Fifth Third Bancorp posts Q3 EPS of $0.91 despite fraud impact, highlighting strong loan growth and strategic Comerica merger for enhanced profitability.

OPERATOR - (00:01:16)

Thank you for standing by and welcome to the Fifth Third Bancorp 3rd Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the Speaker's remarks, there will be a question and answer session. If you would like to ask a. Question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question again, press Star one. Thank you. I'd now like to turn the call over to Matt Kuro, Senior Director of Investor Relations. You may begin.

Matt Kuro - Senior Director of Investor Relations - (00:01:46)

Good morning everyone. Welcome to Fifth Third third quarter 2025 earnings call. This morning our chairman, CEO and President Tim Spence and CFO Brian Preston will provide an overview of our third quarter results and outlook. Our Chief Credit Officer Greg Schreck has also joined for the Q&A. Portion of the call. Please review the cautionary statements in our materials which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results,, as well as forward looking statements about Fifth Third's performance. These statements speak only as of October 17, 2025 and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Brian, we will open up the call for questions. With that, let me turn it over.

Tim Spence - Chairman, CEO and President - (00:02:31)

To Tim Good morning everyone and thank you for joining us today. At Fifth Third. We believe that great banks distinguish themselves not by how they perform in benign environments, but rather by how they navigate uncertain ones. Our operating priorities are stability, profitability and growth, in that order. We seek to achieve them by obsessing over the detail in our day to day operations while simultaneously investing for the long term. As you are aware, last week we announced the merger of Fifth Third and Comerica. Our M&A framework has been consistent. First, that M&A is not a strategy unto itself, but rather a means to achieve stated strategic objectives. Second, that the cash, earn-back, Internal Rate of Return (IRR) and Net Present Value (NPV) of synergies must be superior to organic alternatives to justify higher execution risk and third, that the outcome must be a company that is better and not just bigger. We believe this is one of those rare combinations that satisfies all three criteria. The third standalone momentum in the revenue and expense synergies from Comerica should produce a well diversified, even more profitable company with even better long term growth. Shifting to third Quarter Earnings this morning we reported earnings per share of $0.91 or $0.93 excluding certain items outlined on page 2 of the release reported in Core results include the impact of nearly $200 million of provision expense associated with the fraud at Tricolor, which marred an otherwise excellent quarter of operating results. Across Net Interest Income (NII), fees, expenses and strategic growth, average loans increased 6% year over year, marking the fourth consecutive quarter where year over year loan growth accelerated. Average demand deposits were up 3% year over year, led by 6%. Consumer Demand Deposit Accounts (DDA) growth adjusted revenues also rose 6%, underpinned by 7% improvement in net interest income and 5% growth in fees. Adjusted Pre-Provision Net Revenue (PPNR) increased 11%, producing three hundred and thirty basis points of positive operating leverage. Even with the impact of the large fraud, our profitability remains strong. On an adjusted basis, our Return on Assets (ROA) was 1.25%, our Return on Tangible Common Equity (ROTCE) was 17.7% and our efficiency ratio was 54.1%. In credit, commercial non performing assets declined 14% and criticized assets decreased 4% to the lowest level in over three years. Lastly, tangible book value per share grew 7% year over year and 3% sequentially in a quarter in which we repurchased $300 million of stock and raised our common dividend by 8%. Turning to our growth strategies, our investments in the Southeast, in expanding our middle market sales force and in building high growth recurring fee businesses continue to demonstrate strong results. We added 13 branches in the Southeast during the third quarter, including our first in Alabama, and we expect to open 27 more before the end of the year. Consumer households across The Southeast increased by 7% year over year, more than four times the rate of underlying market growth. Our deposit pricing remained disciplined. With the total cost of retail deposits in the southeast averaging 193 basis points in the quarter, we'll leverage the same proven de novo playbook marketing tactics and differentiated digital offerings to drive retail deposit growth as we add 150 branches to Comerica's Texas footprint. Together we'll have a presence in 17 of the fastest growing large US metro areas. In our regions, our focus on middle market and wealth management is delivering new quality relationships, granular loan growth and recurring FEES. In the third quarter, middle market RM headcount increased 8% year over year, new client acquisition increased 40% and average middle market loans increased 6%. In wealth and asset management advisor headcount rose 10% year over year, wealth fees climbed 11% and assets under management reached $77 billion. In the quarter. Post close, we will rely on the same recruiting disciplines, investment capacity and and one bank sales approach to help Comerica accelerate the growth of their crown jewel middle market franchise. In our Corporate & Investment Banking (CIB) verticals, Franchise Finance had another standout quarter. Over the past year we have served as the lead arranger on 24 transactions totaling $3.9 billion, including eight in the third quarter alone. Over the past two years, the franchise finance team has generated more than $40 million in annual commercial payments fees and and $34 million in capital market fees. We are excited to add Comerica's strong verticals to our existing expertise, including in national dealer services, environmental services and tech and life sciences among others. In commercial payments, fee growth re accelerated to 3% sequentially in the third quarter. New line increased revenue by 31% year over year and grew deposits by more than a billion dollars. We expect Newline to sustain its growth as transactional activity ramps from the rollout of Stripe, treasury and many other category definement payments customers who build on Newline's Application Programming Interface (API)s. We're also seeing strong early activity from our acquisition of DTS Connects. Since the announcement, we have launched pilots with the most profitable quick service restaurant in the industry and a 1200 location chain of convenience stores and also executed the first pre ordered branch change order at a major bank with over 2,000 branches on direct Express. Our merger with Comerica should simplify the transition for its 3.4 million program participants. We also anticipate additional growth opportunities stemming from the President's executive order mandating the transition to electronic payments for all federal disbursements. Lastly, we continue to deploy technology and lean manufacturing principles to produce savings and boost scalability from our peak staffing level in early 2019. Total headcount at fifth third is down 8% while adjusted revenues are up 20%. The investments we've made will help us to efficiently scale the business and achieve our synergy targets as we integrate Comerica. Before Brian provides further detail on our outlook, I'd like to revisit the commitments we made at the beginning of the year to deliver record Net Interest Income (NII) regardless of the rate environment and and to produce 150 to 200 basis points of positive operating leverage for the full year we will deliver both looking to 2026 and beyond. There is so much to be excited about at Fifth Third among these the tailwind from our investments in the southeast along with 60 additional branches to be opened next year the sustained excellence of our J.D. power Award winning digital experience and differentiated payments products the incredible new colleagues, geographies and capabilities at Comerica becoming part of our company. I'm grateful to all the people whose hard work has put us in a position to take these steps. To the colleagues of both Fifth Third and Comerica who will work so hard in the coming months to make our partnership a success and in particular to our clients who entrust us with their well being. With that, Brian will provide more detail on the quarter and our outlook for the fourth quarter.

Brian Preston - Chief Financial Officer - (00:09:48)

Thanks Tim and thank you to everyone joining us today. Third quarter results reflect disciplined execution of our strategic priorities, expanding in the Southeast, scaling payments in Newline and maintaining operational efficiency while delivering strong performance in a rapidly changing environment. Adjusted revenue was $2.3 billion, our highest since 2022. Net Interest Income (NII) grew 7% year over year and 2% sequentially and net interest margin expanded for the seventh consecutive quarter. Our balance sheet continues to benefit from our balanced business mix through diversified loan origination platforms, fixed rate asset repricing tailwinds and broad funding sources supporting proactive liability management. Our fee businesses, led by wealth, commercial payments and capital markets delivered adjusted growth of 5% year over year and 7% sequentially. This revenue performance along with ongoing expense discipline led to an 11% increase in pre provision net revenue and 330 basis points of positive operating leverage on an adjusted basis compared to the third quarter of last year. As Tim mentioned, tangible book value per share, including the impact of Accumulated Other Comprehensive Income (AOCI) grew 3% from the second quarter despite only an 8 basis point decrease in the 10 year treasury rate. Unrealized losses on our AFS portfolio improved 9% sequentially underscoring the benefit of our bullet and locked out securities. These positions provide certainty of cash flows and should continue to support tangible book value growth as they pull to par. Now diving further into the income statement and balance sheet performance, net interest margin expanded 23 basis points over last year and 1 basis point sequentially year over year. Average loans are up 6% and excluding Commercial Real Estate (CRE) categories, average balances are up 7%. Repricing benefits on fixed rate assets and disciplined management of liability costs continue to contribute to the strong Net Interest Income (NII) performance. As Tim noted, relationship manager headcount is up 8% and average middle market loans grew 6% over the last year. Third quarter middle market production rebounded sharply up around 50% on both a year over year and sequential basis. Production levels are stable to improving in 11 of 14 regions with the strongest performance in Central Ohio, Georgia, Texas and the Carolinas provide our fintech lending platform for practice Finance continues to drive growth with balances up nearly $1 billion over the last year. This growth in middle market CNI and provides helps offset paydowns in our Corporate & Investment Banking (CIB) and Commercial Real Estate (CRE) portfolios where average loan balances declined modestly as clients accessed bond and permanent financing markets during the quarter. This capital markets activity was A contributor to our strong fee performance during the quarter. Production in our corporate banking verticals also rebounded this quarter up 24% over 2Q pipelines for middle market and corporate banking remained strong heading into year end. Commercial line utilization held steady throughout the quarter and ended in the mid 36% area. In total end of period commercial loans are up 5% over last year. Consumer loans grew 2% on an average basis and 1% on a period end basis from the prior quarter. We once again saw growth in nearly every major consumer lending category led by continued strength in auto and home equity lending. Shifting to Deposits average core deposits increased 1% sequentially driven by Demand Deposit Accounts (DDA) and money market growth. Average non interest bearing deposits grew 1% sequentially and 3% over the prior year led by consumer Demand Deposit Accounts (DDA) growth of 6% as we continue to drive strong household growth through our de novo investments. Overall consumer household growth remains strong at 3% over the last year led by the 7% growth in the Southeast. Proactive balance sheet management has allowed us to maintain our strong liquidity position while reducing our overall funding costs. We remain focused on granular insured deposits, growing average consumer and small business deposits by 1% sequentially. Consumer and payments linked deposit growth has given us the flexibility to manage down wholesale funding which declined 3% sequentially. This favorable mix shift lowered the cost of interest bearing liabilities by one basis point. Our Southeast de novo investments continue to deliver high quality low cost retail deposits. Locations opens between 2022 and 2024 are significantly outperforming expectations with deposits per branch at month 12 averaging over $25 million outpacing our modeled targets. And as Tim mentioned, our total cost of deposits in the Southeast is only 1.93% generating 200 plus basis points of spread relative to Fed funds. We remain on Track to open 50 branches this year with 23 opened year to date. We have secured approximately 85% of the locations for the additional 200 Southeast branches that we announced last November. We ended the quarter with full category 1 Liquidity Coverage Ratio (LCR) compliance at 126% and our loan to core deposit ratio was 75% down 1% from the prior quarter. Moving on to fees adjusted non interest income excluding security gains and visa swap impacts grew 7% sequentially and 5% over the last year. Wealth fees rose by 11% over the last year on $8 billion of AUM growth and strong retail brokerage activity. Capital markets fees rebounded up 28% sequentially and 4% over the last year driven by higher activity in loan syndications and MA advisory commercial payments fees increased $5 million or 3% sequentially, including a $2 million negative impact from higher earnings credits on demand deposit growth. This fee performance was driven by core treasury management and Newline related gross fees. Newline related deposits hit $3.9 billion, up $1 billion from a year ago. The securities gains of $10 million were from the mark to market impact of our non qualified deferred compensation plan which is offset in compensation expense moving to expenses. Adjusted non interest expense increased 3% compared to the year ago quarter and 2% sequentially reflecting continued strategic investments in technology branches and sales personnel. Even with the headcount additions associated with these investments, Overall headcount is down 1% versus last year as our value stream programs continue to drive savings through automation and process redesign. By year end we anticipate $200 million of run rates annualized run rate savings associated with our value stream programs shifting to credit. The net charge off ratio was 109 basis points for the quarter which includes $178 million in net charge offs from Tricolor. Non-Performing Assets (NPA)s declined 10% sequentially as expected and the Non-Performing Assets (NPA) ratio decreased to 65 basis points. Broad based credit trends remain stable across industries and geographies. Excluding Tricolor, commercial charge offs were 51 basis points compared to 38 basis points in the prior quarter. This increase is due to the resolution of certain nonperforming loans for which specific reserves had been previously established. Commercial non Performing loans decreased 14% sequentially and 30% since the first quarter. Consumer charge offs were 52 basis points in the quarter down 4 basis points which is the lowest level over the last two years. The sequential decrease is primarily due to improvement in solar lending charge offs which were down 39 basis points sequentially as expected. The broad consumer portfolio remains healthy with non accrual and over 90 delinquency rates stable and improving across loan categories. Provision expense included a $142 million reduction in our allowance for credit losses reflecting improvement in Moody's macroeconomic scenarios and a reduction in specific reserves even with the scenario improvements. Our baseline and downside cases assume unemployment reaching 4.8% and 8.4% in 2026 respectively. We made no changes to our scenario weightings during the quarter. ACL as a percentage of our portfolio loans and leases decreased 13 basis points to 1.96%. The ACL as a percentage of non performing assets increased to 302% due to the decrease in Non-Performing Assets (NPA)s. Moving to capital Common Equity Tier 1 (CET1) ended at 10.54% consistent with our near term target of 10.5%, the pro forma Common Equity Tier 1 (CET1) ratio including the Accumulated Other Comprehensive Income (AOCI) impact of the securities portfolio is 8.8%. We expect continued improvement in the unrealized losses as 62% of the fixed rate securities in our AFS portfolio are in bullet or locked out structures which provides a high degree of certainty to our principal cash flow expectations. Moving to our current outlook, we expect Net Interest Income (NII) to be stable to up 1% from the third quarter due to loan and core deposit growth. This outlook assumes two 25 basis point rate cuts during the fourth quarter. We expect average total loan balances to be up 1% due to normal seasonal growth, strong CNI pipelines and continued broad based momentum in consumer lending. We expect adjusted non interest income to be up 2% to 3% due to seasonal strength in capital markets and continued commercial payments growth. Fourth quarter adjusted non interest expense is expected to be up 2% due to the opening of 27 financial centers in the Southeast and incentive compensation related to the growth in capital markets fees. In total, our guide implies full year adjusted revenue to be up nearly 5% and PPNR to grow 7 to 8%. Moving to credit fourth quarter net charge offs are expected to be around 40 basis points. Finally, turning to capital, we will be pausing share repurchases until the close of the Comerica acquisition which is currently expected around the end of the first quarter of 2026. In summary, we expect to maintain our momentum as we end the year and achieve record nii, positive operating leverage and strong returns in an uncertain environment, all while continuing to invest for the long term. With that, let me turn it over to Matt to open up the call for Q and A. Thanks Brian. Before we start Q and A, given the time we have this morning, we ask that you limit yourself to one question and one follow up and then return to the queue if you have additional questions. Operator Please open the call for Q and A.

OPERATOR - (00:21:07)

Thank you. We will now begin the question and answer session. If you would like to ask a. Question, please press STAR one in your telephone keypad. If you would like to withdraw your question, simply press STAR one again. Your first question today comes from the line of Gerard Cassidy from RBC Capital Markets. Your line is open.

Gerard Cassidy - Equity Analyst - (00:21:24)

Good morning, Tim. Good morning, Brian.

Tim Spence - Chairman, CEO and President - (00:21:27)

Morning, Gerard.

Gerard Cassidy - Equity Analyst - (00:21:29)

Tim, can you give us some further updates or color on the Comerica transaction in terms of how it's been received internally at Comerica and maybe by their customers? They're going to be obviously part of fifth, third in a short while and then second as part of that how the process is going with the regulators. We're seeing an incredibly expedited timeline on deals that have been announced before your deal being approved in less than six months.

Tim Spence - Chairman, CEO and President - (00:22:01)

Yeah, happy to do that, Gerard. And I think in general it's just been, I think positive all the way across the board. So just to start with the regulators first, I think we're making good progress on the regulatory filings. Expect to have them complete by the end of the month. And then for you, the S-4 should be filed shortly after we get the Q out. I think the Comptroller of the Currency public commentary actually was attached to a new charter approval recently. But about accelerating the review of both new charter applications and merger applications is clearly a very positive development and consistent with what we're seeing in other deals. And all the early engagement that we have done with the regulators has been constructive. So I feel very good about the timeline that we laid out and that Brian just reiterated. I think the feedback from employees and communities has been really positive on both sides of 5th, 3rd and Comerica. I think that when the number one question that we're getting is what the name of the Detroit Tigers' stadium is going to be at the end of all this, it's a pretty good sign about what we're dealing with. So. And I think what has rung true to folks is this idea that we're going to be able to accomplish things together that neither company was going to be able to do on their own. You know, there was a. One of the other CEOs on another call talked a little bit about their philosophy on M&A and what they were interested in. Not. I actually think what he said if I were to abstract a little bit is really true. Like if you're going to do a deal and you want it to be successful, it either has to be strength pairing strength or strength pairing opportunity. You can't have places where both companies are weak be critical to the deal outcome. And the beauty of what we're doing with Comerica is the things you need to believe are either strength strength or strength opportunity. Right. We're great at retail deposit gathering and already primarily retail deposit funded. So we're going to be able to do a lot there. They have a fabulous granular middle market loan franchise. We prize more granularity in our commercial business. There's going to be a really nice complement there. We're both strong in different ways in the payments business and in wealth management. So there's a strength, strength match. I just think there's a lot, you know, positive there and I think, you know that what we are going to try to do either later this quarter as we turn the beginning of the year is to just provide a little bit more insight to investors on the synergies. We are feeling very good about our ability to get the outcomes. When you, when you look at the synergies as a percentage of Fifth Third and Comerica combined, which is really the right way to look about it, look at it because it's that's the way that we'll be approaching this exercise. They're quite manageable and I think well defined. But just in general the reception has been the teams on both sides were small because of the focused diligence effort. So that the first announcement Monday morning was wow. Followed by I think in general a lot of excitement about what we're going to be able to get done today.

Gerard Cassidy - Equity Analyst - (00:25:24)

Great. I appreciate that. And as a follow up, as you said in your opening comments, the great banks distinguish themselves on how they navigate uncertain environments. And this week has certainly been very uncertain for many of the regional banks, including your own, because of the concerns about this Non-Deposit Financial Institution (NDFI) lending and the contagion risk. And I frame that with if you go back to the 1980s and look at what happened, the price of oil in Texas dropping below $10 a barrel, it led to the contagion risk commercial real estate blowing up in the Non-Deposit Financial Institution (NDFI) portfolio. You have, and I know you have the tricolor issue, but is there contagion risk in there? And can you just share maybe your thoughts on what's going on with that portfolio, how the market's reacting to it?

Tim Spence - Chairman, CEO and President - (00:26:10)

I appreciate you being the one to give the history lesson this time around. Normally I feel like it has to be me on these calls, so thanks for that. And you'd be happy to know I assigned the book Belly up as reading to new executives at Fifth Third. So there's a lot of familiarity with the oil patch putting Texas and Oklahoma around the shop here. I think one of the challenges we have on the Non-Deposit Financial Institution (NDFI) front is while the Fed's reporting was designed to be helpful here the categorization is a little bit confusing. So Shrek is prepared to talk a little bit about maybe an easier way to understand what's in MDFI across the industry and in our portfolio in particular. So I'm going to turn it over to him.

Greg Schreck - Chief Credit Officer - (00:26:52)

Yeah, it's a great question, Gerard. Thank you. I'll start by saying it's a portfolio that we have maintained low levels. We're the lowest one of the lowest levels of Non-Deposit Financial Institution (NDFI) concentrations of large banks. We're at about 8% of the total portfolio. As Tim said, the call report categories can be pretty generic, so I'll provide a breakdown based on how we review the exposure and the risks contained in that portfolio. I'll start with REITs. So REITs and other mortgage related facilities make up 33% of our Non-Deposit Financial Institution (NDFI) balances and represent the largest portion of the portfolio represents one of our oldest asset classes. Within our Asset-Based Financing (ABF) portfolio we have processes, procedures and structures that have been tested through the cycle and include robust monitoring of liens to ensure priority of our mortgages. We've not had any losses in this portfolio over the last 10 years, so really solid portion of the portfolio that makes up our largest component. Next, about 24% of the Non-Deposit Financial Institution (NDFI) balances are to payment processors, insurance companies, brokerage firms and Small Business Investment Company (SBIC) firms or funds. Balances in this category are primarily related to large players, well recognized names and not at all related to the conversations going on in the markets in the market right now. Next would be our subscription facilities at 18% of Non-Deposit Financial Institution (NDFI) funds represents exposure to high net worth individuals and other private capital investors who have capital commitments to these funds. 13% of the balances are loans to private capital warehouse facilities. This category has been an area of rapid growth in the industry. However, we've been really intentional in limiting our growth in these vehicles. We have one lender where we have a deep relationship. This is a portfolio where we have deep relationships with the lenders typically lending into one of their portfolio companies and that relationship orientation is key as we look into that portion of the Non-Deposit Financial Institution (NDFI) portfolio. The smallest share of Non-Deposit Financial Institution (NDFI) balances are loans to non real estate and non private credit related warehouses. It's about 9% of our balances. That category includes our exposure to consumer asset classes. Gerard, you mentioned Tricolor. That fraud issue is in that portfolio and has received significant scrutiny as part of our comprehensive review of the portfolio. Given that comprehensive review, I feel very confident in the quality of the remaining clients in that category. We've been overall and we've been very deliberate in our strategy to keep Non-Deposit Financial Institution (NDFI) portfolio balances diversified. Our discipline underwriting framework is designed to safeguard portfolio quality by avoiding aggressive advance rates which we see in the marketplace, sometimes overly concentrated collateral pools, inexperienced management teams and structures that do not meet our overall risk appetite. I'll also add as part of the Comerica charge you mentioned Comerica, but part of that review during our due diligence, we also reviewed Comerica's Non-Deposit Financial Institution (NDFI) portfolio. 70% of Comerica's Non-Deposit Financial Institution (NDFI) portfolio is concentrated in low risk subscription facilities, which complements our disciplined approach to client selection and portfolio diversification. Post close, our combined Non-Deposit Financial Institution (NDFI) balances will be 7%, so down from our fifth third overall, 8%. So we feel really good about the ongoing diversification and overall asset quality of the remaining portfolio.

Gerard Cassidy - Equity Analyst - (00:30:51)

Thank you for the thorough answer. Appreciate it.

OPERATOR - (00:30:56)

Your next question comes from the line of Ibrahim Punawala from Bank of America. Your line is open.

Ibrahim Punawala - Equity Analyst - (00:31:05)

Good morning. I guess maybe just sticking with credit and outside of the Non-Deposit Financial Institution (NDFI) issues from a mark to market standpoint, are your customers feeling the pain on the commercial side from tariffs and slowing activity, or are we on the other side actually where things are picking up in terms of folks wanting to make investment decisions which could drive loan growth? I'm just wondering what seems more likely as we cut through all this noise at the moment.

Tim Spence - Chairman, CEO and President - (00:31:35)

Yeah, I think unfortunately the answer to that is yes on both points. The quote of the quarter, I was out in several of our markets. I got to visit about three dozen of our commercial clients and the quote of the quarter went to the client who referred to his outlook as, quote, nauseously optimistic. The tariffs uncertainty absolutely continues to weigh on any clients that are exposed. That said, I would tell you, in general, people are more optimistic than they were in the second quarter in part because when you add up all of the different tariffss, there is some uniformity across most of the countries that provide, you know, are significant sources of the supply chains for folks in materials and manufacturing and, you know, construction and the other sectors that are, you know, big in our footprint. The question mark really has been what would be the who would bear the brunt of the tariffss? And I would say now on balance is a sort of a shared pain approach here where the supplier, the intermediary and the customer each absorbing about a third of the increased cost. But the supplier and the intermediaries have also been clear whenever we talk to them that their intent is ultimately to get back to prior margins, which would mean over time you would see continued price increases as a mechanism to move the, you know, the cost through. The bright spot here is really one it's just the Federal Reserve resuming rate cuts. I think people have been more optimistic about. They're more front end focused than I think I would have said I believe them to be, and they're more optimistic about what the value of, you know, a total of 50 to 100 basis points of cuts will have on client demand and also penciling out of their own investments. There's also another reality here, which is a lot of our clients when the tariffs announcements hit deferred capital expenditures and have been renting, either renting excess space or renting equipment, and we are getting requests now for financing that are reflected in the pipeline in the middle market business in particular to support the sort of shift from rent to own. So I think that's quite positive. The other thing that I like seeing is I like our logistics clients. They're a good bellwether on the sort of wheels of the economy turning. And we're hearing from logistics clients that there hasn't exactly been a huge rebound, but that they activity is stabilized and is moving on the upswing. The folks that are having the most robust demand obviously are the people who are either attached to the big government, infrastructure investments, things like bridges and roads that are moving forward, the folks that are attached to AI. And there's so much demand there because with one of our clients in the concrete business that not only have a strong order book, but the suppliers are driving the pricing as opposed to the buyers driving the pricing in these cases, meaning the margins are really great. On the other end of the spectrum, I think residential construction, auto, still slower, that's helpful.

Ibrahim Punawala - Equity Analyst - (00:35:05)

Thanks for that. And I guess just a separate question, I think back to Comerica. I think if you don't mind spending some time around, and you talked about this when you announced the deal, just the optionality that Comerica provides. We've talked about opening the branches in Texas, but Comerica also had a big technology life science practice and fifth third through new lines been leaning in there. Just either it's that or either it's double clicking on the existing footprint and deepening relationships which may have kind of sidelined a bit over the last decade. What's that potential to unlock and accelerate growth for the combined entity as we look out a year from now?

Tim Spence - Chairman, CEO and President - (00:35:45)

Yeah, thanks for asking on that one. You know, like one of my fundamental beliefs is if you don't want to grow by sacrificing pricing or risk discipline, you have to attach yourself to segments of the economy that have a secular tailwind. And the innovation economy is the most profound secular tailwind on the business side of our business in the US So I am quite excited about the potential on tech and life sciences. Historically the OCC looked at that business a little bit differently than other people did. But I think the early signals coming out of the OCC are that they want national banks to be able to compete in all markets. And I am optimistic that we're going to be able to do some interesting things there. You know, Michigan is about creating, finishing off the play in terms of a fortress position in the Midwest. Texas for us is going to be about investment. I think we can continue to add a lot more middle market bankers and clearly the branches are there. California really will be a more business focused strategy. And between New Line, which is a unique asset and the fact that a lot of the early folks at Silicon Valley Bank (SVB) actually were from a predecessor to Comerica in 1991, you know, we have credibility having been in that market. Like there's a really interesting thing to be done there because post Silicon Valley Bank (SVB) to your point, you have, you know, first Citizen still active, you have JP Morgan active, you have a couple of investment banks active that really are leading on the M and A advisory and capital raising front. And then you have foreign banks and a fragmented market like that will be, you know, is good hunting for people like us. The thing that's probably important to remember with Comerica is I think they're running a 4 to 1 deposit to loan ratio, 3 to 1, 4 to 1 deposit to loan ratio in that market. So one of the things we may do very early on is just focus on the ways in which we can leverage New Line to drive even more deposits into the platform as well.

Ibrahim Punawala - Equity Analyst - (00:38:05)

Got it. Thank you so much.

OPERATOR - (00:38:09)

Your next question comes from a line of Scott Cyphers from Piper Sandler. Your line is open.

Scott Cyphers - Equity Analyst - (00:38:15)

Morning guys. Thank you for taking the question. Hey Tim. So, I mean, based on all you've said, I don't get the impression that there's any change or impact to your de novo expansion plans while you go through the Comerica transaction. But was just hoping you could spend a moment discussing sort of how you balance the planned organic expansion with the large integration. Just make sure nothing sort of slips through the cracks.

Tim Spence - Chairman, CEO and President - (00:38:38)

Yeah, no, that's great. So I think you probably have to think about it in two ways. One is just what resources did the two sort of separate growth areas of focus draw on? So the de novo branches are in the Southeast footprint. There is going to be. There are some really wonderful Comerica bankers in the Southeast, but they don't have a branch presence. So we're not going to have disruption in those markets. So the regional leaders who have to be on top of driving the daily, weekly, monthly activity in the Southeast are not going to be disrupted. That's the first thing Secondarily, the people inside the bank who find the locations, who build the locations, and who run the locations are three different groups. So 85%, as Brian said, of the locations have been found, meaning that group has the capacity to be available, to be looking for locations in Texas. And if you just do the math on the 40 we will have built in the second half of this year, the 60 we just said we're going to build next year, by the time we're at a point where we've got sites and permits pulled, the people who build the locations are going to be freed up, you know, from the Southeast to be able to shift their focus onto the, you know, the acceleration of the openings in Texas. And lastly, because of the scale we have in the Southeast, the draw on human capital and the need to drive recruiting and otherwise to be able to support the new branches is substantially lower. Because the majority of the folks we put into the de novo branches are people who have trained up and come through our other retail financial centers. And therefore, the Southeast is sort of on the flywheel of being able to feed itself. So there really is not an overlap in terms of the critical resources to be able to do those two things. I think the second thing that's really important is we've talked a lot about the focus on modularity in the way that we drive the retail expansion. That has been the point I'm trying to make. Whenever I say we haven't built 100 branches, we built one branch 100 times. It's a consistent site selection model. It's a consistent retail format, meaning there's no need for additional engineering resources or otherwise. We have experience at this point with essentially every zoning jurisdiction and setup that you would want to experience. And the zoning rules in general in Texas are much easier than they are in the Southeast and certainly than the the Midwest. So it's not like we're going to have to learn on the fly here. We just have to find the locations and we have the people to do that. And we got to build the same thing we've been building. And we know how to do that, obviously. And, you know, and then the focus really is going to be on making sure that as we do the conversion in Texas, the initial experience that Comerica's existing retail clients have is really, really strong. And then that we are doing the recruiting that we need to do to be able to support the larger, you know, the larger base. Lastly, it's probably worth noting, I think we were at. We were building a fair number of de Novos in 19 when we did the MD conversion, we didn't have any problem juggling both of those either.

Scott Cyphers - Equity Analyst - (00:42:05)

Okay, perfect. Thank you for that. And then with regard to Direct Express, you know, you noted the merger should simplify the transition for the customers. I imagine it really eases things for you all as well. I know there was already, you know, a sense of urgency to get the balances moved before the the merger was announced, but was hoping you could just sort of spend a moment at least at a top level on, you know, how I presume it's all still going to switch to Fifth thirds Rails, you know, how. What are the sort of the plans for that to take place?

Tim Spence - Chairman, CEO and President - (00:42:38)

Yeah, so the transition schedule that we talked about when we announced the Direct Express win that, you know, commencing Fifth Third as the administrative agent for new program enrollees in the beginning of the first quarter and then starting the conversion process at the end of the second quarter is, you know, still progressing as planned. And I feel good about all that. The dynamic here that's most important was that we were going to have to issue out of our own Bank Identification Numbers (BINs) or buy Comerica's Bank Identification Numbers (BINs) in order to be able to make the card numbers work. Right. And when the deal closes again, provided that it closes as we expect it to. And in advance of when we were planning the back end conversions, the factor that would have driven new card issuance would have been the need to use a different bin range. So Kurt and I had actually talked about Fifth Third buying the Bank Identification Numbers (BINs) from Comerica prior to commencing the discussion on the merger itself. We were looking at the possibility of being able to simplify that aspect for the program participants. And clearly we get the deal closed, the Bank Identification Numbers (BINs) are ours and we'll be able to continue to issue out of them and maintain existing cards.

Scott Cyphers - Equity Analyst - (00:44:00)

Yeah, perfect. Okay, good. Thank you very much.

OPERATOR - (00:44:05)

Your next question comes from the line of Manon Ghazalia from Morgan Stanley. Your line is open.

Manon Ghazalia - Equity Analyst - (00:44:12)

Hey, good morning all. Morning. You touched on Direct Express right now I was wondering if you could talk about just the opportunity there on the income statement and the contribution, I think on the CMA deck you adjusted for about 110 million in NII. But can you touch on what the full opportunity is there? How do you expect that to grow the fee contribution that you expect? Maybe the expense add on there, any additional color there would be helpful.

Brian Preston - Chief Financial Officer - (00:44:45)

Yeah, happy to talk. Manon. The big question when we announced the program was really about the win of the program was about the timing of when we would see the balance transitions over. And that one of the reasons why we said we provide more information in the fourth quarter, obviously the Comerica transaction provides a lot more certainty around how the balances will hit the third balance sheet. You know, it's three on average. It's about three and a half billion dollars of DDA that will obviously provide a lot of funding benefits associated with our balance sheet. From a fee perspective, the way to think about it is there's probably a 15 to 20% type margin on the fee fees relative to the expense load. And you're probably looking at something that is in the range of 100 to $110 million type expense level that's primarily related to the processing cost and the fees. There's a gross up on the fees associated with the interchange that comes through. We do have some revenue share with our processing partners. That's why there will be a fairly direct link on that. And then the growth for us is primarily going to be related to transaction activity in the future as well as growth in the programs. And we are excited about the potential for incremental growth in the program due to the executive order trying to limit more to limit the amount of paper checks that are issued. And this is the government's program for electronic disbursements. So we do believe there's even more upside in the program over time as the government continues to try to find efficiencies and it's disbursement processes.

Manon Ghazalia - Equity Analyst - (00:46:25)

That'S very helpful. Maybe if I can pivot over to credit. Excluding the credit that you called out, I think NCOs were about 52 basis points this quarter and you're guiding for about 40 basis points in the fourth quarter. I know you talked about some of the sentiment and what you're hearing, but can you speak to what gives you the confidence that NCOS will step down from here and how we should think about that going into 2026?

Greg Schreck - Chief Credit Officer - (00:46:51)

Yeah, it's Greg, great question. So I look at it a couple different ways. One of the leading indicators, right, the criticized assets, and as Brian mentioned, our criticized assets are down again 4% this quarter. I also look at predictability. We've talked over the last couple quarters about NPAs coming down in that 40% range. There were 14% this quarter quarter 30% over the last 2 quarters. And we have good visibility tracking to that 40% at the end of the year. We're not seeing NPA surprises. The losses we're taking are reserved. So those are all leading indicators. I think we're continuing to Do a. Good job on getting out ahead of some of these problems and dealing with them timely. So I feel good about that. The consumer portfolio continues to perform very very well. 90 day delinquencies are just 6 basis points below even pre Covid levels. Consumer loss rates stable at 52 basis points. That's consistent with our 10 year average. We noted the solar portfolio is improving as we said on prior calls. So. So the portfolio is playing out as we have predicted over the last couple quarters. And I still feel really good. I mean excluding the three coulure fraud related issue, I still expect full year charge offs to land the midpoint of our original guidance range and assuming no significant changes in the environment. Based on what I know today, I continue to be very confident that the commercial loss rates return to that mid 30, 35 basis point range in the fourth quarter.

Tim Spence - Chairman, CEO and President - (00:48:37)

Yeah, and Manon, if I just add, since there are some names that have been in the news. We have no relationship with Cantor. We did have a relationship historically with First Brands but we exited it a handful of years ago because of some issues that were identified during the collateral reviews we were doing. And the only residual exposure there is 51,000 bucks of operating leases. So $51,000 secured. Greg tells me buy a forklift and a printer. I asked if the printer had wheels. He said no. So if necessary we're going to use the forklift to get the printer out of there. But they're just that that's the other thing here in terms of confidence is there's no exposure to the names that are out in the market.

Manon Ghazalia - Equity Analyst - (00:49:20)

Thank you. Appreciate that.

OPERATOR - (00:49:22)

Yep. Your next question comes from the line of Ken Usden from Autonomous Research. Your line is open.

Ken Usden - Equity Analyst - (00:49:31)

Hey Ken. Hey guys. Good morning.

Brian Preston - Chief Financial Officer - (00:49:33)

Good morning. I was wondering if we talk a little bit about the NII trajectory and the helpers that you have. Can you just give us an update about the fixed rate repricing that you have and what you're seeing now given the change in the in the curve in terms of the benefits and how long out you have line of sight onto that. Yeah, thanks Ken, Great question. You know, we continue to feel good about fixed rate asset repricing. That's something that was a contributor this quarter as well as for most of the year. We have seen, you know, a decent compression in the yield curve this quarter in particular. Two to three year point in the curve has come down about 40 basis points since we talked with you as part of July earnings. And that obviously has a decent impact on the indirect auto business which has been a big driver of our fixed rate asset repricing. We're still seeing four to five billion dollars a quarter of fixed rate assets that are repricing. And it's picking, we're picking up now around 100 basis points and we expect that 100 basis points to persist, you know, basically through the end of the next year, end of this year and into mid to late next year. So we do feel good about the trajectory that we're seeing there even with some of the compression that we've seen from a curve perspective. And then honestly for 2026, when you think about NI trajectory, the Comerica transaction just has such a meaningful impact on the overall balance sheet positioning. And as we've talked as part of that announcement, you know, fairly decent pickup from a profitability perspective and NII is going to be a good component of that as we work ahead on bringing our diverse funding capabilities to that platform as well as positioning the balance sheet for and using our fixed rate loan origination platforms to position the balance balance sheet for better long term performance. And so we feel very good about the trajectory that we're on. We are heading into next year intentionally running a little bit heavier on cash and a little bit more balance on from a deposit perspective because we do want to be in a position to take care of some of the funding things that they have had to do as they have managed through this environment the last couple years. And so you are going to see us a little bit more balance on from a retail perspective. We've always been very focused on keeping our retail contribution to be the primary funder of our balance sheet. And that's something that we'll want to continue to do as we bring the Comerica balance sheet on board. Yeah, great. And that was actually dovetails to my follow up which was just, you know, it's been great to see the non interest bearing growth for the last couple quarters and still a little increase in the IVD costs. So to that point you just made, and given that we're on the next leg down of the rate cycle, what does that, you know, put us into context in terms of what you're expecting to see in terms of deposit betas on, on the IBD side.

Ken Usden - Equity Analyst - (00:52:32)

Thanks.

Brian Preston - Chief Financial Officer - (00:52:33)

Yeah. For the next, I would tell you for the next couple quarters, the fourth quarter and into the first quarter, we're going to be a little less aggressive than we have been. We delivered a low 60s data on the first hundred basis points of cuts prior to the Comerica transaction. You know, I had high confidence that we were going to be able to deliver kind of mid-40s to low-50s beta which would kept, which would have kept us in a good position. But given the point of trying to stay balanced on from a retail perspective, because we want to work ahead and be in a position to deal with some high cost funding that's on their balance sheet, that'll be a very accretive transaction for us in 2026 when we utilize, when we utilize the optionality that our funding position will give us next year to deal with some issues on the combined balance sheet. We're going to, we are going to run a little bit lower on our betas from here. So I would expect that for the fourth quarter and the first quarter for our betas to be in the more like the 30% range. And so that's a little bit of the rationale when we talk about kind of a stable to up 1%. NII forecast for the fourth quarter is taking that into context. Yep, that makes sense. Okay, thanks for that Brian.

OPERATOR - (00:53:52)

Your next question comes from a line of Chris McGrady from KBW. Your line is open.

Chris McGrady - Equity Analyst - (00:53:58)

Hey Chris. Hey. Hey, good morning.

Tim Spence - Chairman, CEO and President - (00:54:00)

Sean Kelhane actually On for Chris McGrady. Quick question. Just on the expense growth expectations you touched on near term expense growth elevating as you continue invest in the branch expansion. But just longer term, how should we think about operating leverage from here and maybe more specifically how you think about organic expense growth in terms of balancing places that require continued investment such as payments as well as the branch expansion obviously in Texas as well as Southeast. But versus kind of like the synergies and the offsets from both the merger as well as prior AI expense. A lot of good questions embedded in there. So a couple of things. One, the branch expense is seasonal, right. For us. So we, I think we said we were going to get about 50 branches opened this year. So 40 of the 50 happened in the second half of the year. That's part of the reason that you see the ramp in the fourth quarter is half of the of the branches in total get opened in the fourth quarter alone. And that's actually an improvement for us. It used to be there were 85 or 90% of the branches got open in the fourth quarter. So I wouldn't read too much into the fourth quarter as a point of extrapolation into the future. We do believe we have the ability to continue to drive operating leverage out of the company. It's been convenient that others have offered 2027 as a medium term, you know, guidance range because that corresponds with the numbers that we provided for the combination of fifth, third and Comerica. And you know, the outlook there was 19% ROTC or better and, you know, getting down to the low to mid-50s, they call it 53% in terms of the efficiency ratio. And we printed 54 this quarter. The guide implies 54 next quarter. So there is continued operating leverage in order to get there. And that's inclusive of the sorts of investments we're making in the business. I mean, we bought a payment software company in this past quarter that feathered into the run rate. I think what's worked for us here has been this belief that we need to fund something on the order of half of everything that we want to invest back into the business through finding other savings opportunities. That's principally been automation, leveraging technology to drive people costs down and to improve scalability. And those investments are going to be super helpful, as I mentioned in my prepared remarks, as we integrate Comerica. But it's allowed us to just look at it over five years. I mean, I think we've bought now five fintech companies during that period in time. We built more branches than anybody other than JP Morgan during that period of time. We've been growing the Salesforce by 5 to 10% across the regional footprint during that period of time, making big investments in tech platforms and otherwise. And despite all that, we've had, I think something that's on the order of the lowest cumulative expense growth across our peer group. So we are going to continue to invest in the company. I'm super excited, as I've said, about the opportunities to invest into places like Texas and scaling the verticals like National Dealer Services and pairing that with the auto business and tech and life sciences, like Ibrahim asked earlier. But we also expect ourselves to have to pay as we go in addition to asking investors to back it. And that's why you get the operating leverage at the end of the day. That's great color. Thank you. Appreciate it.

OPERATOR - (00:57:43)

Your next question comes from a line of Mike Mayo from Wells Fargo Securities. Your line is open.

Mike Mayo - Equity Analyst - (00:57:48)

Hey, Mike. Hey. I have kind of one negative question, one positive question. So the negative question, if you could just double click on the tricolor category. So I think it was 9% of your total Non-Deposit Financial Institution (NDFI). Just elaborate more on what's contained in that category. And the deposit question is you talk. About the team that will be in. Charge of the integration of Comerica. You have Jamie, you also don't. I haven't heard you talk about Darren King either. I Almost forget that he's there. You're keeping him like locked in a closet somewhere. But you have a lot of talent at the top of the house. I'd like to hear how they'll be deployed for the integration. But first more elaboration on the tricolor category.

Tim Spence - Chairman, CEO and President - (00:58:34)

Yeah, I was going to say we'll start there because now I'm going to go get Darren out of his office and demonstrate that he is free to move around the building. Go ahead, Greg.

Greg Schreck - Chief Credit Officer - (00:58:44)

So yeah Mike, it's primarily consumer asset classes. So consumer auto, consumer finance companies is the majority of that 9% and there's a reason why it's our lowest category for a concentration standpoint and we're watching that consumer very, very closely. Clearly impacted with higher interest rates, unemployment, inflation, et cetera. But that's primarily what makes up that category. Yeah. And it's dominated by relationships with the largest players, long tenure in their, in their categories. Having been through all these names myself, as I mentioned at Barclays, I'm confident that Tricor is unfortunately is unique there in terms of being present relative to the discipline that exists in the rest of that rest of that book on yeah, I think we have an excellent team and I think Comerica is bringing really excellent executives to the table in terms of what we're doing here. So the Integration Advisory Council is jointly staffed. Jamie is on point from fifth. Third Megan Burkhardt from Comerica, their chief administrative officer from Comerica, folks like Darren and Pete Cefcik from Comerica, the IT leaders, folks from operations and otherwise all involved here. Darren, his focus. Darren's worked very closely with Peter in thinking through how we integrate the middle market bankers. Darren's responsibility here is regional banking. So Darren's had wealth management, middle market and business banking. Peter will take on wealth management, Darren's taking on the expanded middle market business banking side of the equation. So they have been working through key roles, taking opportunities where we're allowed to do so to meet people and to make sure that everybody knows that if you talk to customers you're in good shape in terms of being able to look forward to a broader quality product set, more capacity to invest in growth. The other thing I'd tell you I'm really optimistic about is we have a really outstanding IT organization. The IT group here is essentially entirely been reconstituted since 2018 or 2019. It is led by people who were Fortune 150 CIOs, people who founded businesses that ended up being taken out by major players in information security and people who have actual engineering backgrounds. So they're not vendor managers or IT maintenance people. They're people who understand architecture and software engineering and otherwise. That's been a big part of the success. Jude Schramm, our CIO is the one that's led the value streams work over the course of the past several years inside the company that has helped to drive all the savings. So there's a really good bench of people around the table here to ensure that we, you know, retain what is great about both companies and execute a seamless conversion and get the costs out, you know, as we need to. And now that the dust has settled.

Tim Spence - Chairman, CEO and President - (01:02:12)

A little bit, one challenge that you think you're really going to have to gear up for that you more in your face and you may be underappreciated or you just like, hey, this is, we're going to have to do this right. And one positive that you said, hey, this might be better than we thought. Yeah, I think the challenge is we're set. Comerica had a public consent order attached to the trust business and it specifically a conversion they did there. I would tell you that's I don't perceive that to be like a challenge in the sense that I'm worried about being able to get it done. But it's clearly priority one is ensuring that we have the trust business on stable footing as part of getting this conversion done. Because we like the businesses that they're in. I think they're quite complementary to the segment of the market that we serve in our custody business. But we got to get that work done expeditiously and well so that that remains, you know, big point number one. I think the thing that I'm probably most optimistic about is the. We have a lot of former Comericans here. They have a lot of former 5th 3rders there. They seem to have done well in both places. I can speak for the former Comericans that are here. You know, they've been big parts of the, the way that we've driven the growth in the expansion markets. They have leadership roles here and payments and have led businesses like business banking, you know, corporate social responsibility, otherwise like. So I'm most excited about our ability to unlock the Comerica bankers now that we can provide a broader funding base and there isn't a competition from an investment perspective on needing to invest in sort of LFI level, you know, control environments. That is the thing that the more I talk to folks, the more you see like, wow, there are a lot of good ideas here. There are places where we have the ability to grow that they just, there was an inherent limit because they were trying to balance more priorities than we'll need to balance as a combined company. So it sounds like some ex frenemies will become colleagues if they hadn't worked together before. Yeah, that the. That's right. From frenemies to friends again, maybe. There we go. All right, thanks a lot. Yeah.

OPERATOR - (01:04:52)

Your next question comes from a line of Peter Winter from D.A. davidson. Your line is open.

Peter Winter - (01:04:58)

Hey Peter. Thanks, Tim. Hey, just at Barclays, following the tricolor. Tricolor announcement, you mentioned that you were going to take a step back, look. At the processes to see if you. Could have done anything differently. And I'm just curious what you discovered and if you need to make any changes.

Tim Spence - Chairman, CEO and President - (01:05:19)

Yeah, thanks for asking that. Greg will give you some detail there.

Greg Schreck - Chief Credit Officer - (01:05:23)

Yeah. So obviously a lot of time given the circumstances that we've spent, while we still think it's an isolated event, we treated it with the seriousness that it deserves. We completed a comprehensive review of that entire asset backed finance portfolio, tracing cash flows, collateral movements, in and out of our facilities, then into securitizations. The work included a full inspection of our processes, our procedures, policies, underwriting, portfolio monitoring. It was an end to end inspection by our leaders. We've identified a couple things that we'll start to implement from an enhancement standpoint and we'll continue to do that and we'll continue to reinforce some of the ongoing monitoring that needs to take place in that space. A couple of things I would point out is 92% of the ABS exposures through bankruptcy, remote SPV securitization structures. They're non recourse, they're self liquidating, they're underwritten through the structure through advance rates to a triple B or better. So investment grade type of underwriting. We also engaged a third party firm to validate 120,000 vehicle identification number bins tied to our consumer collateral or growing collateral. The results were conclusive. 99.99% of the VINs have been verified as valid with only two exceptions. We're tracking those two exceptions down.

Tim Spence - Chairman, CEO and President - (01:06:58)

As in two VINs, as in two cars. The overall exercise to your question confirms. That.

Greg Schreck - Chief Credit Officer - (01:07:07)

We still feel very good about the overall portfolio. This is a portfolio that has not had one losses in the past in any meaningful way. Clearly the tree core was a fraud. There are things that we're going to have to do a little differently going forward based on the inspection, but based on the inspection, the house to house search that we did, I still feel I still feel very good about the portfolio.

Brian Preston - Chief Financial Officer - (01:07:32)

Got it, thanks. And then just a quick follow up. With the Comerica deal, you'll have roughly 290 billion in assets and become a category three bank. Does that happen when the deal closes or is it kind of a four quarter average before you become Category three? And does that involve entail, you know, additional expenses and maybe risk management controls? Yeah, we. So at the end of last year, we've actually been going through a process for some time in terms of Preparing for Category 3 readiness. This is something that we actually kicked off back in when we were in the process of March Madness associated with First Republic, of making sure that we really understood what that path looks like. And at the end of last year, we actually hired a third party to come in and do a Cat 3 readiness assessment for us and to help us build out the compliance work plan as we were going to head down either inorganic path or if for some reason the transaction were to occur, that would have accelerated it. So we have a good sense of what that path looks like and the cost associated with it. You know, clearly there's certain things where we'll have to do some investments in terms of enhancing some reporting capabilities. Things like 2052a, the frequency of reporting and the time turnaround of that reporting accelerates from a T + 10 reporting to T + 2. There's some new credit reporting that we'll have to do, but all of those things are known and very manageable. What's interesting about this process is that there are a number of different Cat 3 requirements and they're actually all discussed with regulators and agreed. The conversion and compliance timeline is agreed with regulators on a line item by line item perspective on the individual requirements, 2052a reporting being one of the first. So those are all things that we're working through right now, all contemplated and the financial numbers that we've provided and from a cost perspective will be manageable for us. All right, thank you.

OPERATOR - (01:09:37)

Your next question comes from the line of Erika Najarian from ubs. Your line is open.

Erika Najarian - Equity Analyst - (01:09:43)

Hey, Erica. Hi. Hey. So, just wanted to make sure that we're taking away the right message from a funding strategy perspective. Tim, it really struck me when you did the Comerica announcement conference call that you said that it was funding that was really preventing them from fully realizing their growth potential. And then, you know, Brian noted, you know, the 30% deposit beta from here, as we think about, you know, the go forward, both from a standalone company and together, should we, should we now think okay. The priority has to be, you know, retaining the funding and that's more of priority growth in deposits and retention of deposits. It's a bigger priority over price. And by the way, that's okay because the power of the combined NII from both the bigger balance sheet and the purchase accounting will supersede sort of the lower reprice.

Tim Spence - Chairman, CEO and President - (01:10:43)

Yeah, great question. No, I think I would say that the priority here is replacing the funding and then supporting the right level of growth. Beyond that, you know, we have run at a loan to deposit ratio that's a little below where we need to be so that we are in good shape in terms of being able to provide some excess funding. But I've talked a lot about the fact that we prize a 60 40, like living inside a fixed 6040 mix. We like balance, we like diversification. And that's going to mean that we have to grow retail deposits at a rate that will allow us to essentially remix out of some higher cost corporate cash and other funding sources, Intrafi deposits and otherwise over time that are on Comerica's balance sheet and into a more retail heavy mix. The good news is we have what I would argue is the best retail deposit engine in the retail bank sector and the tailwind of all these branches in the Southeast. Plus what we're going to be able to do, just leveraging Comerica's existing branches where they hadn't done any consumer deposit marketing as I understand it, for over a decade. Okay. And we bring an analytic Engine and a J.D. power Award winning product set that will hit those branches day one and make them more productive. Plus then the network benefit that you get out of the build out in Texas that really is meant to provide a catalyst where retail deposit growth exceeds, exceeds the overall balance sheet growth and allows us to drive a remixing.

Brian Preston - Chief Financial Officer - (01:12:26)

Yeah, Erica, I would think about it for you guys in two horizons. One, which is where do we want to be at close of the transaction? Because we know things always come up around close. For example, we have shared customers in the commercial portfolio and they have. A lot of times customers pick two different banks because. Because they want diversification. So we know that there could be a little bit of outflow around that. So we want to make sure that we have a good source of liquidity and optionality to deal with unexpected things that occur, but also to help manage through the funding cost of the company from a longer term perspective. I would tell you that the total funding cost for the combined company will be better going forward forward than the two individual companies. And you Know, you can look at things as simple as our cost of interest bearing liabilities versus their cost of interest bearing liabilities. We are 50, 60 basis points better in total on them. And it's back to the mix of our deposits. So yes, we're going to lean a little bit more on retail right now because we also know that we are able to manage two very, very strong and profitable long term retail deposits, deposit costs. We just want to be in a good position from a short term perspective to make sure that we're ready to navigate, you know, obviously an uncertain environment and from an economic perspective between the end of the year and close at the beginning of next year and to make sure that we're positioned for anything unexpected that could come up as part of the close.

Erika Najarian - Equity Analyst - (01:13:59)

And my second question, and I realize we're moving, we're closer to 10:15, this is for you, Tim, and maybe if Jamie is also in the room since he's head of integration. So clearly the financial benefits are obvious. You know, you talk very passionately about the cultural and strategic fit we have seen in the past. Some of the larger deals that have been announced previously been hampered by sort of poor back end execution. Right. In terms of how they approached the tech integration. And we haven't talked much about that, Tim. And Jamie, I'm just wondering if you could maybe give us a sense of your approach for the back end and tech integration and how you would prevent that in terms of, you know, prevent like slippage in terms of expenses or delay in expense synergies and all of that that has have hampered peers.

Tim Spence - Chairman, CEO and President - (01:14:55)

Yeah, great question. You're going to have to make do with me because Jamie is so focused on the back end conversion that he's off working with the teams. But he will be at Bab Erica. So I would encourage you to ask the same question then and you'll get the benefit of his answer. You know, the conversion is the moment of truth because it's the first thing that you do that has a very material impact on customers if you get it wrong. Right. And the work that has to be done on making sure that the receiving environment is clean and that you're not making any changes so that there aren't any unanticipated hiccups, doing the data mapping so that you are able to ensure that what you convert populates correctly and then managing the customer experience. I mean simple things like, you know, so many customers use biometrics today to log in that not everybody knows their password. And as a byproduct, when you ask them to download a new app and tell them their username and password ported over, you run into issues. So there is an incredible amount of detailed work that has to get done just on the mapping and the communication and then the pre conversion actions that you can take to ensure that the conversions themselves go smoothly. Coupled then with I think having the right level of staffing on hand, whether it's in the branches, in the call centers or otherwise, so that you don't have a situation where something unanticipated comes up like maybe a customer's mobile phone number is out of date and when they go in to change it, it locks them out of using Zelle for two weeks or something like that. You know, those are the sorts of things that you have to be in front of to make sure that, you know, the conversions go well. The one thing that I will tell you is maybe different here than some of the other larger deals where there have been issues is there is no debate about which technology platforms we're going to use. So the. This is not going to be a scenario where we go through and try to pick the best of both companies and then reintegrate them. The Comerica customers and business are going to move from the comerica platforms to 5th 3rd. With the exception of the national dealer services business where we don't have a platform. It's the reason we had to get out of the business five years ago. We've always liked it. We just, we didn't have the scale to be able to, you know, to support the platforms. So we know our environment and should be in a substantially better position because we're not doing systems integration and conversion on top of one another. It's just a conversion exercise. And they don't have, there's not a single platform they have that we haven't converted before in terms of the key platforms and in many cases they're on the same platforms that we are.

Brian Preston - Chief Financial Officer - (01:18:05)

Perfect. And thank you Greg, for all of that color. It's never fun when you're popular, but I think investors appreciated the color.

Tim Spence - Chairman, CEO and President - (01:18:14)

I don't know. It's good for people like Greg to feel good, feel like they're popular once in a while. Right? Yeah. I went through middle school profoundly unpopular too. And the second I got a moment in the sun I felt pretty good about it. I think that wraps. On that note, we probably should wrap it up. Yeah, I think so. Thank you.

Matt Kuro - Senior Director of Investor Relations - (01:18:35)

And thanks everyone for your interest in 5th 3rd. Please contact the Investor Relations Department if you have any follow up questions. Rob you may now disconnect the call.

OPERATOR - (01:18:44)

This concludes today's conference call. Thank you for your participation. You may now disconnect.