Fifth Third Bancorp Q2 2026 Earnings Call | Comerica Merger Advances $300B+ Asset Integration

Morning everyone and thank you for joining us at Fifth Third. Certainly believe great banks distinguish themselves not by how they perform in benign environments, but how they navigate uncertain ones. In a strong macro environment like this one, our job is to stay disciplined and to build durable franchise earnings, not simply to enjoy the cyclical boost. As we always say, it's stability, profitability, and growth in that order. Today, we reported earnings per share of 83 cents or a$12 excluding certain items outlined on page two of the release. When we announced our merger with America nine months ago, we made three commitments. To produce no tangible book value per share solution, to become an even more profitable company, and to create an even better platform for long-term growth. While we are still in the middle of integration, and not every metric is yet where it will be, our trajectory and long-term potential are visible in this quarter's results. Tangible book value per share increased 10% year-over-year, 1% sequentially and 7% since the announcement of the transaction. Our adjusted return on tangible common equity improved to 19%. Our adjusted return on assets improved to 1.3% and our adjusted efficiency ratio improved to 57%.

Even with most of these strength synergies still yet to be captured. As importantly, our organic growth strategies continue to deliver on the broader footprint and opportunity set that Fifth Third and America together possess. End of period consumer and small business deposits increased 4% sequentially, driven by strong new customer acquisition. In the Southeast, consumer checking households grew by 7% year-over-year, approximately four times the rate of underlying market growth. We open more than one branch per week during the quarter and remain on schedule to open 55 new branches in the southeast for the full year. Encouragingly, America's Texas, Arizona, and California markets grew checking households by 4%. The first net new household growth in several years and added $2.5 billion in deposits, more than double the $1 billion expectation that we shared in our last earnings call. We also opened our first fifth third branded branches in Texas and California during the quarter. Following conversion, we expect Southwest household growth to accelerate further as America's existing branches see the full benefit of Fifth Third's products, digital channels, and analytically driven direct marketing. We will also see the pace of new branch opening accelerate in Texas, having now secured 101 of the 150 additional locations we targeted to build by the end of 2029.

Turning to commercial lending, end of period CNI loans grew 2% sequentially. America's legacy markets and specialty verticals drove CNI loans with Texas, California, Michigan, environmental services, dealer services, and tech and life sciences all showing growth. Overall, we continue to see demand in sectors and markets benefiting from infrastructure investments as well as in aerospace and defense. Our largest fee businesses hit important milestones during the quarter with commercial payments and wealth and asset management each achieving a $1 billion plus annualized fee run rate and capital market fees reaching 600 million annualized pace. Newline continued to drive growth in commercial payments with D revenue increasing 35% year-over-year and the technology behind it earned 2026 top financial innovation awards from both the American banker and global finance.

We also shipped the first directed stress cards on our new platform during the quarter with 66,000 new beneficiaries and all participating federal agencies now live. Behind the scenes, our products and technology teams had a strong quarter both in terms of integration and innovation. On the integration front, we executed our second mock conversion in June with good outcomes. We remain on track to execute systems conversion on Labor Day weekend, the last step to unlock the $850 million of annualized run rate synergies we committed to deliver in the fourth quarter. On the innovation front, New Line extended its model context protocol server capabilities with skills, standardizing how AI models can use our tools and workflows. And our consumer team shipped a new AI powered interface within our mobile app designed to streamline navigation and task completion for our customers. We also launched Fifth Third for business during the quarter, a banking experience designed to help small businesses manage working capital and get paid faster. This solution includes several differentiated tech enabled elements including crediting eligible payments such as merchant receivables and government payments up to two days early for free enabling business customers to accept payments via Dell and Pacipay directly on their smartphones and providing access to working capital through the same award-winning digital interface that powers provide. Internally, Fifth Third colleagues continued to make significant use of AI tools to boost quality and productivity, executing more than 1 million prompts in the month of June alone. In technology, the prompt accepted rate for new code was 45% during the quarter, and over 87% of unit testing was automated by AI. Well, it's early days and we have much yet to learn about how best to harness the power of these tools and looking forward to what we will be able to do after our technical conversion is complete.

Before I hand it over to Brian, I would like to take a moment to thank our team members. The work you do is detailed, demanding, and important, especially now as we serve existing customers and communities along with executing the largest merger in our history. We are building a fifth third that is not just bigger but better, more differentiated, and more resilient. That's why earlier this morning, Neuromoney recognized you as their best US bank in 2026. Congratulations. With that, I'll turn it over to Brian.

Sure. Thank you. And good question a lot there. So yes, I think we feel very good going into the Labor Day systems conversion. I think we've talked before about the fact that the mantra here on any sort of a big program, whether it's a thing like this or the organic expansion, is think slow, act fast. So we elected to do three mocks as opposed to two, which I think is generally where people are. So we got through the second mock in June and that went very, very well. We've actually built some pretty cool tech tools for this conversion. Effectively an intelligence layer that sits on top of the Microsoft project plan hard deck that is able to monitor the conversion in real time and then help the teams coordinate including having AI essentially listening into the teams' Slack feeds and monitoring for any sort of sign that there may be a delay and then helping us to think through the contingencies. So we feel very good about being able to get the conversion done on Labor Day which then to your point even unlocks the last large wave of synergies both as it relates to real estate and to people and then obviously to the elimination of the systems. We are, if you just look at it mathematically, running a good bit ahead of the 850 million in synergies. Our plan, assuming that the environment holds the way that it has, has been to redeploy anything above the 850 into supporting revenue growth unless we just don't have opportunities to be able to do that. So at least as it stands today, the intent would not be to allow the additional synergies to fall directly to the bottom line in form of incremental efficiency. It would be investing. The deposit campaigns in the southwest went obviously extraordinarily well. I think when we talked to you in January, we said we were hoping post legal day one to be able to get a half a billion to three-quarters of a billion out of the southwest market. So we did the earnings call and the plan the programs were tracking ahead of plan said we hope to get a billion, $2.5 billion dollars of incremental deposits into those southwest branches. And so we're eager post conversion to be able to turn on the checking household acquisition marketing and we expect to do very well. The annualized sequential checking household growth in the southwest is 4% as I mentioned in my prepared remarks which you know, whatever, I won't make an effort to calculate the compound rate, but multiply that by four, it's 15% annualized growth in incredibly robust markets and that's without the checking products that Fifth Third will bring and the incremental household marketing. I think the other area is we intend to turn on the jets and the product specialists and the relationship manager salesforce. We're ahead of the game on mortgage. We were able to move earlier there because we really didn't have a large mortgage platform. We did the same amount in production in the America footprint in two months that America did in 12 months last year. And so that is evidence of where I think we'll be able to see pickup. We had some sizable commodities hedging relationships in metals and recycling come online aligned to America's vertical in the second quarter about 10% of the comment salesforce production with Fifth Third products that America didn't previously offer. I think that could be a lot more, could be 50% by the time we're done there. And the ADL product in particular in addition to equipment leasing continues to be quite successful. We had America bankers win new quality relationships. So not just servicing existing relationships but win new relationships with those products. So I'm of the view that given that those things are materializing today pre-conversion, you know, when it's still a little bit clunky to be trying to manage client relationships across two technology stacks, that when we get through to the other side of this we should be able to show a pickup in both loan production but in particular fee production on the commercial side of the equation next year and that there's no reason not to take the household growth rates and to multiply it by four for the southwest because we will invest in an environment where deposits continue to be important, where the demand continues to be ample, and incrementally we generate above and beyond the 850 and the bottom line driveable book value per share growth.

Yeah. If I just add one thing, I think environments like this one favor people who have some sort of differentiated strategy, right? If you're just in the commodity markets for deposits, the competition dictates your margins. When you have differentiated platforms in particular ones that are operational in nature because they're just harder to build quickly, you have optionality that others don't. So you know, like a billion dollars as a yard in the bond lexicon, if you go through the numbers this past quarter, we got two yards year-over-year for New Line, we got three from consumer most of which from the southwest and the southeast, and then four yards for Direct Express. We get one more yard and we are at a first down, right? It's just but those are things that not everybody can play. And in the case of Direct Express it's a unique attribute. In the case of New Line it's highly differentiated and there's a lockout, and in the case of consumer, there are a lot of people who will build branches but not a lot of people who have been building branches and therefore have the benefit of the 150 in the southeast that have been built over the last handful years, coupled with the fresh territory that we have in the southwest to be able to just grind away. Three yards of the cloud of dust, right when you get your first down and four.

Yeah, I we feel very good about where we're going to end the year, right? And Brian reinforced it that you know whatever that glide path we are almost at on the ROCE the original target we set for 2027 and then said we could get to in the fourth quarter and we made a huge step from first quarter to second quarter toward the target efficiency ratio. I'll remind everybody seasonally the fourth quarter tends to be our most efficient quarter. So we should do better than the 19 and 53 that we had set for 2027 in the quarter and when you take our guidance and work it through your models I know it'll show down. Our belief is that at the level of profitability we are running at today, maintaining that level of profitability which means showing enough operating leverage to continue to support this sort of 19% plus ROCE, through a little bit of additional operating leverage that that essentially compensates for the roll in of the AOCI into tangible common equity and then driving tangible book value per share growth is the best way for us to generate long-term value for shareholders. So we do intend to accelerate the pace of investments that we make in AI. I'm very proud of our tech and product teams for having shipped all the things that I mentioned earlier because for all the obvious reasons their principal focus is making sure that we deliver a flawless conversion, but there is a lot more we're going to be able to do when we can move out of an environment where the workflow applications here are effectively on a code freeze to drive more efficiency into the business. It's just we have a lot of proven strategies that generate low-cost deposit growth, that generate fee growth, that are a better path for us given our position in the ecosystem than focusing on trying to go from, I'm going to make it up here, but 19% to 19.5% to 20% on the sort of core profitability spectrum.

Yeah. So there sort of in two stages here, right? There's front book, back book. So the front product is live, all new beneficiaries in the federal government that go into the Direct Express program are going on that new platform and that platform will effectively grow at the rate that new beneficiaries who elect not to have their benefits routed to a checking account are added. There then secondarily will be a back book conversion that we will be commencing this year that will scale the new platform but that essentially is moving deposits off of the old platform that America operated onto the new solution that Fifth Third and Fiserv are offering. We are seeing pretty good underlying growth in deposits. Brian, you may want to reference the pace with which deposits are growing if you just look at the Direct Express portfolio in total, but in general we're at the right point. The retirees are a good place to be focused on given the shape of the demographic pyramid in the US and the byproduct of that is I actually think we're going to see pretty nice secular growth tailwinds there.

Yeah, I feel pretty good about our ability to sustain the loan growth pace going forward barring a material change in the macro. Like when you look at the commercial clients that we have, I think confidence is up on a pretty broad basis. It really is not sector focused now. That was based through the quarter on the belief that the situation in the Middle East was de-escalating and also I think the fact that the tariff confusion is settled out. So clearly we have some retrenchment on the Middle Eastern front, but the tariff confusion has settled. A simple example: one of the metal stamping businesses that I had the opportunity to talk to in Michigan had stopped bidding at market rates just given input cost uncertainty and had resumed bidding during the quarter. And I think clients across the board indicate that demand is pretty stable, in some cases actually had been improving. The sectors linked to infrastructure, capital investment in data centers, places where there is real evidence of reshoring activity like automotive where you have foreign OEMs building plants here in the US, is where the business is moving most strongly. The folks that are focused on more value-oriented consumers are probably the places where you've seen more hesitancy. But at least as it relates to us, if you just disaggregate the CNI loan growth, legacy Fifth Third was up by more than 2%. The big driver there is the fact that new quality relationships are running about 20% ahead of where they were in the prior year. And that is informed by the fact that they're about 6% more middle market bankers on the streets than we had a year ago. The legacy Comerica business lines and markets grew CNI loans by about 1% sequentially after having been basically stable or flat for the past three or four years. So there's a nice step forward there. And the verticals in particular, the specialty verticals were the standout. They grew 6%. And the energy and talent of the bankers there is really exciting. I think as we get through the conversion, there's no reason to believe that both teams won't converge around the same growth rate. Good underlying demand attached to secular things more than specific points in the cycle. And just both the added feet on the street on the Fifth Third side and then the continued reacceleration of the rate of growth that Comerica had demonstrated it was capable of prior to the last three or four years, and you have a pretty nice sustained loan growth outlook for the bank.

Yeah, thank you.

Yeah, no, great question. I think going into next year. I don't think we have to wait for next year. Like we're tracking all of this stuff in a pretty detailed way. Hence my point earlier about, like I said I think I said roughly 10% of new production exactly 8% of new TM production from Comerica TMOs that are products that America didn't offer previously. It's down to the deal level that we're measuring all these things. I would say the focus will shift when we get past conversion from the sort of job one which is protect what we have and get the expense synergies out to job two which is energize the combined team around the opportunities to drive growth. The other thing maybe that is worth mentioning that I didn't is 99.4% of the customers that Comerica had at the beginning of this year are still clients today. So we're actually running ahead of normalized client attrition. Like we're doing better from an attrition perspective than you normally would in this sort of equation. So the teams have done an incredible job of ensuring that the existing relationships understand why they're better off with the combined company than they would have been with either company being independent. But we've done the product innovation rollouts. We have added specialists in several of the markets. We'll continue to do more of that. And I think as we get into the fourth quarter this year and we're looking forward to next year, we'll give you a view of what we think from a growth perspective is coming from sort of legacy Fifth Third strategies versus what's coming from the application of those strategies to new markets or leveraging Comerica capabilities across the broader Fifth Third platform and we'll just transparently let you see it.

Yeah, I mean you know that we worry about that. Given the time that I spend on technology, the one guaranteed rule is that we will misestimate the amount of capacity that's required here because you have a lot of different competitors. You have a nascent market which means you don't have a normal market structure, which means you have more people trying to gain share than there is share to be gained, which by definition means there will be some overbuilding. You know, my own view on this is that there's a possibility that that capacity gets absorbed just over a much longer time frame than people anticipate, but it makes being on the construction financing side of that equation a little bit dicey. And that said, given the composition of the client portfolios that Fifth Third and Comerica have, which tend to be real economy businesses disproportionately, we have lots of relationships with people who are engaged in constructing data centers. I had a chance at one market visit I did out west to meet an HVAC contractor who mentioned that they have a 5-year backlog equating to about $300 million in incremental backlog due to hyperscaler demand. We have clients that we bank that are in the exotic businesses of quarrying aggregate or mining lime that goes into concrete that gets poured into the foundations and otherwise. I don't know that it would be possible for us to do a portfolio level look at the second derivative exposure, but we do that work every time we reunderwrite an individual client. We look at the concentration risk that exists in their revenue composition. We look at stress scenarios as it relates to demand overall as well as idiosyncratic scenarios. And the benefit of banking the people constructing data centers as opposed to making the construction loans for data centers is, to the point you made earlier, there is an underlying business there that given the length of the relationships we have with these clients was doing fine on a regular week basis prior to the data center.

Yeah, absolutely.

No, no. 850 million or more will drop to the bottom line. The 'or more' question will be a function of our ability to drive better value for shareholders by reinvesting into revenue growth or whether we think the environment is such that we're better off just continuing to run a more efficient company.

All right, the consumer franchise is up. It's net up. It's like 102% or something like that of what it was at the beginning of the year. It's essentially flat in Michigan and up 4% in the Southwest markets.

Yeah, sure. I mean I think that loan growth accelerated, right? And my own view is that there's no reason to believe barring a change in the environment that it will decelerate from here. I thought legacy Fifth Third CNI up more than 2%. I think that compares pretty favorably. Comerica from flat the last three years to up 1% sequentially during a period of time where appropriately what we are asking our teammates to do is to make sure that we take care of existing customers and get them through the migration process and that's all production. We didn't get a lift in utilization quarter to quarter. So there is a nice production trend there. Commercial real estate we were softer than I think I have seen at least thus far from others. We were up half a percent. Many others are up a little bit more than that. I think our general view there as you know is to live in a slightly more conservative place in the ecosystem. We have not been providing back leverage to a lot of the private credit funds that are out there in this market. I think that is the place where we've seen structure and pricing deteriorate and CNI is actually remained pretty consistent. So we've elected not to chase some of the stuff that is either stretched recourse or on LTV or otherwise. And then the other I think if you flip and look at the consumer side of the equation which you didn't ask about but I'll give it to you anyway. You know home equity has been really strong for us. The indirect auto business has been a source of growth the last few years. The market there is as you know is very efficient. Pricing has come in and we sort of reflected that in origination levels but to the extent that pricing or the balance sheet needs changed there's no reason why we couldn't continue to run at the levels that we were running previously. So I don't disagree with you like I would like the whole company to be running at the 2% plus level that Fifth Third did but we'll get there. We're going to get through the conversion. We'll get everybody on the same platforms with all the same products. And I do think at that point you will continue to see an acceleration of the blended combined Fifth Third Comerica loan growth rate.

Uh my understanding is that the growth in net is something like 94 or 95% attrition of customers or sorry, retention of customers that were on the books at the beginning of the year plus call it whatever that is then six to five to 6% top line above it that gets you to the 102 overall.

Yep.

Yeah, I'll take the branches and then Brian can hit the repurchases. So the unique thing about Michigan considering the size of the branch network that both banks had there, Comerica was heavy in the eastern part of the state, Fifth Third the western and northern part of the state. So there are just over 70 consolidations that will happen in Michigan. They've all been announced. There are no others that are contemplated at this point in time. Many of those locations literally share the same parking lot in the same strip centers. So we're not moving people very far. And the intent at this point in time is to execute those consolidations, get customers settled, and then we will look the way that we do across the rest of the Midwest at on an ongoing basis at where growth pockets are, and we'll add next-gen financial centers there. We'll move branches down the road to the extent that we can get a better pattern otherwise, but I would just for all intents and purposes I would say Comerica customers will have 60% more branches, Fifth Third customers will have 40% more branches, and that's sort of the plan of stasis. California, the branch we have a couple of other de novos that we will add there. They are in the central valley and in places where we have commercial operations where neither Comerica nor Fifth Third had any branches. Beyond that, there really isn't a plan to add or subtract at this point in time. We have 150 to build, I guess 149 now, to build in Texas along with finishing off the Southeast. And as we get into the end of 27 or 28, we're looking forward to what 2029 will bring. That's the point in time where we'll re-evaluate whether there's a different strategy for us on the ground out west.

Yeah, here I thought you were going to say that questions were myopic because your eyes are blurry after this many bank earnings releases in a single week. I think there's a simpler explanation here which is I am sympathetic to all of you who need to try to model the cadence of expense synergies in an environment where deals close mid-year and where conversions happen in the first week of the last month of a quarter. I honestly when we looked at it just in the anticipation of the question on the call, I think it's a pacing of the expense synergies coming out because while the conversion is happening in the third quarter for all intents and purposes, you're not going to get any real benefit to it because it's not like we're going to send people home the day after Labor Day weekend. We're going to make sure that things are stable, but it's not like we're going to decommission legacy platforms until we have a couple of weeks of water flowing through the pipes. And so that as much as anything changes the trajectory. I think the other element of it just purely on the revenue front is we want people focused on helping clients get through conversion this quarter and in the fourth quarter you're going to see a real pick up in regular way production right across the entire company as opposed to it just being regular way production in unaffected markets. I am very happy with how far out ahead we are on customer communications. We are pretty data driven here. So the TM conversion, the payments conversion is always among the most complicated in any of these businesses and that's an important part of the Comerica franchise. So we have 290 of the 300 most complex commercial payments clients of Comerica already working through a pre-conversion date concierge conversion process, right? And two-thirds of the others already engaged and moving toward that date. That stuff takes work, but it's the way that you stick the landing and preserve the value of what you got. So I don't think it's the sort of conventional hockey stick of the third quarter is seasonally soft because people go away on vacation in August and then you have to pick up activity in the fourth quarter. Although there is always a little bit of that. So much as it just is, it's hard for people to model a deal closing in the middle of the first quarter and then converting in the first week of the last month of the third quarter.

I think my own view is it'll carry forward, but it's mix driven, right? The Comerica portfolio was more heavily weighted to commercial and to CNI in particular than the Fifth Third portfolio where you have a lot of consumer assets and even though we're a super prime lender, your loss rates on consumer assets are, you know, it's almost structurally higher, right, than they are in your commercial business lines. So we lowered the range for the second half of the year, which obviously reflects a continuation in the immediate term. And my own view is that barring a more fundamental shift in the mix of the portfolio, that you should expect that to carry forward. There's nothing going on there like no outsized recoveries or things like that. There's no meaningful impact to purchase accounting or otherwise that's driving the outlook. Hence the reason you see it carrying forward from there.

Morning, Ben.

Sure. So we look at these things on a branch-to-branch basis, right, so that's the easiest way to say you know can you get paid. Jamie Dimon gave a talk that several of us watched not too many months ago now where he talked about the fact that the reason he loves the branches is because you scale them and they make $2 million a year to infinity, and that obviously is the goal, right? You make the capital investment to build a building. You create operating expense and marketing and people to operate that building on an ongoing basis and you build up the book and you get an annuity out of it. So take the southeast. In 2018 when we started the southeast expansion at pace, I think we had like 278 branches and a rounding error to $10 billion in deposits. Today we have 420 plus branches. So plus 150, right, up to important 122 or 23 and a little over $20 billion, like maybe $21 $21.5 billion in deposits. So the branch count has gone up by 60%. Deposits have more than doubled, meaning average deposits per branch have obviously also increased, and even though you have a bunch of new branches there, right? Which means you both have higher market share because you've got more branch count, more deposits across branches, but also better profitability per branch. The profitability in the Southeast today is just under half what it is in the Midwest branches because of the dynamic on average deposits per branch and the fact that the Southeast is continuing to grow. So you've got a tailwind that we are happy to provide detail on from just the continued maturation of what we've built in the southeast already. Plus then the incremental 150 that are coming in the southeast and the incremental 150 that are coming in the southwest. Comerica looks stunningly like the Fifth Third southeast network in 2018. There are about 200 branches there. It's about $6.1 billion in deposits, or at least it was at the time that we closed. So the average deposits per branch in Comerica southwest markets, if you just run the math, are sort of in line with where they were in the southeast for Fifth Third in 2018. Now we learned a lot of lessons along the way. I don't think it's a seven-year journey to get Comerica's southwest markets to look like Fifth Third's southeast markets. We intend to do that much faster, but then you have the same dynamic of the branches that will layer on top. So we'll continue to give you data on de novo performance. But you know, average deposits per branch today is certainly the single best proxy for hitting break even and then achieving that ideal Jamie Dimon $2 million to infinity and beyond sort of run rate.

Hey Ken.

The preponderance of the sort of investment into the business right now is focused on the consumer deposits. So it's the continued expansion of the branch network plus the direct marketing programs digital and mail that will support that sort of growth. The addition of sales force and I think that has included in the past two, three, four years specialists who are sector experts to support the build out of the M&A advisory practice as an example in the capital markets business but also payments and otherwise and then into the technology. We're big believers in the value of product differentiation in digital world in particular what we're going to be able to do on the AI front. So we are pleased with having the $2 billion fee income platforms. We were pleased to have capital markets crest above $600 million. The investment in the capital market side is really going to be in real estate capital markets next. Right. I think it's appropriately so with as much focus as there's been on Comerica, people are looking past the fact that we closed on the acquisition of a home street mechanics, a correspondent lender, and we're very excited about what we're going to be able to do in turning that into a multi-agency platform and in generating real estate capital market fees on a go forward basis. So there will be some investments there too.