Kicking off the second day, we are pleased to have Fifth Third joining us once again. Fifth Third has continued to execute on its strategy, including building out its Southeast footprint, growing fees fast in the balance sheet, maintaining excellent cost control. More recently, it announced its intention to buy Comerica Bank, just its second bank acquisition in the last 20 years. Here to tell us more about the path ahead is Chairman and CEO Tim Spence. Tim's going to walk us through some slides, and then we will have a Q&A session.
Great. Thank you for having us, Ryan, with Marc Rowan next door. I thought this might be an empty room. I may be reading into the record here like I was at Congress.
They're handing out tickets for the seats. Full out, full crowd.
Good morning, everyone. As Ryan said last night, we published a slide presentation on our Investor Relations website, which I will reference a little bit in the prepared remarks. And after that, as Ryan said, I'm happy to take your questions. So, Fifth Third, we've been clear that we believe great banks distinguish themselves not by how they perform in benign environments, but rather how they navigate challenging ones. And while I would characterize 2025 as a benign environment, it's also one that has been defined by uncertainty and policy changes that affect overall market activity. Despite that, we expect Fifth Third will deliver full-year record NII and over 200 basis points of positive operating leverage, just as we said we would at this conference last year.
For the fourth quarter, we're reaffirming the PPNR outlook we provided in October as some softness in capital markets activity related to the impact of government shutdown will be offset by lower expenses, and we also continue to expect credit losses to be around 40 basis points. In 2025, we reached several milestones in our long-term growth strategies. In the Southeast, last week we announced the opening of the 200th branch in Florida and our 100th branch in the Carolinas. To put this in context, if Fifth Third Florida was a standalone bank, it would have the 44th largest branch network in the U.S. Fifth Third Carolinas would be the 78th, and Fifth Third Tennessee, Georgia, and Alabama would be the 91st.
Our de novo branches continue to deliver deposit growth that is 45% better than new peer branches and consumer household growth of three to four times the rate of Southeast markets. Driven by the middle market, RM, and wealth advisors, we have continued to add. The Southeast and California and Texas expansion markets will have contributed nearly half of total middle market C&I loan production and nearly half of all private bank net flows in AUM in 2025. Our sustained investments in digital transformation have also created real competitive differentiation across business lines. In consumer, we shipped over 400 updates to our J.D. Power award-winning mobile app over the course of the year, including direct deposit switch, a financial wellness hub that provides cash flow insights and spending analysis, and free estate planning capabilities through our partnership with fintech Trust & Will.
In small business, a little over a year ago, we asked our fintech provider to extend their technology and leadership to all of small business for Fifth Third. Since then, we have moved up 36 positions in national market rank for SBA lending and finished number two in J.D. Power's 2025 National Small Business Banking Satisfaction Study. In commercial payments, our acquisition of DTS Connex in August added a software layer to our managed services offering in retail and financial institutions verticals, and our Newline embedded payments platform added marquee clients, including Circle and the federal government's Direct Express program. The strategic partnership we announced yesterday with Brex transforms our undifferentiated commercial card offering into an AI-powered global spend platform that automates expense reporting, simplifies manager approvals, and reduces fraud.
Brex is an acknowledged market leader in product and innovation, and results from the pilot that we launched with Brex in early 2025 have me very optimistic about the long-term potential for this partnership, as I mentioned on CNBC yesterday. Last, but certainly not least, on the strategic front, we also announced the acquisition of Mechanics Bank's Fannie Mae DUS platform yesterday, including $1.8 billion of DUS multifamily servicing UPB. This capability has been a notable gap in our commercial real estate capital markets offering, and we expect it to generate strong fees, some incremental loan growth, and stable deposit balances as we build the platform out over time.
Under normal circumstances, this would be my place in my scripted remarks, where I'd be pleased to share that Fifth Third's existing franchise will deliver another year of record NII, mid-single-digit revenue growth, and an additional 100- 200 basis points of positive operating leverage in 2026. But this is obviously not a normal year for Fifth Third. Instead, I'm happy to provide a little bit of additional detail on our plans for our pending acquisition of Comerica. When we announced the acquisition in October, we highlighted the fact that it was a rare combination that worked on all time horizons: no dilution to TBV per share at close, 9% EPS accretion, and peer-leading profitability in 2027, and a platform for strategic growth for the next decade.
As our teams have commenced integration planning, and as Curt Farmer and I have met in person with roughly 2,000 Comerica colleagues in town halls across Michigan, Texas, and California, I'm even more confident today in our ability to achieve those results. We continue to feel confident that we will close the transaction in the first quarter of 2026. Regulatory applications were filed in October, and we expect approval around the new year, with shareholder votes for both Fifth Third and Comerica scheduled for January 6th. Once we close, 2026 will be a very busy year as we work to deliver successful customer and systems conversions and to unlock the $850 million in expense synergies. As we've said before, savings will come primarily from the elimination of facilities, systems, vendors, and some headcount reductions concentrated in overhead and non-customer-facing roles.
In 2027, we expect the company to have a return on tangible common equity of 19% and an efficiency ratio in the low-to-mid 50s, both of which would be number one in our peer group today. Over five years, we see an opportunity to deliver more than $500 million in incremental annual revenue synergies, which are not contemplated in the deal economics, coming from four areas. First, scaling Comerica's middle market platform and vertical expertise. Second, deepening Comerica's commercial and wealth management client relationships to reach Fifth Third client wallet share levels. Third, building out Comerica's retail banking business with the Fifth Third playbook and the 150 Texas de novo branches that we announced. And fourth, creating a differentiated innovation banking business through the combination of Comerica's Tech and Life Sciences industry vertical and Fifth Third's Newline platform.
Comerica's middle market platform and specialty verticals are widely recognized as the crown jewels of their franchise. Unleashing them is job number one for us. Since 2021, given balance sheet constraints and competing investment priorities, Comerica's middle market loan growth was less than 1% per year. By leveraging Fifth Third's larger balance sheet and stable funding base, ABL and specialty lending product capabilities, and investment capacity to add experienced RM talent, we are confident we can boost middle market loan growth and relationship growth across the combined company to the 5%-6% annual growth rate that Fifth Third has delivered over the past five years. Second opportunity, as I mentioned, is deepening Comerica's existing relationships across commercial and wealth management.
Today, Comerica generates roughly 169 basis points in commercial payments and capital markets fees per $1 in C&I loans, where Fifth Third generates 188 basis points, or about 10% more of that amount. As Comerica's bankers have access to Fifth Third's differentiated payments products and capital markets platforms, we're confident we'll see increased wallet share. Similarly, Comerica generates about $7 in AUM for every dollar in loans in its private bank, where the ratio is greater than 10 to 1 in Fifth Third's private bank. We believe there's a best of both opportunity, both to increase AUM among Comerica clients and to boost lending among Fifth Third private bank clients going forward. The third opportunity and most material of the group is building out Comerica's retail franchise across deposits, lending, and investments.
We believe we'll see an immediate same-branch deposit production increase once Comerica's colleagues have access to Fifth Third's data-driven direct marketing, products, and digital capabilities. We also expect to produce a lift in same-branch investment and loan production as we add investment in executives and mortgage loan officers to match Fifth Third's existing staffing and gearing ratios over time. As we add 150 de novo branches to Texas through 2029, we expect to achieve top five locational shares in Dallas, Houston, and Austin, which constitutes a $10 billion additional deposit opportunity as those branches season. The fourth opportunity is building a differentiated innovation economy banking platform. Comerica is well known in the venture community, having operated its Tech and Life Sciences business since the early 1990s. They possess a broad portfolio of VC relationships and banking and lending expertise.
When combined with Fifth Third's fintech credibility, embedded payments offerings, and balance sheet strength, we believe there's an incremental opportunity to serve the innovation economy that's powering the growth of the U.S. overall. We're in the initial stages of developing our strategy here, but we believe it constitutes a very significant deposit and fee opportunity in particular. To close, it's an exciting time to be part of Fifth Third. We're focused on delivering strong returns for long-term investors and are proud to rank second amongst peers in total shareholder return over the past three, five, seven, and ten-year timeframes. Stability, profitability, and growth will continue to be our operating priorities in that order.
Because we've invested in a limited number of large strategic opportunities, because we've focused on achieving density where we compete, and because we have leveraged technology to differentiate our products and boost operating capacity, we have everything that we need to achieve the promise of our Comerica merger. With that, I'm happy to take your questions.
Great. Thank you, Tim. So maybe.
What you had to give Ryan for Christmas to get me up here on chaperone?
Matt may have the mic mute button, though.
Make sure to hit a lot of financial questions.
Maybe to kick it off, to dig a little bit deeper on the two announcements that you had yesterday with both Brex and Fannie Mae DUS license, maybe just talk about how you'd expect this to impact the business, the financials over the medium-term timeframe.
Yeah. So let's start with Brex, since some of you may not be as familiar with Brex. Brex is the largest of the spend management fintechs in the commercial card market. We came to know them a little over seven, seven and a half years ago. They have been a client of Newline for several years since and developed relationships with the founders of the business. The journey they're on is the same journey we've been on across our commercial payments platform, which is to take these legacy businesses that are essentially all linked to processing payments on commodity payment rails that all banks have access to and to convert them into payment workflow automation businesses that are differentiated with subscription software. So you get a little bit of the equivalent of the razors and the razor blades monetization model.
The gap in what Fifth Third has been doing has been in the commercial card business because we have ridden on the same vanilla technology platforms that essentially every other Visa or Mastercard issuer would ride on and had just never been in a position to make the sorts of investments in the AI capabilities that simplify everything from receipt capture and expense reporting to auto mapping expenses into individual GL codes so that you eliminate a lot of manual work in the accounting department and otherwise. So we needed to do something there because the payables platform is payables in general are relevant to all industry verticals and not just one. So we have about $6 billion in annual commercial card spend today. That will move over the course of the next year from Fifth Third's internal platforms out and onto the co-branded Brex offering.
There'll be a native integration that gets done, so commercial clients will have the ability to manage all receivables and payables through our environment. But it just immediately changes our value proposition from being basically rebate-driven and/or bundled to one where the commercial card and the spend management offering can be a tip of the spear. So what we've seen in the other payments businesses we do, that is, today we add almost one new payment-only relationship for every commercial payment relationship that we add by virtue of extending credit, right, and then getting the payments along with it. This is just another tip of the spear offering for us. So we'll go from a gross revenue minus expenses model to then essentially the contribution margin for the business to a net revenue model as part of the partnership.
So top line revenue will decline a little bit, contribution margin will grow. But the more exciting thing is in the pilot I mentioned that we ran this spring, the take rate when we went out to clients increased tenfold, like a literal 10x increase in the success rate we had in converting prospects into commercial card customers. So we're not building the plan around a 10x take rate increase, but it's a huge lever for us both to add new relationships and just to gain wallet share in a category where we're probably the weakest. Frankly, regional banks in general are probably the weakest. The DUS business was the equivalent, I think, of my holiday gift this year because we have been trying to acquire a DUS license literally for the past 10 years that I have been at the bank.
We have looked at, bid on, or walked away from four or five different platforms during that period of time, either because the relative size of the business didn't make sense or they were attached to a business that we didn't like and the math didn't work or we weren't comfortable with the culture. This is a huge asset for Fifth Third and ironically about the perfect size. What we want, we are believers not in a sort of portfolio holding company model, but in being one thing where we compete and in integration, and what we're going to get with this Mechanics DUS license, which came to them from HomeStreet, is a good platform, a great initial starting point in terms of the talent, but not one that's so large that we're dealing with a lot of independent and sort of outside our core franchise business.
So we're going to be able to take what we've got, add talent, add licenses since DUS is basically the one license that's functioned as a walled garden, and then integrate the go-to-market directly into our multifamily business and Comerica's multifamily business. And multifamily is a huge share of our construction lending, and it's the single largest share of Comerica's construction lending as well. So it gives us a fee-based mechanism to monetize the transition from construction to permanent financing for a lot of our clients. And so for that to come along when it did is just great.
It was great,
and this will be more capital market oriented.
It will be. That's right. It's a fee-generating business. There are good deposits that come along with it, a little bit of bridge financing to get from construction to stabilization so that you can then use the agency takeout, but fees are the way that we'll monetize it over time.
Gotcha. So a lot of interesting stuff in the deck on the Comerica and the integration, the revenue synergy. So maybe we'll start to dig into some of those. I'm looking on one of the slides, the deal slated to close in the first quarter. I guess first, what are the major hurdles between now and then and any concerns given the Hold lawsuit that was out there that could delay this?
Yeah. I promised to be on my best behavior, so I won't be here. No, we're not worried at all. I think we got the regulatory applications in before the end of October. As I mentioned, we've been in constant dialogue with both Fed and the OCC. Those discussions have all been quite constructive, and there is nothing that's come up that has caused me even the slightest concern. I think if anything, sort of the experience we're having is consistent with what we have been hearing from others who were ahead of us in line in terms of these transactions moving through in a sort of 90-day-ish type of timeframe. We have our shareholder meetings on January 6th.
If the worst thing that our shareholders are going to say about the deal is that there could have been more tangible book value dilution, I think we're probably in really good shape, and frankly, given the feedback that we've gotten from Comerica shareholders and the way that the market is trading the deal in general, it's pretty clear to me that the shareholder vote is going to be very smooth on that front, so the last issue here is just the resolution of the suit. Having not spent a lot of time paying attention to this, I was a little bit surprised to learn that strike suits have been filed for basically every major deal that has been done over the course of the past several years, and I expect that will work its way out through the courts in due time.
And I will agree. That was best behavior. And I did like the witty joke about the TBV dilution. So just looking at the timeline, you're planning on closing in the first quarter, and then it says systems come, branch and conversion is going to happen the fourth. I guess talk to us about why that's the right time, what planning is being done, and what do you need to ensure that you're ready as those dates approach?
Yeah. Job number one when you get these deals, it's a first-do-no-harm sort of a thesis. What we're excited about with Comerica is the expense synergy is paid for the deal, but the markets, the vertical expertise, things like the dealer platform, Tech and Life Sciences, waste management, stuff we've talked about before, and the middle market franchise and the culture they have there are really the foundation for like a decade of organic growth opportunities at Fifth Third, so we got to make sure that we handle the conversion sensitively. We had about a nine-month approval timeline with MB, and then we converted in about eight weeks after that, so call it a year from announcement, a little less than. It just made sense to us as we did our initial planning with Comerica that we take the same approach here, so we'll get the deal closed.
We'll get the expense actions front-loaded to the extent that we're able to, and then we're going to work on what I would think of as more an onboarding experience for their commercial clients than a conventional conversion experience, so we will, for the largest relationships, in particular the ones that have complex treasury needs, actually onboard them the way that we would if we were winning new business over the course of the period of six months, and that makes the weekend system conversion much less fraught, right? I think the good news from my perspective, we've essentially been converting ourselves over the last five years as we've done all the tech modernization activity, so we have a clean platform. We understand how to do the cutover. We learned some really valuable things in the process at MB.
That silly one here, I don't know my own Fifth Third mobile app password because I've been using biometrics to log in for the past several years. So there are things that you can do to precondition customers before you cut over so that they have a better experience and we'll be ready to go over the three-day weekend at the beginning of the fourth quarter or end of the third.
Gotcha. So one of the things that you've noted is that their consumer bank was somewhat underinvested in. And maybe just talk about, is it just opening more branches? Is there more to do than that? And you commented before about getting loan growth to being similar to the five to six that Fifth Third historically has done. How do you get both franchises as you bring them together, generating the type of loans and deposit growth? And is there more investments that need to be made?
Yeah. I actually think the Comerica team was smart not to be investing at the time they did in retail. One of the things that I admire about their culture is they're honest about what they're good at, and they focus on those things, and then the things that they don't have the capabilities or expertise in, they don't do it, and that's not common, right? We have a lot of banks that are building branches now that haven't built branches in a while or folks that have had more difficult time figuring out how to utilize direct marketing or trying to do more of that. The Comerica folks were just clear-eyed that they didn't have the capabilities, and therefore they didn't spend the money, so they haven't run a consumer deposit marketing campaign in 13 years, right?
We dropped eight-12 campaigns for households alone, not including the things that we do on an ongoing basis to mine wallet share for our existing clients every year, right? So that's just job one is take the analytical marketing expertise, reground the models for Comerica's markets, and generate a boost in same branch deposit production. We get about 35% of our monthly household and deposit production from the branch through marketing-linked activity. So it would be fair to assume that as we get going here, that's where we're going to be in legacy Comerica. Second is obviously building the network to the right level of density in these markets. Comerica's performance in Michigan in retail is, as you would expect, because they have high share and strong brand awareness, comparatively much stronger than in Texas and California where the network is thinner.
So we're just going to solve that problem and fill it out. And we have whatever, a deep track record at this point of the results that the de novo program at Fifth Third have been able to drive relative to others. The last thing, which is one that I don't know that I fully appreciate, and we got a little bit further into the deal, is that we get a lot of home equity production, we get good card production, and we get excellent investment production out of our retail network because of the playbook we've got and because of our staffing ratios. So you have, call it one mortgage loan officer for every four branches at Fifth Third. You have one investment advisor for every three branches. The loan officers generate a little more than $4 billion in production last year.
Fifth Third Securities, the broker-dealer, had over $300 million bucks in, well over $300 million dollars in recurring fee revenue last year. So at Comerica, there are five MLOs covering 345 branches, and there are 30 investment executives covering those same branches. So they're operating at a rate that's like 3x less than what we are operating at on the investment side of the equation and substantially less than that, call it 10x less in terms of what we would want to be doing on the mortgage front, maybe 20. So we will do some hiring in those places. There are recs already open in several of these markets so that we can bring the full playbook to bear.
and when you think about the 150 branches that you're at, I think you said 75 Houston, Dallas, and then 25 San Antonio and Austin. Maybe just talk about the strategy going in there. Are we using the same playbook that we've used in the Southeast? Are the markets different at all that they have to make some tweaks to it? Talk to us about that.
Yeah. It's fundamentally the same playbook. So same geospatial tool that we utilize to locate branches, which I think we mentioned. That would definitely be the only time in my lifetime that I'm associated with an award for advancing an academic field of study with the GIS Award that we won a few years ago for that tool. Same learnings in terms of what we choose to build, how we evaluate individual parcels of land in a given area. And then certainly the same learnings as it relates to the launch tactics. What's consistent about Texas and the Southeast that's quite different than most of the markets on the northern half of the country is they're less dense, right? They don't deal with the topographical barriers like rivers and oceans that we do here in New York. They're growing so fast that they're not as urbanized.
And the byproduct of that is you need to be thinking about what you do in the city centers and how you provide points of convenience locally. But it really is about how you handle the neighborhoods that ring the urban core. And I think just the early returns from the branches we built in large cities like Broward County and Southeast Florida, like what we're getting out of Georgia, is our de novos are actually doing better there than they were doing in the mid-sized towns. And they're doing pretty well in the mid-sized cities. So I think we're in very good shape in terms of the toolkit.
And maybe to round out the discussion on the Comerica footprint, California is obviously a longer-term timeline, but you mentioned there's lots of things you could do. You gave the example of Newline can work with TLS within the innovation economy. Maybe just talk about the approach to California. Is there more that could be done? And the things like the OCC opening up venture lending and that kind of thing increase what you can do out there?
Yeah. So from a consumer perspective, the nice thing about California is it's an incredibly deep pool of liquidity. And because we have such a small share across the state, the sort of net incremental relative to cannibalization on rate offers will work very much in our favor. So the strategy there will be more deposit balance driven than it would be conventionally household driven, although we will do some household marketing in places where we have the right level of density. I think the exciting thing is what we're going to be able to do on the commercial side of the equation. We've had a really good middle market presence in Southern California and then up into the Central Valley in particular. The number one thing those folks ask for every time I'm out there is, can we just get a few branches?
Because we need folks to have access to them. So the Fifth Third existing team is over the moon about having a thin network that will be able to support their activity. It'll allow us to do some things in the emerging middle market space that we have not been able to do out there. And Comerica has demonstrated that that'll be quite successful. But I think to your point, the big growth strategy is going to be innovation economy. There's no question that the combo of actions that the OCC took recently will make it much easier to participate in venture lending. But the value doesn't come from the lending in those businesses. Conventionally, it's a 4 to 1 deposit to loan ratio that you generate. But you have to be able to know how to do the lending.
You got to have the relationships with the VCs to do everything else. So that is going to be the tip of the spear on the California strategy for us, is we think there is a role in an ecosystem now that's sort of dominated by people who are in the venture banking space because they want the capital markets opportunities and the IPOs for somebody who wants to play in that market, but who wants the operating activity and who has the tech to do the integration that's required to make those businesses work straight through the way that they need to work.
Maybe let's switch a little bit, just talk about the current operating environment. So you gave an updated Q4 guide where, as you mentioned in your prepared remarks, Tim, you tweaked down slightly non-interest income due to a little bit capital market deals getting pushed. You moved for it on the expense side, so we're ending up in the same place from a PPR perspective. Maybe just focus on two things in particular. One, what are you guys seeing in the lending environment? And two, obviously, it was nice to see the reiteration of the 40 basis points of charge. I was thinking sort of broad updates in terms of how you're feeling about credit.
Yeah. So just on the capital markets front, thinking about this, we had our board meeting in the last few days. It feels like we got nine months of market activity out of a 12-month year between the Liberation Day pause in the spring and then the government shutdown here in the fall. So the pipeline stayed very robust there. It just, given the delay in things that we expected would close in the early part of the quarter to the middle and late part of the quarter, it didn't feel prudent to come in here and assume that we were going to get 100% of everything that's scheduled for December 31 done. So that's probably $10-$15 million in activity that moves out of the fourth quarter. It would have been there otherwise into the first quarter.
The good news is expenses are running in a good spot, and the byproduct of that is the PPNR guide will stay spot on the pin. From a lending perspective, production's been really good. I would tell you it's not because we're seeing a big lift in the market. In fact, when you look at the Fed data on C&I, 100% of the growth has come from the NDFI market. All C&I ex NDFI has been stable. In our case, the production's been good because we've been adding the bankers, right, and production rates have more or less tracked those guys coming online, but utilization is softer, in part because between the uncertainty attached to the government shutdown and now I think the uncertainty over how much of the current tariff regime sticks and the rollover into the coming year, you see people managing inventory a little bit tighter.
But in general, I feel really good about the exit point for the year and how it sets us up, as I mentioned in my remarks, to continue to deliberate this sort of mid to high single-digit growth on the revenue line items on a Fifth Third standalone basis than what we're going to be able to add with Comerica. From a credit perspective, things are advancing more or less exactly as we expected.
Maybe to dig it a little bit further on the revenue synergy opportunity, the $500 million over three to five years, lots of these are in areas where if you think about it, either you're building the branches to generate retail opportunity. These are areas where Fifth Third has had superior performance and a lot of it is bringing Comerica up to the same sort of level. Maybe just talk about any investment that's needed to generate these and will there be any sort of timing mismatch as you think about generating this?
Yeah. The expense synergies that we announced when we announced the deal were a net number, inclusive of assumptions around reinvesting into the franchise. So I don't want anybody walking away worried that there's some big unexpected expense growth here on the Comerica front that isn't anticipated. The near-term opportunities here are in leveraging the things that we know how to do and allowing their folks to be more productive, right? It takes time to get the hiring engine going in markets where you're not recruiting. I learned that one the hard way. We had strong middle market bankers relatively consistently over a 10-year period when I had become president of the company.
And it took us 18-24 months just to get people back into the habit of having the sorts of conversations that we needed to have to get on this 6%-7% annual growth rate that we now have in terms of experienced RMs and wealth advisors. And then it will clearly take time. Even in Texas, you got to wait a couple of months for a permit, it turns out, but it will take time to get the branches built and out of the ground, as we talked about when we gave our initial timeframe. So I'm most excited about what we're going to be able to do in the middle market. I hear from the Comerica folks when I'm out that both the larger balance sheet and the capabilities, in particular, the technology, many of them would say, "Listen, I have a 30-year relationship.
We do all of the lending for the client. They leave excess deposits here," but they had to take the treasury somewhere else because there was a capability that they needed that they weren't able to offer, or they needed to move into a syndicated transaction. We just didn't have the scope of services that we need in order to retain it, and so there's stuff we're going to be able to do on that front, and then the same branch production will be like that, right? That is an operational business for us. There's a well-defined playbook. It works in the Midwest. It works in the Southeast. It's worked in mid-sized markets and large ones, and I'm relatively certain that we'll be able to get that going even immediately after legal day one for everything other than checking, and then post-conversion, we'll get the checking going too.
Awesome. Well, we're out of time, but please join me in thanking Tim.
Thank you, Tim.
Yeah.