Fifth Third Sees Embedded Finance as a Growth Engine as Comerica Deal Looms

Fifth Third Bancorp’s third quarter results showed growth in demand deposit accounts, embedded payments and limited exposure to NDFIs.

During the conference call with analysts, CEO Tim Spence took note of the recently-announced Comerica deal and said that “the revenue and expense synergies from Comerica should produce a well-diversified, even more profitable company with even better long-term growth.”

The company’s loan growth stood at 6%, and average demand deposit growth of 3% was outpaced by consumer DDA growth of 6%.

The company added 13 branches in the Southeast and management said that the company is on track to open 27 more branches by the end of 2025. “Consumer households across the Southeast increased by 7% year over year, more than four times the rate of underlying market growth,” Spence said.

“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 U.S. metro areas … 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,” Spence said.

Growth in Embedded Finance

With a nod to commercial payments and specifically the embedded finance platform, fees grew by 3% from the most recent quarter and Newline revenues were up 31% as deposits grew by more than $1 billion, to stand at $3.9 billion at the end of the most recent quarter.

“We expect New Line to sustain its growth as transactional activity ramps from the rollout of Stripe Treasury and many other category-defined payments customers who build on New Line’s APIs,” Spence said. Company materials indicated that within the consumer portfolio, 30 to 89 day delinquencies were 0.47%, flat with the previous quarter and down slightly from a year ago.

CFO Bryan Preston said that Provide, the FinTech lending platform for practice finance, continues to drive growth, with balances up nearly $1 billion over the last year and told analysts that  “pipelines for middle market and corporate banking remain strong heading into year-end … we remain focused on granular insured deposits, growing average consumer and small business deposits by 1% sequentially.”

The net charge-off ratio was 109 basis points for the quarter, which includes $178 million in net charge-offs from Tricolor, said Preston.

“The broad consumer portfolio remains healthy, with non-accrual and over 90 delinquency rates stable to improving across loan categories,” he said.

Management guidance called for loans to be up by 1% in the months ahead, driven in part by consumer lending. The total year adjusted revenue growth is projected to be 5%.

Fifth Third shares were up 1.3% at the close of trading on Friday.

As has been seen with other bank earnings call, the discussion turned to NDFI.

“It’s a portfolio that we have maintained at low levels. We’re at one of the lowest levels of NDFI concentrations of large banks. We’re at about 8% of the total portfolio,” Chief Credit Officer Greg Schroeck said.

33% of the book is tied to real estate and “about 24% of the NDFI balances are to payment processors, insurance companies, brokerage firms, and 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 right now.”

During discussion about tariffs, Spence related that among commercial clients, and with detail on one specific unnamed client, “the quote of the quarter went to the client who referred to his outlook as, quote, ‘nauseously optimistic.’

“The tariff 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 … the question mark really has been what would be the, who would bear the brunt of the tariffs?” Spence said.

He continued: “I would say now on balance, there’s a sort of a shared pain approach here where the supplier, the intermediary, and the customer are each absorbing about a third of the increased cost … 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, or the folks that are attached to AI.”