but the majority of the increase there, Gerard, was two credits, and the payments got made on April 1. So if we could have reported all of this as of April 2, you wouldn't have seen the jump that materialized there.
Our next question comes from Ebrahim Poonawala at Bank of America.
I had a question first just on deposits. As we go through all these updates, it feels like funding is a much bigger constraint for banks as we move forward than capital. Just talk to us around this Southeast strategy: what seems like an intense environment. How are you converting clients acquired through promotions into core checking accounts? Is that happening? Just kind of remind us on where that stands? And maybe tied to the previous questions, Tim, when you think about opening these branches in Texas three to five years from now, what's your degree of confidence that branches will still be as relevant five years from now as a client acquisition tool as they are today?
Good question. Yes, I think your point is an important one: your ability to convert relationships into new primary clients — whether you attract them through rate or a cash bonus or because of a new branch opening or otherwise — is effectively the seed corn for everything that we do because once we acquire them we maximize wallet share. That's the reason we keep disclosing the household growth rates in the Southeast; those are primary households. If accounts go inactive, they get washed out of that number. So you can trust that the 3% overall and in this case the household growth in the Southeast in the 7% to 8% range we have been running at is a real number. It's active accounts in one period divided by active accounts in the same period the year before, minus one.
So the population growth in the Southeast is 1.5% to 2% per year in any given market. Our growth rates have been 7% to 8%. So we're generating 3x to 4x the growth on a net basis that the market is experiencing, which should be the best proof point you can rely on that we're making the conversion. Savings promotions don't count in that number. Anything we do with loan products, home equity, etc., doesn't count in the number that's primary checking customers. In the Southwest and in Texas, we have 81 or 82 of these properties locked up. We're going to have branches opening next year, not in three to five years, just to be clear. And I think the measure of their importance: I like to think about branches as attributes, which boost response rates to direct marketing, whether that's digital or mail. There is a nonlinear decay function in response rates and expected value the further you get away from a Fifth Third branch by drive time in our models today. It's one of the more powerful variables in dictating who gets a digital offer. As long as that decay function exists, branches play a role in driving our ability to grow the franchise. I don't expect human behavior to change that quickly; it certainly hasn't in the past.
Got it. And just one quick follow-up. You mentioned this a few times in terms of nondepository financial institutions growth versus non-NBFI. Do you see embedded risks in that lending that you don't like? Just give us a sense of when you evaluate why it's attractive for many of your peers and not so much for Fifth Third.
I'm not making a call on private credit's viability overall. I don't personally believe it's going to go away as a category. I think our view generally has been that the private credit industry is likely to be much smaller in the future than some feared. Two strategies for growth were retail money, which was always a bad idea, as we've seen, and promising returns of 8% to 9% with low leverage always felt unrealistic to us. So is there a place in the investment spectrum for something that offers a return between corporate bonds and equities? Absolutely. It just doesn't feel like it's going to be anywhere near the size some predicted. We're not a very big player in this market; Comerica and Fifth Third together had about $1 billion of private credit or BDC activity. The reason we avoided it is because we couldn't figure out total leverage in these structures between the portfolio companies, the back leverage, the NAV lending and the lending to the companies doing the NAV lending and capital call facilities.
We don't like things we don't understand. More importantly, that is not an industry where banks will build durable competitive barriers, which means the return profile will eventually gravitate to cost of capital. We want to generate returns in excess of cost of capital, so we'd rather grow in areas that can generate high returns like primary relationship lending, managing wallet share and establishing lead-left positions. That's where we want growth to come from.
We'll move next to Manan Gosalia at Morgan Stanley.
I think in the prepared remarks you mentioned that the proposed rules recognize granular, well-collateralized loans. So I just wanted to clarify that. And then my main question, Tim, when you think about opting into the advanced approaches under the proposed rule given that it would allow banks to hold less capital against higher quality loans, do you think it creates some sort of disincentive or negative credit selection for banks that don't opt in?
It's Bryan. At this point, we're still evaluating whether or not we will opt in to the advanced approaches. It's not necessarily the driver of the big benefit for us. Opting in is probably an incremental 10 or so basis points relative to the numbers that I quoted. And then obviously, there's some complexities associated with the data, models and systems necessary to do some of the calculations. So that's something we're still evaluating. There is always some regulatory arbitrage out there, whether it's within the existing capital rules and use of securitization-style structures or how private credit participates in the regulatory landscape as well. So there is always that aspect of competition and ultimately, I don't think it will have a really big impact on competitiveness across the industry and between the banks that opt in and those that don't.
The only thing I'd add is it depends on how you underwrite. Not every bank underwrites to the same binding constraints. The decision to opt in or out will get made at the macro level, and the individual underwriting decisions and the return calculations are done at an individual company level. The way we approach underwriting — evaluating default probability and loss given default and allocating economic capital accordingly — is core to how we think about returns, regardless of the capital framework.
Got it. That's really helpful. And then now that we have the proposals for capital, the focus has been turning to the liquidity rules. What would you like to see on the liquidity side? And is there something that would cause you to manage your liquidity differently from what you're doing?
I think the most valuable thing for the industry is some credit for the liquidity that is actually available — for example, secured lending capacity at places where you know the liquidity is going to be there. Think about FHLB borrowing capacity against securities, discount window or repo facilities; getting some credit associated with that off-balance sheet liquidity would be very valuable for the industry. That is probably one of the more significant elements. We would also like a little more rationality on deposit outflow assumptions. That's an area where there has been significant pressure on the industry across liquidity exams, and I think we've ended up in a spot where the assumptions embedded in many liquidity stress tests today are absurdly high relative to some of the core banking relationships, in particular the operational deposits attached to treasury management services.
We'll go next to Chris McGratty at KBW.
Tim, I want to come back to the comment about the Midwest being more competitive than the Southeast. It seems somewhat contrary to where a lot of banks are allocating capital. Can you unpack that a bit?
Yes. This has been true for a long time. Two dynamics in the Midwest are a little unique relative to the rest of the country. One, historically, you've had a lot more regional banks headquartered in the Midwest and less of the very large consolidated national banks. Less consolidated markets tend to be more competitive. The second factor is credit unions play a much more prominent role in many Midwestern markets than they do elsewhere. Credit unions tend to be optimizing for different objectives — not a profit mandate — and therefore they tend to be competing on different factors like price. The combination of more fragmented markets and an actor optimizing around a different set of goals produces higher deposit competition. That, for us, has been interesting as we moved into the Southeast because we have a low existing share and thus a low cannibalization cost for new marketing campaigns. The marginal dollar in the Southeast is still a little bit cheaper to raise than the marginal dollar in the Midwest, which means we can be more aggressive and still have a very nice impact on the franchise overall.
Great. And then, Bryan, just on the full synergy cost saves mapping out, can you help with exit run-rate on efficiencies? It feels like low 50s this year and you kind of go into next year from a pretty good position. Could you quantify that a bit?
Yes. The expectation we talked about is being in that 53% range in 2027. Our fourth quarter efficiency ratio is always our lowest efficiency ratio for the year, so I would expect us to be roughly two points below that 53% in the fourth quarter.
We'll go next to Peter Winter at D.A. Davidson.
When you first announced the Comerica acquisition, you were targeting a 27% ROTCE or 4.89 EPS accretion. Now that you spent more time with the company and you're getting some early wins on the revenue synergy side, do you see upside to that number since it did not include any revenue synergies?
Yes. Anything we're seeing on revenue synergies would be upside because we did not contemplate revenue synergies in the original model. We do feel good about the progress there. We will be striving to outperform what was in the original model. Obviously, 2027 is a long way off and the environment can change, but we are more positive today about the opportunity in front of us, even though we were incredibly positive at the time of the acquisition.
Okay. And then if I could follow up: Fifth Third has been strong at managing the balance sheet in different interest rate environments. Bryan, where are you in the process of repositioning Comerica's balance sheet? You mentioned you're asset sensitive now, but how quickly do you want to get back to neutral? Or would you slow-walk it given the higher-for-longer rate environment?
Given the higher-for-longer rate outlook, we're cautious about down-rate risk. We're balancing capital risk with down-rate risk. We're moving a little slower given the current outlook, but as the outlook changes we could accelerate. There's probably in the neighborhood of $30 billion to $40 billion of notional exposure that we could move out the curve as the rate environment changes. That gives us a lot of flexibility as we navigate this environment. Even if you were to start to see more significant cuts, you'd likely see some amount of steepening that gives us opportunity to deploy and maintain or even grow NII in a falling-rate environment.
And next, we'll go to Erika Najarian at UBS.
Given that the curve assumes no cuts, could Fifth Third maintain deposit costs even if there are no cuts? Tim, your ears must be burning because even your money-center peers are talking about your competitiveness in their markets. So what's the deposit cost outlook in an environment where the Fed is not cutting?
Yes. We absolutely think we can maintain deposit costs even in an environment where the Fed is not cutting. The wildcard is ultimately balance-sheet growth. If we see a more aggressive loan growth environment, that would put a little more pressure on deposit costs. But in a fairly rational, normalized growth environment, we think we have a lot of optionality to be able to maintain deposit costs where they are.
And next, we'll move to Evercore.
This is on for John. Just one on the fee side. Solid results in the quarter, healthy guide despite the volatility in headlines. If the volatility subsided at all, do you see upside from the billion-dollar run rate? How conservative might the capital markets and wealth guidance be now versus potential upside?
There's always a little conservatism we build in for capital markets. We do think there's opportunity as the environment stabilizes for more hedging activity and M&A-related work. The rest of the fee businesses have been doing well despite uncertainty. We feel the tailwinds from investments we've made in sales force and production position those businesses to continue to grow, as do the investments from a payments perspective. So certainly, we think there's opportunity from a fee perspective to continue to see good outcomes.
We'll take our next question from Ken Usdin at Autonomous Research.
Given that it's a partial-close quarter, can you help us understand the dollars of purchase accounting accretion that were in the quarter and what you're expecting for Q2 and how that cascades over time?
If you look at the NIM walk in our slide deck, there was about $12 million of purchase accounting accretion associated with the loan portfolio in the first quarter. The easiest way to think about that is it was really just two months of activity; it will amortize down relatively gradually over the next few years. Most of that is associated with the commercial portfolio, so it has a shorter tail than if it were residential mortgage exposures. From a magnitude perspective, that $12 million will be higher in Q2 as you get a full quarter of Comerica — probably closer to the mid-teens in millions next quarter when you think about adding the additional month of activity.
Okay. And then just a quick one: you mentioned you might get back into buybacks in the second half. Historically what does a normalized quarterly buyback look like?
In a normalized environment, we would be talking about roughly $200 million to $300 million of buybacks per quarter, which is our historical run rate. For this year it'll be less as we lean into integration and support organic growth, but we do expect some opportunity to restart buybacks in the second half of 2026.
Next, we'll move to David Chiaverini at Jefferies.
Question on Dividend Finance: it looks like the deceleration you anticipated is starting to come through, and there's a related uptick in NCOs there beginning to occur as well. How high should we expect this NCO rate to trend so that we're not surprised given the slowdown is fully anticipated?
Good question. It's an industry that's facing disruption as a result of the tax bill and the change in the relative economics of leasing versus lending. That was not an environment we were expecting when we did the original acquisition. We're working through it; it's not a growth asset for us anymore. I think the range we're in right now from a charge-off ratio perspective is probably a reasonable range to expect for a period of time.
Very helpful. Then shifting to HELOC: the HELOC growth is off to a very strong start in Q1, more than offsetting that headwind on Dividend Finance. What's driving the strong growth in HELOC? Is it Fifth Third's pricing or grassroots loan demand from customers? And what's the outlook?
The first quarter benefit was partly from the Comerica acquisition. That accounts for about half of the first quarter growth. Beyond that, it's grassroots activity. We've made a lot of improvements to that business and the customer experience over the last couple years. It's become easier for bankers to sell, and we've leaned into marketing and customer acquisition tactics. When you take a step back and think about the amount of home equity in the market and the lack of housing turnover, it's an area we expect consistent growth in for some time. We're seeing sustained origination activity and good credit quality.
One thing to add: as Bryan said, we're #1 in market share in our footprint for home equity originations and we are not competing on price in a way that's damaging. We're generating strong originations volume at attractive spreads relative to peers.
And we'll take our final question today from Christopher Marinac at Brean Capital Research.
I want to ask you about the NBFI reserve allocation. Would that number necessarily not go up much this year because you're avoiding some of the higher-risk, lower-return pieces of private credit?
We're not seeing anything in our nondepository financial institutions portfolio that would cause us to have any need to build significant reserves related to those exposures. They are very well secured and performing.
Yes, absolutely. Before we wrap it, I just want to quickly say congratulations to Keith Horwitz on his retirement and on his 30 years in the community. I appreciate Keith for all the years of coverage here and wish him the best in the next phase. My sense is he'll prove out the adage that old analysts never die; they just stop updating their outlook.
That concludes our question-and-answer session. I will turn the conference back over to Matt for closing remarks.
Thank you, Audra, and thanks, everyone, for your interest in Fifth Third. Please contact the Investor Relations department if you have any follow-up questions. Audra, you may now disconnect the call.
Thank you. And this concludes today's conference call. We thank you for your participation. You may now disconnect.