Good morning. I'm Jason Goldberg, cover the U.S. large cap banks at Barclays. Thank you for attending our 24th Annual Global Financial Services Conference. As a reminder, to my left in the middle of the room are our marketing decks and posters, so please grab them on your way out. We have a very jam-packed morning.
I think we're in this room for seven presentations through lunch, then we got more in the afternoon. Very pleased to have kicking off today's festivities is Fifth Third Bancorp from the company, Bryan Preston, Chief Financial Officer, and Jamie Leonard, Chief Operating Officer. Morning, guys.
Morning.
I know you just had a really busy week over the Labor Day weekend converting Comerica. I just thought I'd start with guidance and get that out of the way. I know last night you posted a slide deck kind of reiterating the guidance you gave on the third quarter.
But within that, there were some regions. Maybe just with the conversion now complete, maybe just talk to how the quarter's progressing relative to plan and maybe what's coming a little bit worse, a little bit better than expected.
Yeah. Thanks, Jason. Quarter's coming together nicely. We're quite pleased with the progress we're seeing out of the company right now. The slide, if you look at it's the same guidance that we provided back at earnings. But we're actually coming in now at the upper end of our NII guide, the upper end of our fee guide, and the lower end of our expense guide, and right in the middle from a charge-off perspective.
So we feel really good about what we're seeing from the performance of the company perspective. Loans are coming in as expected, and we've seen quite a strong quarter from a deposit growth perspective as well. So the trajectory of the business and the expectations that we're expecting to get out of Comerica both from a revenue growth and an expense synergy perspective are coming in right as expected.
So we're set up quite well for the fourth quarter delivering on the deal model in terms of 19% plus ROTCE being in a position to deliver a run rate 53% efficiency ratio as we head into 2027. So the trajectory is in really good shape.
Sounds good. We're going to unpack that as we go through the session. Maybe just take a step back and just give us your outlook for the national and local economies Fifth Third serves. Just what are your commercial customers telling you about their willingness to expand and borrow, and what are you seeing in line utilization?
Yeah, line utilization's actually been steady this quarter. We've not seen really much volatility there. From an activity perspective, gross pipelines are very, very strong right now. I would tell you the rate environment and some of the recent volatility is certainly causing some customers to pause a little bit.
But for the most part, we're seeing activity continue to come through. It's in line with what we've said from a loan growth perspective. I think a lot of customers, the feedback they'll tell you is that they just can't wait any longer. Yes, they would like to have a little bit more productive interest rate environment, but the reality is it's time to go. They have to do some investment.
I think on the margin with the higher rates, some of the M&A activity could slow down a little bit from a financing perspective, but that's not really been the core of our business. We're primarily a working capital lender. We've seen commitment growth. We've seen line utilization stability. So we think that activity is going to continue to go.
Got it. Maybe onto the conversion. So this conversion from Comerica went live over the weekend. 600,000 customers, I think almost 300 branches now onto the Fifth Third platform. We read your CEO's all positive commentary on LinkedIn. But maybe behind the scenes, any surprises on the first day post-conversion?
I guess I'll start with not burying the lead, which is that it was a very successful conversion. We were able to complete all of the core system migration from Comerica, including all of the employee infrastructure as well. All of their employees are now inside the Fifth Third umbrella.
The next steps on the conversion would be the wealth conversion is scheduled for Halloween. You like to do those on a month-end that is not a fiscal quarter end. The HR systems conversion will be January 1st because you do not want to reset people's FICO in the process.
That went very well. Our goal heading into this was deliver a perfect conversion for every customer. That might be an unattainable goal. In my 27 years, we have done nine bank conversions.
I think this conversion was as close to perfect as I have seen at Fifth Third. There are always a few wrinkles and a few hiccups in terms of surprises. We had a lightning strike on a Fifth Third branch that burned circuitry, so that branch was closed.
Those customers had to go to the nearest Comerica branch, and obviously that makes for a very busy day inside that branch. If you look back how this conversion unfolded, if you look at how Old Kent was, it was a multi-geographic play with rolling conversions over 3 months.
Then you look at our last conversion with MB, where it was a little more straightforward with a single city, predominantly a commercial bank, 90 branches. Then you look at Comerica, it is the most complicated conversion we have had and the largest transaction in the company's history.
It was a little bit of both in terms of how we went about doing it. We pre-converted as much as possible. Everything from swap dealer conversion on legal day one, capital markets over the summer, syndicated loans over the summer, TM preview period, all of the ATMs, all of that was done ahead of Labor Day. Labor Day was a very busy and successful week. Coming out of it now, all of these customers, and we can watch login activity has been great. The activity we are seeing with the customers
Playing around in Jeanie and with some of the other tools that we have, it is very encouraging, and I think ultimately will do a great job of driving primacy. I think the best data point, besides my being here today, in terms of how well the conversion went was, if you look at MB, it was May 6, 2019, and we had a five business day week, and we were a much smaller company then.
You look at Friday of last week versus the Friday of the last week of MB. With Comerica, there were 352 branches. We had to consolidate roughly 60 of those, so we turned on 293 Comerica branches. We have a bigger branch network. We have obviously had all of the growth at Fifth Third from a household perspective since MB through Comerica.
And one of the big changes we made in order to cover the West Coast is we have extended call center hours, so 3 extra hours per day. So bigger customer base, longer window for somebody to call. And on Friday of last week versus the Friday of the first week of MB, we had 15% fewer inbound phone calls. I would call that a very big success for us.
Interesting. I guess in that vein, on the second quarter earnings call, you were talking about customer retention running ahead of plan. I think the commercial retention was 99.4%, and the consumer base was a net positive. Conversion done, kind of any updated thoughts around attrition?
Yeah. I'll take it in two parts. First, there's just the gross attrition. In commercial, gross attrition continues to run sub 1%. A very loyal customer base, and Comerica was a very strong middle-market lender, and that means you will end up with very low attrition, and that has played out perfectly. On the consumer and small business side, the attrition levels are also very stable and very muted.
The Comerica attrition within the retail book and the small business book are in line with or better than Fifth Third's normal attrition rates. So that's on a gross basis. On a net basis, both the commercial book of business and the consumer book of business have grown, and they've grown pretty substantially over the past year. We're very pleased about our ability to grow the franchise, and obviously, we'll talk revenue synergies later.
Yeah. I want to maybe stick on expenses for a moment because after that glowing review, I think you get another follow-up question. You talked to $850 million in run rate expense synergies from Comerica. I think that is 35% of the base in the fourth quarter. Conversion now complete, went well. Any upside potential to that $850 million?
We have never, at least in the last 20 years, we have not missed an expense number bogey we have put out there as part of a transaction. We hit the $850 million. The hay is in the barn. Did the team overachieve? We overachieved a little bit. However, Bryan will be quick to point out, $850 is the number that will drop to the bottom line in 2027 from an annual expense.
There are opportunities to deliver those revenue savings that we would like to have some additional investments in, whether it is branches, marketing, sales expansion. Building out the Southwest, similar to how we built out the Southeast, is a big priority for us. We will deliver the $850. That is money good. From there, it is then choosing the best path forward on growth and returns.
Part of what Comerica needed was capacity for growth investment. To us, that is the priority from a near-term perspective. There is so much opportunity in those markets, whether it is the branch builds as we transition from building 50 branches a year to 100 branches a year, the talent acquisition, when you think of both just bankers in market on middle market and wealth, product partners, when you think about coverage from a capital markets perspective, from a treasury management perspective.
There is so much opportunity for us to invest in those markets from a growth perspective that we are going to focus on putting the company in a better position to grow faster and take advantage of the demographics that are available in those markets. There is so much opportunity for Fifth Third in the Southwest and in the California market.
So $850 expense saves fall to the bottom line. I guess any sense of what the gross expense save number could be?
We're probably north of $900 million at this point.
I knew exactly what it was. I was just curious what you were going to say.
Okay. Maybe as a follow-up, as Comerica's expense saves get reflected in the run rate, what does the path to a sustainable efficiency ratio near 53% look like through next year, and just how you're balancing reinvestment in technology, iBranches, sales force expansion against 53% that you targeted when you announced the deal. Is 53% the right number, or could you do better than that?
Yeah, 53%, when we think about where we want to run the company from a long-term perspective, we think that 53% is a good spot right now. It is industry-leading amongst our peer group from an efficiency perspective. It puts us in a position to be leading our peer group in terms of return on capital as well. It gives us capacity to continue to invest in the company.
We just see that there is so much potential, and we're going to invest prudently. I think that's the thing that everyone always needs to recognize. The decisions that we're making are based on our view that can we grow in a responsible way that delivers better returns on capital for our shareholders so that we can actually compound book value growth faster? That's the goal.
If those opportunities aren't there, we'll have the opportunity to let a little bit more of those savings and that efficiency drop to the bottom line. We like to maintain a lot of optionality, and we think that the path that we're heading down puts us in a good position to be able to take advantage of those opportunities that are there. But in terms of sustainable 53%, we're there. We just have to continue to execute the play that we're on to deliver those numbers.
Got it. Jamie touched on the revenue synergies. I think in the slide deck, you reiterated $500 million-plus over the next 3- 5 years. Which levers could you prove out fastest post-conversion and which require the most execution?
There's a lot of near-term deposit growth opportunity. We're seeing that from the initial deposit campaigns. Jamie can spend a little bit of time talking about what it means from a consumer perspective. But that is one that has been out the gate that is going to create opportunities for us.
From a loan growth perspective in the middle market franchise, the ability to offer, we have the capacity from a balance sheet perspective to be able to grow a little bit faster. We're not having to ration liquidity.
Our balance sheet's incredibly liquid right now to be able to offer the right product partner capabilities. We're seeing great opportunities out of the gate in ABL lending and equipment finance. We're also seeing a lot of opportunity in the capital markets businesses. Those are all things that can come relatively quickly.
There are some areas where it does take a little bit more time. Some of the wealth investments, as we think about growing wealth investment advisors over time, that can take a little bit more time to come to fruition. But we've got a nice staggering of near-term opportunities, but also longer-term opportunities as we make some investments that'll continue to grow and give us an ability to see some great opportunities over time.
One of the other areas, we've talked a lot about the four $10 billion deposit growth opportunities. We think there is a lot of opportunity in the innovation banking space. That's one that'll take some time to build out as well as we're growing the capabilities in that space. Comerica had a great foundation in their tech and life sciences business.
But that is one where that team needs to grow over time, and we need to continue to grow our capabilities. So that will take a little bit more investment, but we are excited about what that can be over the next five-plus years.
You want to talk consumer?
You want to hit consumer?
A little bit.
I would love to take 25 minutes more on consumer. The fastest revenue synergy we will see from Comerica on the consumer side will be tied to our ability to deliver a one-bank experience. The Comerica franchise had limited investment and limited what we would call branch partners able to help drive fee business and lending activities out of the branches.
Just in the Southwest, the roughly 200 branches that they have today. The biggest opportunities will be in mortgage. We will actually this year do about five times the mortgage volume that Comerica did in 2025. And we have hired 40 MLOs to help deliver that.
Those MLOs sit in the branch and help branch production, investment executives, and what we would call a preferred banking program, where we focus on customers with $100,000- $2 million in liquid assets. And that is a program Comerica did not focus on.
There is a large opportunity there. Home equity. I was in branches in Detroit the Monday before Labor Day, and one of the branch managers in Detroit had just gone through a Fifth Third home equity application. And her comment to me was, "I think I did it wrong because it was so easy." And she said that it actually was perfect.
Home equity will be another nice opportunity. All of those things do not take additional investment. They just take leveraging the technology and process and the people leadership that we already have in place. The longer-term revenue synergy will be the construction of the 150 branches in the Southwest as we continue to finish out the remainder in the Southeast.
I guess maybe following up on the Southwest expansion. I think you talked about a $2.5 billion deposit campaign, more than double your target. You talked about 100- 150 Texas branch locations you have secured.
Just maybe talk, is that deposit performance sustainable? And just how should we think about the ramp and payback from the Texas build-out? Because it does seem to be an increasingly competitive market.
I think in order to look at the Southwest and what that opportunity is, you need to look at the Southeast and what we have been able to accomplish. The Southeast, if you just were to look at Florida, we have 218 branches and $13 billion in deposits just in the state of Florida. That compares to our largest state, Ohio, where we have 245 branches and $30 billion in deposits.
And now Michigan is number two, 227 locations and $27 billion in deposits. So $13 billion in Florida is really incredible growth over the past eight years as we have been on this expansion.
But more importantly, it is a coiled spring that will continue to deliver and ultimately reach those levels of, as a state, that opportunity, $25 billion to $30 billion in consumer deposits. And so we look at the de novo performance that we are
For the total basket of de novos from 2018 through the end of 2025, we are at 125% of our deposit goal. We are running ahead of pace over that period of time. Every vintage has gotten better and better and better as we continue to learn, we continue to make changes, we continue to adapt. The only year where that is not true is the 2020 year during COVID.
What we have found with de novos, when you get off to a slow start, it is hard to recover. The rest of those vintages, better, and better. That is the play we are running in the Southwest. We ran the marketing program in the second quarter to train some of our models on the Texas market and the California market.
We tried a sampling of test and learn across Texas to see what drove the best responses, what drove the best responses in California. We feel really good about our opportunity to both improve the existing branch network, which at the time was averaging about $30 million per location in deposits.
Whereas on the Fifth Third side, $90 million and up would be the target to get there over an extended period of time. Certainly, getting over $50 million in five years is a nice barometer to use for what a de novo ought to be able to deliver.
Improve the performance of existing while building out the first wave of 150, and that 150 is split, Dallas and Houston at 60 each and the remainder in Austin. That will be the wave we focus on over the next three years.
We just opened our 32nd branch in the Southeast last week in Charlotte, and we will do 55 in the Southeast this year, which next year, the initiative will be 100 branches, 50 in the Southeast, 50 in the Southwest. We see that playing out as the years go by.
Sounds good. Hoping to kind of circle back where we started and maybe delve more into kind of some of the financial trends. You talked to net interest income at the upper end of the 3Q guide. Maybe just talk to kind of what gets you there, and then maybe more specifically, net interest margin expanded to 3.36% in the second quarter.
Maybe just kind of puts and takes from the margin from here and just how much is deliberate balance sheet management versus rates because I am told the Fed is going to hike tomorrow and just how does that impact things looking out?
Yeah, we are certainly fairly well-positioned in the event of a hike. We have talked for a while that we moved a pretty asset-sensitive post of Comerica acquisition. We had concerns around just what could play out on the long end of the curve. We were pretty deliberate on redeployment of duration, just given that we just had some concerns around where the rate environment could go.
We feel very strongly that we are going to deliver some really strong results as a result of that. The puts and takes. Rate environment overall and continued earning asset growth is part of what gets us there.
We will have a little bit of noise this quarter, just because the deposit growth has come in so strong. We put about $2 billion of Comerica sweep balances in our deposit book this quarter just to help ease the transition. We are running a little heavy on cash right now. We have been north of $20 billion on cash for most of the quarter as a result of that.
Every $1 billion of cash is about basis point in a quarter on NIM. I think NIM sticks in the mid-330s this quarter, and then we will get back on that upwards trajectory back to the 340 exit rate that we have talked about as we work through that conversion cash and the normal seasonality that we would see. But the rate environment certainly has helped us, and the fixed rate asset repricing has been part of that story as that has continued on.
Got it. Then maybe on deposits, maybe just talk to the more Comerica deposits you want to bring on balance sheet. Fifth Third always had a good funding base. Just how durable is your deposit base as is the environment appears to get more competitive? Just talk of AI-related disruptions and just how you are thinking about your funding advantages.
Yeah, we feel the strength of our funding franchise today, I think, is underappreciated. We have so many avenues today for deposit growth. The investments that we have been making over the last 8- 10 years to really position the bank to. The goal of the company is we want to fund the bank on primacy.
We have been really deliberate around that starts with granular consumer and small business accounts, which looking at, we put a new slide out on the high-quality consumer franchise. We have one of the highest concentrations of consumer deposit growth amongst our deposit base and one of the fastest-growing consumer deposit franchises. This is just call report data that we have pulled out. We think that advantage continues for some time. We are going to continue to see strength.
As we always try to remix the balance sheet to make sure that we have the most stable and profitable deposit base as possible. The investments that we make in payments as well has been another driver of deposit performance.
The combination of granular consumer deposits and operational deposits tied to treasury management services, that to us is the foundation of the company going forward, and we are going to continue to make those investments that keep us in that position. We think there is a lot of durability.
As Jamie talked about, the consumer opportunities and the maturation of the Southeast, that is going to drive a lot of deposit growth in the new branches in the Southwest. We are confident. We know the playbook to make sure that we can deliver those outcomes.
Okay. You kind of talked about kind of reiterating the guide of 1% loan growth in the third quarter. But if memory serves correct, you were going to keep Comerica's loan book flat in the third quarter.
Relatively stable. We knew that our teams needed to be focused on the conversion. In our commercial portfolio, the legacy Comerica book is about 40% of our commercial loan portfolio. As Jamie talked about, the goal in the third quarter was about delivering a perfect conversion for those customers.
What is exciting now is that we are on the other side. We are all on the same systems. Our customers are all on the same platform. It is time for us to actually go on offense. We have the ability now to acquire new customers at a different pace.
The Comerica sales teams, they can now transition away from getting their customers over to the Fifth Third side to actually now going out and acquiring new customers. There is a lot of opportunity there. The NQRs, we have continued to deliver record NQRs from a new quality relationship perspective in commercial.
As I mentioned, the gross pipelines are really strong right now. So we feel good about the opportunity. Bringing our products, our capabilities, our technology to those markets we think is going to create a good outcome.
I guess maybe, where do you think the blended growth rate to get to now the conversion is done and just where do you see C&I demand is strongest?
At the end of the day, we think the banking industry is a nominal GDP growth rate industry from a lending perspective. We would like to be a nominal GDP plus a point or two franchise. There are some areas where we have made the intentional decision to not participate. We are not participating in a meaningful way in the NDFI categories.
Again, you can see this in the regulatory filings. It is the smallest percentage of our loan portfolio amongst our peers and the smallest growth. There are folks that this is the majority of their growth right now, and it is just an asset class we have made the decision to not participate in. We have not been participating in the AI data center lending category as well.
Those two areas certainly have an impact when you think about relative growth rates, but we think that there is plenty of normal course business as usual, middle market, Main Street America lending for us to be able to do. We are going to be able to generate good growth as a result of that.
We are benefiting from the data center investments tangentially because the normal HVAC installers, the concrete companies, all of those businesses are benefiting from that investment, and those are the companies we want to bank. For us, it is then normal course underwriting.
It is the traditional measurements around concentration risks in those client bases, and in those revenue streams amongst those customers to make sure that you are managing that risk appropriately.
We just think there is a lot of unknown potential volatility in some of the other asset classes that we just are not sure you are being paid for that risk. We are going to watch it and pay attention to what is happening there, but we are going to stay focused on growing our middle market customer base.
Got it. I guess, charge-offs, 30 basis points, I think the lowest we've seen in three years, talk about 30-35 for the quarter. I guess beyond data centers and private credit, any other areas we should be mindful of just looking out?
Right now we're seeing broad-based health. Not a whole lot of problem areas that we see in our book. Obviously, paying attention to what inflation and energy costs may mean to certain sectors of our customers. From a consumer perspective, we're a prime, super prime lender, so we're not seeing any real challenges in the consumer portfolio as well.
It's pretty benign from a credit environment perspective right now. Our commercial customers are very liquid, and they have a lot of optionality to go how they manage these environments from here.
I guess on the fee side, you talked to the upper end of the range. I know it's not a huge range, but I guess maybe what's tracking a little bit better than you thought back in July, I know there's asset and wealth management, commercial payments, each over $1 billion annualized revenues. Capital markets is $600 million. Where do you see the most runway for growth? Then just how much investment additionally is required to achieve that?
Yeah, we think both wealth and commercial payments, billion-dollar annual fee categories today can be high single-digit growth categories for a while. We should be able to deliver that without a lot of significant incremental investments to continue on that pace. We would like to accelerate and go faster, so we will look for opportunities to invest in those areas to go faster.
We also think that there's a lot of upside from a capital markets perspective. That's $600 million a year in annualized revenue. We think that can be our next billion-dollar category. That is one that would take a little bit more investment. But we're going to be thoughtful and prudent and really do that by expanding sales force over time in a responsible way.
Got it. Expenses, you talked to the better end of the range, despite the fact that these are the upper end of the range. Is that Comerica Saves? Is that prudent management? I know it's not huge numbers, but what's helping that?
It's a little bit of everything. It's not one big thing. I do think the timing of Comerica Saves continues to be beneficial as we've been realizing them a little bit faster in year than the original estimates have been. So that has certainly been a good opportunity for us, and it's just been prudent management across the broad-based expense categories.
Got it. Maybe on capital, I think CET1 was like 9.9% in the quarter. Obviously, have some AOCI movement this quarter. Just how are you thinking about just balancing organic growth, dividends, buyback? You haven't been buying back stock for a while. I think it's coming. Your updated thoughts around that.
Yeah. The priority is obviously we want to pay a strong and stable dividend. Then we want to be in a position to invest in organic growth. We view share repurchases as the residual then. To the extent that there is more organic growth opportunity
You'll see us do less share repurchases to the extent that organic growth is a little slower, we'll do more. We'll be back to what we view as a more normalized share repurchase program in the fourth quarter.
Fourth quarter. Got it. Jamie, in the vein of no good deed goes unpunished, you just sat up here at the beginning and talked how great the Comerica conversion went. Best one in 27 years. You expect bank consolidation to pick up. Just maybe view Fifth Third's role in future consolidation.
I'm good. I've done my share.
It's the same story that we've said for a long time, which is M&A is not a strategy. M&A has to accelerate the strategy. Comerica did that for us. We'd been on a multi-year journey of trying to transition the footprint to a faster growth footprint. Comerica allowed us to do that.
Texas was the one market we had been staring at, saying, "How do you enter that in a prudent way?" Because there's so much opportunity in that market, and Comerica was a great opportunity for us to do that.
So we're looking for something that's strategic, and we're looking for something that's financially compelling for our shareholders. A huge dilutive deal that takes years to earn back in an industry where we're valued on tangible book value per share.
You have to be very careful about that because in a five-plus year earn back that you may see in some transactions, there's a lot that can happen in those periods of time. We're going to be cautious around anything to make sure that we're making the right decision for our long-term shareholders.
I think it's important to be able to deliver on your commitments. As Tim and Bryan proved with Comerica, appropriate pricing and then being able to execute with speed to hit our commitments, not just on expense synergies, but also the timing and the ability for us to deliver a nice clean fourth quarter so that you all get a good view of the power and the profitability of the combined company. That was very important to us. We worked very hard all year to make that happen. With that said, we have plenty of organic growth opportunities ahead of us.
Got it. I guess it took us this long, but now we're on kind of the topic of AI. You've made it broadly available internally. We've read about some customer-facing capabilities through your mobile app. Just where is AI moving the needle on productivity and the customer experience?
I'll take customer experience first. What you see in the consumer business is a couple of instances of AI that you're interacting with. One is Jeanie. Jeanie is our chatbot which continues to get smarter and smarter every day. We just rolled out as part of the Comerica transition that Jeanie is now conducting all of her intents in Spanish as well as English.
That was AI-aided in order to deliver that. Earlier this year, we also rolled out a universal search feature, which is the first item that pops up when you enter the mobile app. That universal search is essentially a quick way to navigate the mobile app. What we have found is as the mobile app has become richer and richer with features, customers are having to ask questions, how do I do this? Where do I go?
Certainly all of the change that comes from the Comerica digital experience to the Fifth Third digital experience, which is significantly enhanced. The search feature has been very helpful. Last week alone, search feature activity, and keep in mind the Comerica consumer base, call it an eighth to a ninth are Fifth Third legacy size.
The universal search and Jeanie activity doubled last week as the Comerica legacy customers have entered our domain and then started to see what is possible. So AI helped fuel both of those.
On the productivity side, we obviously are using AI in everyday code writing, and that has been a nice boost to productivity. Not as much about driving expense savings, but more about for the lines of business inside the company, getting the tools and features that they want in the systems.
During the conversion, we used AI for monitoring what we call the control tower as well as our orchestration plan and being able to identify any areas where we might need to pivot. That was also helpful.
Then obviously in due diligence, we talked a lot about the ability for AI to help both speed up the due diligence process as well as identify additional expense savings, especially in the contract and vendor area.
So we've got a lot of use cases out there. We have a lot more we want to do as we get back to taking the roughly 4 million people hours of labor that brought about the Comerica conversion and now redeploy that into sales growth as well as additional productivity on AI use cases.
I guess at this conference last year, you guys announced a Direct Express contract. I joked at the time that maybe you should have bought all Comerica to get it. Happened a few weeks later. Can you talk to just how that's going and just how that opportunities with that book?
Direct Express has gone really well. Now, the conversion plan changed obviously as a result of the Comerica acquisition, but we went live with issuance of new cards to the Direct Express customers under our program earlier this year. We've been issuing 40,000, 50,000 cards a month. Then we will see a broader back book conversion early next year.
So we're excited about the progress there. We think that program continues to grow, just the demographics associated with government payments, as well as this is the government's electronic payments mechanism.
So as more programs go live from a government perspective, there's going to be a lot of opportunities there. It's a $3.7 billion, $3.8 billion DDA that has a lot of stability on our balance sheet that creates a lot of funding benefits for us. That's the real value of the program, and we think that deposit balance can continue to grow.
I think another announcement you made at this conference last year was Tricolor. You showed earlier that your NDFI exposure was relatively less than peers, but you cited some risks. Rhetoric has died down on that. Just as we look at the space, maybe talk about where you see risks out there for others.
Yeah, tough to weigh in too much on what's happening in everybody's portfolios. I think the challenge for us in the NDFI space in particular is the layered risk in terms of the level of leverage that is inherent in the system. It's very difficult to see how all of the compounding leverage components start to add up.
That's the piece that one of the reasons why we've stayed cautious around it is that we're just not sure what happens in a deleveraging moment because of the lack of transparency in that space.
I mean, we're an industry that every 10- 12 years there's a crisis, and leverage is typically tied to it, and concentration risk is tied to it, and differentiated growth models is often tied to it. So we're just trying to stay cautious around an asset class that we think could be more cyclical.
Great. On that note, please join me in thanking Jamie and Bryan for their time today. Thank you.