Fifth Third at Barclays Conference: Strategic Resilience Amid Challenges

On Wednesday, 10 September 2025, Fifth Third Bancorp (NASDAQ:FITB) presented at the Barclays 23rd Annual Global Financial Services Conference. The discussion, led by CEO Tim Spence and CFO Bryan Preston, revealed a dual narrative of a significant fraud incident and robust business strategies. Despite a $200 million fraud-related loss, the company showcased strategic growth initiatives and a positive outlook.

Key Takeaways

• Fifth Third reported a $200 million loss due to fraud in a client’s asset-backed warehouse facility.
• The company increased its PP&R guidance by 3% due to stronger fee income.
• Selected as the exclusive financial agent for the U.S. Treasury’s Direct Express program.
• Continued expansion in the Southeast, with new branches exceeding deposit growth targets.
• Reaffirmed loan growth guidance and highlighted strategic partnerships in digital assets.

Financial Results

• Fraud Loss: Fifth Third disclosed a $200 million loss from fraud at a client facility.
• PP&R Guidance: Increased by 3% due to strong fee income.
• Loan Growth: Reaffirmed guidance with 5.5% to 6% year-over-year growth and 160 basis points of sequential positive operating leverage.
• Deposit Growth: Commercial and consumer DDA balances rose over $1.5 billion, or 4% year-over-year.
• Net Charge-Offs: Expected to be around 40 basis points in Q4.
• Provision Guidance: Updated to $220 to $250 million.
• NII and NIM: Third-quarter NII guidance reiterated, with NIM expected to be stable and grow depending on the 2026 yield curve.
• Fee Income: Strong performance in wealth and asset management, commercial payments, and capital markets.

Operational Updates

• Direct Express Program: Fifth Third will begin serving 3.4 million participants in January 2026, managing over $43 billion in federal benefits payments.
• Digital Asset Partnerships: Collaborated with Circle and Fireblocks to enhance stablecoin payment networks.
• Retail Receivables: Acquired DTS Connects to expand managed services.
• Southeast Expansion: New branches achieved 160% of deposit growth targets, with 15 branches opened in 2025 and 35 more planned.
• Commercial Payments: Processes over $17 trillion annually, holding significant national market shares.

Future Outlook

• Deposit Costs: Stability expected this quarter, with improvements as the Fed cuts rates.
• Balance Sheet: Anticipated growth supported by strong core deposits.
• DDA Growth: Expected to grow at a mid to upper single-digit rate.
• Loan Growth: Reaffirmed sequential growth.
• Expense Management: Focus on technology and customer acquisition.
• Stablecoin Opportunities: Potential in cross-border and fractional payments.

Q&A Highlights

• Asset Impairment: Emphasized fraud as isolated, with steps to improve collateral management.
• Direct Express Transition: Detailed conversion process and timeline.
• Loan Growth and Utilization: Stable to growing utilization since early in the quarter.
• M&A Strategy: Focus on value through technology, not just scale.

In summary, the conference call highlighted Fifth Third’s resilience in addressing a significant fraud incident while maintaining a strong strategic direction. For more details, refer to the full transcript below.

Full transcript - Barclays 23rd Annual Global Financial Services Conference:

Jason, Barclays Analyst, Barclays: Welcome to day three of Barclays’ 23rd Annual Global Financial Services Conference. Thank you. We appreciate all your attendance here. We had a jam-packed morning of banks. We have a great cross-section of companies all in this room: Fifth Third, Regions, Morgan Stanley, M&T, State Street, and Zions. Kicking off the festivities this morning, pleased to welcome back Fifth Third from the company once again, CEO Tim Spence, CFO Bryan Preston. Tim’s going to start with some prepared remarks. They put out a slide deck in AK last night, and then we’ll take some questions.

Tim Spence, CEO, Fifth Third: Great. Thank you, Jason. Good morning, everybody. As Jason mentioned, we published a slide presentation last night to our investor relations website. In it, we reaffirmed our loan guidance, increased our PP&R guidance by 3% on stronger fee income, updated the credit loss outlook, and then shared some positive developments on the growth strategies. The appropriate place to start this morning is clearly with the credit update. Last week, we became aware of an issue at a client where we provide one of their asset-backed warehouse facilities. This is a company that’s been in business for nearly two decades, transacts with global lenders, is backed by sophisticated equity investors, is an issuer of rated securitizations, and is audited by a major accounting firm.

Despite that, based on our ongoing review, it appears there’s significant fraud in the collateral file that was used to support the borrowing base in all their warehouse facilities, as well as the audited financial statements of the company. The current funded loan balance for Fifth Third is roughly $200 million. While we continue to investigate the matter, at the moment, we currently estimate the loss to be substantially all of it. Needless to say, we’re deeply disappointed with this development and the impact that it’s going to have on an otherwise strong quarter and improving underlying credit trends. Our commitment to you is that we will always be transparent and that we are going to deal with issues head-on. We’ve been in the warehouse lending business for a very long time. In the wake of this development, we did review the rest of the portfolio relationship by relationship.

In fact, I personally have read the most recent field exams for similar borrowers. Based on that review, we’re confident this is an isolated issue. Turning to the other topics covered in the presentation, this has been a strong quarter for new business and commercial payments. First, I’m quite pleased to announce that the U.S. Department of the Treasury selected Fifth Third as the new exclusive financial agent and issuing bank for the Direct Express program beginning in January of 2026. The Direct Express program serves 3.4 million participants who receive over $43 billion in annual federal benefits payments on their prepaid cards. The program is the equivalent of the second largest neobank in the U.S., with similar average revenue per customer, but significantly better profitability. We currently expect the process to enroll new enrollees starting in January and to begin conversions on the existing program participants in mid-2026.

We will provide more detail on the financial implications of that in the fourth quarter. Second, as we mentioned in our second quarter earnings call, with the passage of the Genius Act, we’re quite bullish about the potential market opportunities for Fifth Third and for NewLine specifically in digital assets. I’m pleased to share that Circle, the world’s largest regulated stablecoin provider, and Fireblocks, the largest digital asset infrastructure provider, have both chosen to partner with NewLine as they expand their stablecoin payment networks. These wins are a strong market validation of our payments technology and indicative of the sorts of opportunities that we believe will continue to arise for us.

Third, as we’ve talked about on many occasions, managed services, which is where we provide software and outsourced services to large commercial clients to help them automate payment workflows, play a really important role in enabling us to grow payments revenues faster than the balance sheet. Last month, we expanded our retail receivables managed services offering with the acquisition of DTS Connects, which is a leading software platform for simplifying the management of daily cash operations by providing real-time data on transactions and inventory. DTS has a strong and diverse client base that includes Starbucks, CVS, H&R Block, and others, and is a great addition to our industry-leading cash logistics business, which has a number two national market share among all banks. Moving to retail banking, our Southeast expansion strategy continues to progress nicely. Since its inception, the de novo branch program has achieved 119% of its deposit growth targets.

As we fine-tune site selection and branch opening tactics, newer vintages of branches are actually performing better than the program overall, with branches built in 2024 and 2025 achieving 160% of their deposit growth targets. Half the consumer deposit growth for Fifth Third this quarter has come from the Southeast, and our total cost of consumer deposits in the Southeast is 1.9%, which is a very attractive cost of funds. We continue to open branches in the Southeast at a strong clip, having opened 15 branches thus far in 2025, including our first location in Alabama. We have another 35 scheduled to open in the fourth quarter alone. By the end of 2028, we expect to have nearly 600 branches in the Southeast and will have achieved our goal of top five locational share in these attractive high-growth markets.

Together, our retail banking and commercial payments strategic investments are producing strong growth in high-quality deposit categories, with commercial and consumer DDA balances up more than $1.5 billion, or 4% year over year. This growth has helped us to maintain low deposit costs while also improving the overall funding profile and should continue to do so if the Fed resumes cutting this month. As I mentioned upfront, again, I’m disappointed that the issue with one warehouse client has marred what otherwise are strong underlying business fundamentals. We expect criticized assets and NPAs to decrease again this quarter. Reflecting that improvement, we currently expect fourth quarter net charge-offs to be around 40 basis points. Our loan growth remains solid, and the midpoint of our updated guidance implies approximately 160 basis points of sequential positive operating leverage, which provides strong momentum into next year.

With that, Bryan and I are happy to take your questions.

Jason, Barclays Analyst, Barclays: Tim, that was a very informative seven minutes.

Tim Spence, CEO, Fifth Third: We wanted to make sure we left you plenty of time for questions, Jason.

Jason, Barclays Analyst, Barclays: A lot in there. Let’s maybe start with the asset impairment you announced last night. I know you just talked about one of the things you mentioned on the podium was that this was an isolated incident. I guess, what gives you confidence to say that? Maybe just talk more broadly about your asset-based financing business.

Tim Spence, CEO, Fifth Third: Yeah, yeah. Listen, I think philosophically at Fifth Third, when we have an issue anywhere, we get back to the source data, right? You go back and you do a line-by-line review. We learned about this incident last week, as I mentioned. Job one was really figure out what collateral we did have that was unencumbered and what we can do to secure that and to position ourselves for what’s likely to be a lengthy litigation exercise here given the range of parties that are involved. Step two was to look at every other client that we have in the warehouse business, whether it was a consumer asset class or otherwise, and to go back and look at the audited financials and to look at the recent field exams. We conduct third-party, or we have third parties conduct field exams on our collateral for every one of these clients.

As I mentioned in my script, I read them in addition to our Chief Credit Officer having read them, our Head of our Commercial Bank having read them, and the folks that run our asset-based finance business having gotten back into them. I think on the basis of that review, we’re confident that this is a one-off, an isolated incident in that portfolio. The third task is to take a step back and to look at our processes and to say, is there something we could have done differently that would have allowed us either to catch this or to catch it earlier, right? To catch it so that you didn’t have a problem at all or to catch it earlier so that you could manage the size of the loss. That’s really the work that is to come here.

As it relates to the existing portfolio, we’re confident that there isn’t another one of these in the warehouse lending group.

Jason, Barclays Analyst, Barclays: I guess when you look back, was this a client selection issue or a collateral management issue? How do you?

Tim Spence, CEO, Fifth Third: Yeah, I mean, by definition, when you have a fraud, it’s ultimately a client selection issue because we’re not in the business of doing business with people who commit fraud. There is going to be a fair amount of litigation on this. There are some things that I’m just not that comfortable talking about in detail. Our understanding as it stands today is that the master loan tape was corrupted. That is a collateral problem, right? In addition to that, there are irregularities in the financial statements despite there having been unqualified audit opinions on those financial statements, which is then a source of strength issue on top of that, right?

Jason, Barclays Analyst, Barclays: What steps are you taking to make sure this doesn’t happen again?

Tim Spence, CEO, Fifth Third: We’re going to do the review. We’re going to do a full review of the way that we manage collateral. We’re going to take a look at the portfolio. We have been in this business, as I mentioned, for a very long time. We have some treasured multi-decade clients here who are the absolute best at what they do, and we’re committed to serving those folks. The question then becomes, how much larger do you want the business to be? Is it the size that we want it to be today? Does it need to be smaller? Are there additional things we can do as it relates to the way we manage collateral to ensure that we’re running good with the security? Your comfort in doing business in this space is that it is supposed to be secured lending.

For the security to be worth anything, the collateral has to be good, clearly.

Jason, Barclays Analyst, Barclays: Got it. I guess you put up this slide with the third quarter provision guidance. If I do some quick math, it looks like your provision ex the fraud would have been like $50 million this quarter after being like $175 million in the last three quarters. That would have been a decent reserve relief, I would suspect. Can you help us reconcile that? Yeah. Overall, we were having quite a nice quarter heading into this, as Tim said. We were seeing obviously positive trends in the fee businesses, and we were seeing positive performance from a credit perspective as well. The NPAs and criticized assets that we’ve continued to work through and lower over time, that was on a good trajectory. For the first time in a while, the macro scenarios were not working against us.

The combination of the improved credit performance of the core portfolio, as well as those macro scenarios, were putting us in a spot where we were expecting to have a decent release this quarter. That is partially offsetting. That is the one thing I want to make sure that everybody understands. We did revise our guidance slightly on how we present the provision. The $220 to $250 million represents the total dollar provision, the charge-offs plus the build or release for the quarter. Just given that at this point in time, we don’t know how much of the $170 to $200 million of loss on the fraud is going to be charged off versus just a specific reserve. Got it. Got it. Maybe just shifting gears to Direct Express. It was interesting.

It was going from a small bank to a very big bank, and now it’s ending up, I call it a super regional bank.

Tim Spence, CEO, Fifth Third: We’re a pretty big payments bank, just to be clear, right?

Jason, Barclays Analyst, Barclays: Understood.

Tim Spence, CEO, Fifth Third: We’re the second through the sixth national market share in basically every major commercial payments gate. I think we’re pretty big.

Jason, Barclays Analyst, Barclays: Fair enough. I guess maybe let’s face it this way. You know, the U.S. Department of the Treasury ultimately gave it to you. I guess, why?

Tim Spence, CEO, Fifth Third: I think we’re well-equipped to be able to deliver on a program this scale. We’ve talked a lot about the commercial payments business, the fact that we process over $17 trillion a year in payments. We are the bank behind the largest payroll card program, private sector payroll card program in the U.S., right? We’ve talked in the past about the long and fruitful relationship we’ve had with ADP. I think the industrial strength, the knowledge of how to manage a consumer business, given the strength of our core consumer, Fifth Third branded consumer business, and then the partners that we brought to the table. Fifth Third, Fiserv, and MasterCard are going to be the partners here in terms of delivery, gave the U.S.

Department of the Treasury, as I understand it, gave the Bureau of Fiscal Services confidence that we’d be able to deliver both on the sort of a high-quality value proposition for participants in the Direct Express program on an ongoing basis, as well as, you know, what is a significant conversion exercise that clearly had been going a little bit more slowly just based on some of the remarks that have been made publicly in other cases than originally anticipated. We are the exclusive agent going forward, recognizing there’s a little bit of confusion on that front.

Jason, Barclays Analyst, Barclays: Yes, you mentioned issuing new cards in the beginning of next year. There’s $3.8 billion of deposits kind of calling on that program. How does that get from the other provider to Fifth Third? How does that work?

Tim Spence, CEO, Fifth Third: A conversion process. Essentially, you have to issue a new card in a new account. My understanding is that the way it will work is the payments will cut over onto the new prepaid product, and the customer will have the choice of moving the balances off of their existing card and onto the new one, or just spending the balances on the existing card down and allowing the balances to replenish on the new card. That is the way that these conversions have worked historically.

Jason, Barclays Analyst, Barclays: Got it. I guess that process starts in mid-2026.

Tim Spence, CEO, Fifth Third: Yeah.

Jason, Barclays Analyst, Barclays: How long do you think it typically takes?

Tim Spence, CEO, Fifth Third: We expect end of second quarter, probably too early at the moment to give you a clear schedule on the conversion. We will come back and provide guidance on the financial implications of this in the fourth quarter. That is going to be predicated on our belief at that point in time on the pace that we can move and the way that we execute the conversion.

Jason, Barclays Analyst, Barclays: Presuming we get, like, call it approaching $4 billion of non-interest-bearing deposits onto the balance sheet, how do you think about deploying that over time? Continuing down the path that we have been in terms of just balance sheet optimization. We do feel good about what we’re seeing from a loan growth perspective at this point. We’ve reaffirmed our guidance from a loan growth perspective. The trends we’re seeing are good. Pipeline is good. Our expectation is the balance sheet is going to continue to grow, and it puts us in a place to continue to have strong, stable core deposits to fund that loan growth.

Tim Spence, CEO, Fifth Third: Yeah. Yeah. Because we have elected to utilize our deposit growth strength to lower funding costs, widen margins, and improve the quality of deposit funding at the bank, I think folks have gotten a little bit confused because core deposits have been stable for us throughout the year. The DDA growth has been phenomenal, right? I mean, 4% or 5% DDA growth on a year-over-year basis is a wonderful trajectory. It’s coming from the investments in the commercial payments business, which drives DDA, and clearly on the branch density that’s being built out in the Southeast. When you add Direct Express on top of that, we’re going to be able to grow like the world. The best thing in the world would be able to, you know, fund the largest share of the possible share of the balance sheet possible with DDA.

We’re going to have three really strong mechanisms to continue to grow DDA at a mid to, you know, upper single-digit rate on an ongoing basis.

Jason, Barclays Analyst, Barclays: Got it. I guess, Bryan, you mentioned, you know, loan growth. I guess, you know, kind of looking at the results, Fifth Third kind of lagged last quarter. This quarter flat topped 1%. Maybe just talk to some of the puts and takes and, you know, maybe that number feels like maybe a bit lower than from some others that have spoken. Yeah. Last quarter, really was ultimately a utilization trend. We saw utilization growth in the fourth quarter of 2024 and the first quarter of this year in a period where I think a lot of the peers had not seen that utilization growth. Saw a little bit of reversal in the second quarter. You know, when we look at our data, it appears to line very closely with what you’re seeing out of the broader macro data with regards to inventory builds.

That is the behavior that we saw a lot of our customers, which pre-tariff, we saw a buildup of inventory, buildup of utilization. As they started to spin down that inventory, we saw the utilization come down. We didn’t really see anything that was unusual. Since basically we’ve reached the floor, which was about 36.5% early in the quarter, we’ve seen stable to growing utilization since then. That is what put us back on a more normalized trajectory for us as the distortion that was caused by that early inventory build and spin down has now out of the numbers. We’re at a 37% utilization right now, back to what we think is in that range of more normalized numbers. We’re seeing really granular strong growth, in particular out of our middle market business. That’s really across the footprint.

We’re seeing loan growth in the Midwest and the Southeast, as well as in our expansion markets of Texas and California. Very broad-based, stable, and strong growth from here and feel good about what we’re seeing.

Tim Spence, CEO, Fifth Third: I think the right measure for us, from my perspective, like you always debate, is sequential loan growth or year-over-year loan growth the right way to evaluate a business? For peers who have had shrinking balance sheets and are starting to make the turn, sequential is obviously the right point of focus. We got back to growing loans earlier than others did. My own view is that year over year is the right way to think about it because it starts to neutralize some of the seasonality that you see given the composition of our loan book. If you take the midpoint of the guidance, it implies 5.5%, 6% year-over-year loan growth. That’s pretty good. I think that stacks up actually quite favorably relative to most of the other regionals. We feel good about where we are.

Jason, Barclays Analyst, Barclays: Fair enough. I think we jumped into it. I’m going to put up the first ARS question. I guess just maybe on deposits, you guys don’t guide the deposits, but maybe just talk to in terms of what you’re seeing in the quarter in terms of rate mix or balance mix rate paid. Fed presumably cut next week. You guys have typically had a decent beta. Maybe just talk to your expectations there. Yeah. More of the same from us on the deposit front in terms of cost and continuing to drive to get to a good outcome there. I’d expect broadly stability on our deposit costs this quarter as most of the impact of the cuts from late last year have really come through and we’ve done work to optimize. We are growing deposits, which we feel really good about.

We should see about 1% sequential growth with growth on both the commercial and consumer side, as well as performance. As Tim mentioned, from a DDA perspective, the DDA trends continue to be good. That is granular, kind of grinded out slow growth. This isn’t a quarter of a big mix shift, but we feel good to be on that trajectory now of back-to-back quarters of DDA growth. We expect that to continue through the rest of the year. We’ll see a little bit of seasonality in the fourth quarter. We always have some commercial build in the fourth quarter as we head into year-end. That is what we would expect to see. From a cost perspective, exactly in line with what we expected. From this point, from a beta perspective, we still believe we can get a lot of cost out of the portfolio as the Fed cuts.

We still have $30 billion of fully indexed deposits in our commercial portfolio. We will have opportunities in our consumer CD portfolio and our consumer money market book associated with promo offers from a cost rationalization perspective. We’re certainly focused on funding loan growth in this environment as well. We are going to be more focused to be balanced on at this point in the cycle. If you were to roll back to when the Fed began the easing cycle at the beginning, we just had a view that loan growth was probably going to be a little slower. We felt like the industry had a lot of liquidity. We felt like cost rationalization was going to be a big theme. That’s ultimately what played out and why we thought we could deliver north of a 60% beta.

At this point in the cycle, we think that there’s probably going to be more loan growth, a little bit more cost competition on deposits. I’d tell you we’re probably high 40s, low 50s expectations from a beta perspective, but it’s going to be used to fund loan growth, which ultimately is going to be productive from an NII and a returns perspective. Got it. Let me put up the next ARS question. I guess you kind of reiterated your NII guide, at least for this third quarter. Let me just talk to just how you’re thinking about NII and NIM as we kind of finish up this year and kind of maybe what are some of the puts and takes as you start to think about next year. Yeah. Feel really good about the exit rate of what we expect to see at this point.

Really, the real question for 2026 is going to be about where does the Fed ultimately normalize, where do they end their cutting cycle, and ultimately what the shape of the curve looks like in that scenario. If we were to see the Fed come down a bit on the front end, that should be beneficial. I mean, we’re very sensitive to the front end from a liability perspective. From a deposit cost perspective and a funding cost perspective, that should create some significant opportunity for us. From a fixed rate loan origination perspective and a repricing perspective, which has been a big theme for us in the industry, shape of the curve is going to have a pretty big impact there. We feel good about our ability to maintain and grow NIM from here as the balance sheet continues to grow.

The ultimate level of where it stabilizes is going to depend on where the curve ends up in 2026. Looks like the audience was listening to your 320 comment. The audience call.

Tim Spence, CEO, Fifth Third: I was smiling, thinking that you need narrower ranges. This is an issue of the ranges that you’ve set here.

Jason, Barclays Analyst, Barclays: I guess maybe shifting gears to fee income, you had a nice guide up for the third quarter. Maybe just kind of delve into what’s driving that. I think your full year guide was only up modestly. I guess any thoughts on how the full year is going to pan out? Yeah. Feel really good about what we’re seeing from a fee perspective, and it was really broad-based. Continue to see strong strength at our wealth and asset management business. Commercial payments continues on its growth trajectory and a really nice rebound this quarter for capital markets. Three key businesses for us that are expected to continue to perform very well at this point. We feel good about what we’re seeing on that front. The performance this quarter obviously will have an impact on how we think about the full year guide from here.

That’ll be something that we’ll update as part of earnings.

Tim Spence, CEO, Fifth Third: Fair enough. I think to put a point on what Bryan said, the sources of strength for us are the places where we’ve been investing. You can draw a straight line between the things that we talked about in our prepared remarks on commercial payments and the sources of growth on top line fee revenue there. You can see the benefits of the investments that have been made in wealth management. We’re running with more WMAs, so our wealth advisors in the regions, than we’ve had previously. We just surpassed $3 billion in assets under management in this RIA that we built on our own. You can see where we’re getting the fee income. We talked about the movement to more of a conventional CIB structure in our corporate banking and investment banking area about a year ago.

You’re seeing the benefits of that collaboration start to play through here on the syndications and bond business in particular. The question mark is going to be how much of a pickup do we see in middle market M&A? That’s not a big part of the business, but it’s a big part of the difference between a really strong quarter for Fifth Third and a strong quarter for Fifth Third in fees. There are promising signs there, both for the end of this quarter as well as carrying into the end of the fourth.

Jason, Barclays Analyst, Barclays: Maybe put up the next ARS question while we turn to expenses. I guess, you know, other banks at this conference have kind of guided up on fee income as well, but they’ve also kind of guided up on expenses. You kind of guide up on fee income, but are kind of keeping the expense guide unchanged. Let me just talk to kind of the abilities to kind of manage costs, you know, nearer term. As you kind of think about, you know, the 2026 operating budget, how are you approaching the cost base?

Tim Spence, CEO, Fifth Third: I’m only smiling because this survey mechanism is the most clever way of eliciting 2026 guidance. It’s certainly in the year. We’re not taking the bait on that one, just to be clear. Listen, we get paid to drive consistent and strong returns and then growth in tangible book value per share. We get the growth in tangible book value per share by growing earnings. The focus for us is always on stability, strong profitability, and then growth at that level of profitability. I’m very proud of the fact that when you look at NIM and NII for a company that’s generating the loan growth, we are the business we’re doing at the margins is actually accretive to NIM, right? That’s the reason that NII has been outgrowing the balance sheet at Fifth Third, which isn’t always the case in our business.

The margins, we have worked very hard to ensure that the margins and the unit economics are great across the spectrum of the fee income businesses. I’m very proud of the fact that we’ve been able to fund about one in every $2 in investment we’ve made over the course of the past several years through reductions in expenses associated with either lean process management disciplines or automation through the technology that’s gone in and otherwise. The focus really is on continuing to drive this continuation of the strong positive operating leverage trend that we’ve had over the course of several years now and to invest in what then becomes a flywheel of growth for future years.

Jason, Barclays Analyst, Barclays: Got it. To lean into Tim’s year-over-year comparisons, you think about the midpoint of the guide that we’ve updated for the third quarter. That’s 300. It implies 300 basis points of year-over-year positive operating leverage in the three quarters. We’re delivering good outcomes. We’re going to stay focused on expenses in terms of being rational with how we think about getting efficiencies out of our company. We’re going to continue to invest in the company as well. We see opportunities there to deliver returns and deliver growth at a faster rate.

Tim Spence, CEO, Fifth Third: We get questions on occasion about are we investing enough? I always chuckle because I think there’s no one other than JPMorgan who’s built more branches than we have in the markets we’re building into the key sales forces, right? We had this focus on more granularity in the commercial business. The middle market sales force is up double digits year over year. The wealth management sales force is up, not including Fifth Third Wealth Advisors, high single digit, low double digit rate. Plus, you add in the Fifth Third Wealth Advisors hires, and we’re operating with more sales and client service capacity than we’ve ever had in the wealth management business. We’ve been able to successfully integrate several of these small tuck-in acquisitions and commercial payments, and those have been a big catalyst for the growth that we experienced.

That’s in the run rate in terms of what we’re doing from an expense management perspective. I’m really excited about some of the things we’re going to be able to do with the technology that either has gone in or that will go in and the degree to which it’ll provide a platform for us to make use of AI to drive even more efficiency in the business. We look at it and think we have a pretty full investment plate, but we’re getting positive operating leverage like Bryan described anyway, you know, as opposed to having to make a decision between near-term profitability and long-term value.

Jason, Barclays Analyst, Barclays: Got it. Just on the capital fund, you did the $300 million ASR.

Tim Spence, CEO, Fifth Third: Still 8:00 A.M.

Jason, Barclays Analyst, Barclays: This is ASR. Sorry, share buyback. I guess how should we think about just buybacks in the future and capital management in general? Yeah. I mean, our priority is always organic growth first and foremost. If we can find the right opportunities from a lending perspective, that is the first place that we’re going to go from a capital deployment perspective because we think we can generate the best returns there and deliver the best book value growth for our shareholders over time by just our core banking businesses. We’re going to maintain a strong and stable dividend, and then ultimately share buybacks are what’s left from a capital perspective to make sure that we’re not sitting on underutilized capital. Historically, we’ve probably been in a range of $100 million to $300 million a quarter.

That would be the kind of thing that I would think we would be able to stay in given what we would expect to see from a growth and a profitability perspective. Maybe in terms of another use of capital, the acquisitions, maybe we’ll talk non-bank acquisitions first. You mentioned the DTS Connects acquisition. I guess what else do you think you need? What else is out there? Kind of what are you looking for in the non-bank space?

Tim Spence, CEO, Fifth Third: We are believers that if you’re buying things in the non-bank space, you have to be confident that there’s franchise value and that you can get real synergy on the revenue side because generally there are just not a lot of expense opportunities in those sorts of deals. The principal costs outside of commercial payments are the people, and that’s what you’re getting in the transaction. We have not been believers in growing the talent-driven businesses through M&A. You end up paying for the company and then paying to retain the talent. Quite often, five years later, when the retention agreements are up, paying to keep them again. Therefore, the returns just aren’t great to shareholders.

On the other hand, we’ve had great success where the asset that we’re acquiring is the software package and the embedded user base and then the engineering capability and where we can attach that technology to our scaled payments processing and drive faster growth, right? Either more adoption of the software because we’re able to introduce it to existing clients. I think in particular, from my point of view, where we can operate with the Gillette razors and blades model where the software is the razor and the tip of the spear offering that allows us to add a payments client to Fifth Third who isn’t a borrowing customer and then to generate the recurring revenue from the payments behind it. That’s the sort of a business that we like. The strategy there has been very focused on verticals.

Where are there industry verticals that have complex payment needs that we have some existing expertise in? We bought Big Data Healthcare. That’s healthcare receivables. Again, automates what’s otherwise a very manual and messy recon and allocation process for large practice groups or other provider networks. DTS fits squarely in the retail receivables business that we have. We have done some things where we had minority equity investments in folks that had broader B2B payables offerings in the past. In fact, I think I spoke at your payments conference like eight or nine years ago with a couple of the folks we were doing those sorts of things with. Those are the sorts of strategies that we like in the non-bank acquisitions market. It really is about buying a capability that allows us to drive out operational expense for clients and then appending the payments processing behind it.

Jason, Barclays Analyst, Barclays: Makes sense. I guess maybe shifting gears to the bank M&A front, there’s certainly been more transactions announced, more chat in the marketplace. You guys have done well, have a strong currency. No one put a deck out over the summer with some interesting math. Just maybe talk to your appetite for bank acquisitions.

Tim Spence, CEO, Fifth Third: Yeah, I don’t think it’s any different than the answer we’ve provided on this one, which is we’re not believers in M&A as a strategy unto itself, in scale as an end objective unto itself. We look at M&A as a means to achieve an outcome, right? When I talk about our key strategic priorities, we want density. We’re believers that leading market shares and being big in the markets where you compete is the right way for a large regional bank to operate as opposed to being in as many different markets as you can be. We’re believers in the value added and in the application of software to transform the value proposition with customers. That clearly has been the focus of the managed services strategy of the things that we’re doing in embedded.

We are believers in the value and having the ability to continue to invest in technology and customer acquisition and otherwise. Those are the things that are priorities for Fifth Third. The question is always then what’s the opportunity cost of any choice? We have an organic expansion strategy that’s worked quite well in the Southeast. We’re not talking about building branches. We have been building them in markets where we already had them, right? They’re significantly outperforming the deposit targets that we set for them at the time that we did the modeling on a site-by-site basis of what would be required to generate a 15+% IRR for making those sorts of investments. Those are granular investments. They’re like $5 million capital allocation decisions, one at a time, as opposed to larger bets.

For us to make the decision to go inorganic to achieve the goals that we have, we have to believe that we could either get our cash back faster than we get them back through the organic expansion activities, or that we can generate an IRR that’s significantly, you know, that is good enough to justify the increased execution risk associated with buying something and having to deal with it all at once as opposed to building it one by one by one. That’s the framework. That’s the way that we think about these things.

Jason, Barclays Analyst, Barclays: Fair enough. Tim, you talked a little bit about stablecoin and the new announcements with Circle and Fireblocks. It’s something we kind of struggle with in terms of how this all pans out. You obviously have a nice tech background. Ultimately, what do you see as the kind of a use case for stablecoin? Does it disrupt the banking industry as I’m concerned? I’d just love to hear your thoughts.

Tim Spence, CEO, Fifth Third: Yeah, I think the right question ultimately to be asking. I mean, having a legal framework was very important, right? There is value in digital assets and real utility in the technologies that underpin digital assets in the financial world. That I view as being unambiguous. There had to be a legal framework that governed what good looked like there. With that framework being in place, I think we’re going to see the emergence of really high quality, well run, regulated companies like a Circle as an example emerge and continue to grow. That’s the view. The question though isn’t what is, are these things legal and therefore what could the disruption risk be? The question really needs to be why would a customer choose to either hold a store of value in a stablecoin or to use stablecoin rails for transactions versus an alternative payment mechanism.

My view is if you do that analysis, the risk of disruption to the domestic market for transaction accounts and domestic payments is not high. The simple basis for that is, 85% to 90% of the interactions we have with our customers today are digital. We are in the digital currency business. It’s just, it’s digital fiat in your checking account as experienced by you through your mobile app and spent by you through one of a wide range of payment mechanisms. One, two, those payment rails are low cost to the consumer. Nobody pays us to use a debit card. Nobody in Momentum Banking pays us for access to their checking account, right? There isn’t a cost advantage to the consumer. The payment mechanisms that are available in our existing accounts are ubiquitous in terms of their acceptance.

There’s no question of where the payment can or can’t be used. I think the argument that gets made in domestic is, look at the cost of credit cards. Merchants aren’t accepting credit cards because they want a higher cost payment mechanism. They’re accepting credit cards because their customers want to pay with them. Why do they want to pay? Because they get rewards, which by the way are funded by the interchange, right? Or they want Open to Buy. They want the credit line that’s attached to it and the float benefit, which of course doesn’t exist by definition with a stablecoin or an instant payment that is attached to a deposit account or otherwise. Now, could a digital asset company build a rewards proposition or Open to Buy and float around a digital asset payment? Sure. Those things have costs.

If they have costs, it means there’s going to be a higher acceptance cost on the merchant side of the equation. I think where the really interesting opportunities are is where you don’t have existing payment rails that are interoperable, which is principally in cross-border payments today. There is some really far out stuff that we’ve seen and talked to folks about that involve essentially the infinite divisibility of stablecoins, which will be useful in fractional payments on the internet and otherwise. The cross-border applications are where I think a lot of the early action is going to be here outside of folks wanting to keep fungible collateral posted on chain because they’re investing in crypto, but they want to go to bed at some point and get a little bit of sleep.

Jason, Barclays Analyst, Barclays: Perfect. On that note, please join me in thanking Fifth Third for their time today.

Tim Spence, CEO, Fifth Third: Thank you.

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