Fifth Third Bancorp (FITB) Earnings Call Transcript & Summary

Large cap banks for Barclays. We're very pleased to have Fifth Third with us this morning. From the company is Tim Spence, who you could see on the screen. Unfortunately, last-minute hiccup Tim can't be here in person, but will be participating over the webcam. Just so you know, Tim takes over as Fifth Third CEO in July from Greg Carmichael, the bank's CEO, who recently announced his retirement. Tim has an impressive background, including serving as the bank's President. He had previously held the role of Chief Strategy Officer and was also Fifth Third's Head of Consumer and Payments functions. Prior to joining Fifth Third in 2015, Tim was a senior partner in the financial services practice at Oliver Wyman and worked directly with Fifth Third as a consultant to the bank and to Greg. Of note, in 2018, American Banker recognized Tim as Digital Banker of the Year, an award shared with top forward-thinking leaders from the nation's largest and most dynamic financial institutions. Tim is going to kick it off with some remarks, and then we're going to take it over -- turn it over to Q&A. So with that, let me hand it over to Tim.

Good morning, Jason, and good morning, everyone. Thank you for the kind words. Jason, as you mentioned, I wish I could be with you all in person. But at the end of last week, I tested positive for COVID-19. I'm fortunate to be experiencing really mild symptoms, thanks, of course, to the vaccines. But needless to say, it interrupted my travel plans, such as the life and the time of COVID, I guess. As you mentioned, I'll have a few prepared remarks as I go through the presentation, then we'll do some Q&A. I do apologize in advance if there are any technical issues. Our CFO, Jamie Leonard, and I'll do our best to make this as seamless as possible. So as Jason mentioned, last month, Greg announced that his plans are to retire as CEO effective in July, a position that he has held since 2015, at which time he will become the Executive Chairman, and I will assume the role as Fifth Third's next CEO. For those of you whom I haven't had the pleasure meeting, I have been a part of Fifth Third's executive team since 2015, as Jason mentioned, helping to develop the strategies and the vision that we're executing today with a real focus on innovation, technology and in citizenship in our communities. I've been President since 2020 with direct responsibility for all our business lines and regions as well as our corporate strategy. And it truly is an honor to serve as the bank's next CEO and to follow in the footsteps of a really incredible leader like Greg. Let's move to Slide 3 of our presentation. At Fifth Third, everything we do is rooted in our purpose just to improve the lives of our customers and the well-being of our communities. We believe we can only be successful over the long term if we generate sustainable value for all our stakeholders. We activate our purpose every day through our core values and the vision to be the one bank that people most value and trust. And that's what makes our culture unique. It allows us to fully support our customers, communities, employees and shareholders. Turning to Slide 4. We believe there are four primary factors that differentiate Fifth Third as an attractive long-term investment and steward of your capital. First, we are a leading financial institution with the scale we need to compete in a large addressable market. Second, we have transformed the bank to deliver strong and steady performance through the cycle. Third, we are strategically positioned to capitalize on the macro trends and are intently focused on taking market share through differentiated products, superior service and our unique One Bank delivery model. And fourth, we will maintain our disciplined approach to deploying capital in order to support organic growth, pay a strong dividend, fund nonbank acquisitions and execute share repurchases. Bank acquisitions will continue to be a lower priority as they have been for many years. As Slide 5 highlights, Fifth Third is one of the 10 largest banks in the U.S. as measured by total assets, total loans, total deposits, assets under management and payments. One thing that distinguishes Fifth Third is the fact that we have achieved a top 10 position in these categories, primarily on an organic basis. As shown on Slide 6, our business mix is simple, but well diversified. We deliver a holistic relationship-based banking experience, primarily through our 11 state regional banking footprint complemented by select national, consumer, lending and commercial banking business lines where we have domain expertise. Our business mix has been constructed deliberately to produce a balance between consumer and commercial lending, a stable low-cost deposit base and a high proportion of fee income from value-added services. We manage our portfolio actively and prune or exit businesses or product lines that do not fit our risk-return profile. All of these factors help support a strong through-the-cycle performance profile. Turning to Slide 7. As I mentioned, our 11-state footprint spanning from Michigan to Florida is a large addressable market. If our footprint states were a stand-alone economy, it would be the third largest in the world. Our regional markets are strong and primarily composed of the sorts of midsized metro areas, which have produced the majority of U.S. population growth the last several years. Our markets have a strong mix of industries like manufacturing, business services, health care, retail and technology. Our business is concentrated where we are a leader. We maintain a #2 market share in our core Midwest franchise and are ranked #6 by locations in our key Southeast markets. We are a top 5 bank in 22 major metro areas where we compete and a top 10 bank in over 30 markets. Approximately 80% of our deposits are in metro markets where we have a top 5 market share, higher than most of our peers. As shown on Slide 8, we are proud to be recognized as a leader in corporate sustainability. We remain steadfast in our belief that we are most successful over the long term when we take care of all our stakeholders. Of the recognition we have received, I am particularly proud that we were recently named one of the world's most ethical companies by Ethisphere, 1 of just 5 banks globally and we were recognized as the #1 large bank in the U.S. for taking care of our customers during the COVID pandemic. I'm also proud of the proactive actions we continue to take for our customers and employees, highlighted by our deliberate multiyear reduction in punitive consumer fees well before it became an industry topic, resulting in our now having the lowest revenue concentration in punitive fees, among peers. And our recent announcement that we are increasing our minimum wage to $20 an hour, a first among our peers despite already being in the top quartile for employee retention according to leading research. Slide 9 demonstrates how significantly Fifth Third has transformed compared to a decade ago. We have grown our balance sheet by 80%, all organically except for the $20 billion acquisition of MB Financial. We have deliberately focused on growing and diversifying our fees, and now produce the highest ratio of fees to total revenue among our peers. Our branch footprint has also evolved meaningfully with almost 30% of our branches now in the Southeast. Our return on efficiency ratios have improved dramatically as has our credit performance. The Fifth Third of today is now in the top quartile among peers across almost all key profitability and credit quality metrics. Slide 10 highlights the long-term commitments and actions we put in place several years ago to generate strong financial results and perform well through a full business cycle. We have established a track record over the past several years of doing what we say we're going to do. We have a great culture of accountability and operational discipline and continue to reengineer expense savings while investing for the future. We believe this discipline ultimately produces superior, consistent and sustainable financial performance. Looking forward, we will remain mindful of the long-term structural shifts taking place, such as the evolving geopolitical environment, population aging, government debt levels and Central Bank tightening that will create winners and losers over the next decade. We have positioned Fifth Third strategically to capitalize on the opportunities and to prudently navigate the risks. As Slide 11 highlights, one example of this is the strength of our Midwest footprint and our leadership position in the manufacturing [ sector ]. These Midwest markets possess skilled labor, major research universities, logistical advantages and a low cost of doing business that will enable them to benefit disproportionately as we see more companies strengthen U.S. supply chains and onshore production. Two recent examples are just down the road from our headquarters. In Central Ohio, Intel recently announced plans to build what is expected to be the world's largest semiconductor fabrication facility. It's expected to bring over 10,000 jobs to the U.S.. In Northern Kentucky, Amazon recently completed construction of a $1.5 billion Prime Air Hub facility, the center of Amazon's U.S. cargo network. We are seeing similar investments from the auto industry as major manufacturers retool supply lines for electric vehicles and domestic battery production. With experienced banking U.S. subsidiaries of foreign firms dating back to the 1990s and is one of the only regional banks with offices in key international cities, including London, Fifth Third is uniquely positioned to capitalize on these sorts of opportunities. We are also well positioned to take advantage of demographic trends. Slide 12 provides some details on our Southeast footprint and our high-priority metro markets. We are the sixth largest bank in these markets with $30 billion in deposits. We generated household growth of 7% in the Southeast last year, which is 8x the industry average in those markets, and which was led by 11% household growth in North Carolina. We expect to add 25 to 30 next-gen de novo branches every year, which will help us achieve a top 5 locational share in most of our Southeast markets by 2025. As Slide 13 highlights, we are leaning into the digital transformation of banking with products like our award-winning momentum banking offering. Momentum is unparalleled among peers, combining the best of innovative fintech product functionality with the strength, access and human touch of a traditional bank. It offers the broadest array of solutions to get access to your money, including free access to your paycheck and other recurring ACH payments up to 2 days early, free overdraft protection, on-demand short-term advances through my advance to help you out in the pitch and algorithmic smart savings to help customers save automatically. Our Momentum product has resonated with our customers and most strongly with millennial professionals with a median age of 37 and average deposit balances of $10,000. Moving to Slide 14. Our focus on digital product innovation extends to our commercial payments business as well. We have been deliberately investing in our treasury management business for several years with a focus on providing digitally enabled managed services, including automation services, like Expert AR, Expert AP and cash management solutions. In fact, Jason, I remember, I believe in 2018, we hosted a panel at the Barclays Payments Conference focused on this particular topic. We were already well positioned heading into the pandemic and demand has accelerated over the past 2 years, as clients face the increasing need to digitize and automate their back-office functions. Our TM revenue as a percentage of total revenue is the highest among our peers. Our TM solutions drive new quality relationships to the bank and provide a significant source of growth in operational deposits. We are going to continue to invest in differentiated and digitally enabled services to support our key industry verticals. As shown on Slide 15, we have also invested through acquisitions such as Provide, a fintech healthcare practice finance firm tailored to small and medium-sized practices. Provide focuses on dental, veterinary and vision segments and delivers a best-in-class experience through its digital capabilities. We're very excited about the opportunities for growth in front of us with Provide with strong origination volumes expected this year, reflecting a strong pipeline, product capabilities recently added and key talent hires. This is a relationship business for us and a source of high-quality loan growth. Slide 16 highlights another strategic fintech acquisition, this time of Dividend Finance, a national point-of-sale consumer lender focused on the rapidly growing residential solar and sustainable home improvement markets. Dividend has strong relationships with a robust contractor network, offer sales and project management solutions through a state-of-the-art technology platform and has a customer footprint focused on prime and super-prime borrowers. By financing consumer renewable energy solutions, combined with our existing leadership and providing renewable solutions to commercial clients since 2012, we are supporting the transition to a more sustainable economy and furthering our ESG leadership position among peers. Slide 17 summarizes the key aspects of our balance sheet management, which is focused on long-term performance. First, we are asset-sensitive and well positioned to outperform most banks in the industry from a net interest income perspective. We expect NII to increase 13% to 14% in 2022 and expect net interest margin to expand approximately 70 basis points by the end of the year. At the same time, as prudent risk managers, we are always focused on mitigating downside risks over the long term. During the second quarter, we have added $6 billion in additional forward starting swaps in order to provide long-term hedge protection into 2031. Second, we have been waiting to deploy the excess liquidity generated over the course of the past 2 years. During the first quarter, as we achieved our targeted entry points, we grew our securities portfolio by $13 billion. We continue to maintain a differentiated securities portfolio, improving our allocation to bonds with structural protection against reinvestment or extension risk. We believe our prudent approach and persistent focus on maximizing long-term value, rather than current period income, will result in a continuation of our peer-leading yields for years to come. Last, we focus on managing credit exposures in our loan portfolios with continued discipline on underwriting standards and client selection. In the consumer portfolio, we have a prime and super-prime focus with a weighted average FICO score of 765. In commercial, our C&I manufacturing portfolio is diversified across many subsectors and geographies. Our CRE allocation is the lowest among our peers, and we have a much smaller leveraged loan portfolio. While credit quality remains benign and we don't see any particular portfolios of concern at the moment, we are mindful that the Fed's rate hikes could lead to an accelerated normalization of industry credit losses. We've maintained our credit discipline and expect to outperform peers if and when the cycle turns. In summary, Fifth Third is a different bank today than the Fifth Third of a decade ago. We have delivered on our commitments, and remain focused on generating long-term through-the-cycle performance. We have significantly improved our franchise and financial performance and will sustain the management discipline and commitment to customer-focused investments in our markets, our products and our tech platforms. We will continue to deploy capital prudently where it fits our strategic objectives to maximize long-term profitability. I'm really excited about the future at Fifth Third, and as I said earlier, I am humbled and honored to serve as its next CEO. While 2020 was a difficult year for all of us, I truly believe that the 2020s will be Fifth Third's decade. With that, Jamie and I are happy to take your questions. Thank you.

Tim, thank you very much. Appreciate the remarks and hope you're testing negative pretty soon. I guess -- first off, I guess, congrats on taking over the CEO role in July. We've gotten to know you well over the years through conferences and whatnot. But maybe you could tell us what you're most excited about as CEO? And do you imagine any major strategy shifts now with you at the helm?

Absolutely, Jason. And I appreciate the comment and the kind words. Look, as you mentioned, I have been with the company for several years now. So the expectation that you should have is there's going to be a real continuity in strategy. I think I'm fortunate to be inheriting the bank in as good a position as it probably has been at any time since I have been inside the company or following the company from the outside. So continuity really will be the focus. You should expect us to continue to invest in building out our geographies and our geographic footprint. You should expect us to continue to accelerate the investments that we're making on product innovation, and you should expect us to see through the fundamental tech transformation of our legacy platforms for a modern environment. But the focus really is going to be on continuity, maintaining our discipline and our strategic focus.

Got it. I guess maybe shifting gears to loan growth. It's a question or a topic that comes up quite a bit. For the full year, you've talked to average loan balances -- or total average loan balance is up 5% to 6%. So maybe just talk about the drivers of this. Q1, you saw some pretty good commercial loan growth an acceleration there? Just maybe has that continued to the second quarter? I noticed in the appendix of your slide deck, utilization rates ticked up in April from what we saw in the first quarter. And just maybe additional color in terms of what areas you're seeing some strength and maybe some weaknesses.

And maybe, Tim, since I came all this way, I'll take that one. Cheers mate. That's all I've learned on this trip. And in terms of loan growth, Jason, we did have in April, an uptick in line utilization of 1%. So we moved from 36% to 37% in the month. So C&I growth continues to be robust. The uptick, unlike the first quarter where it was more driven by the corporate banking book, this month was driven predominantly by the middle market book and it was more from feedback from clients related to inventory builds. And I think the mentality of the customer book, what Tim and I hear as we visit the markets and have discussions with our credit teams is that middle market companies are really continuing an emphasis on if I can get the inventory, I can sell it. And therefore, that is what's driving these line utilization upticks and such that we're getting pretty close to normalized levels on line utilization. Now with that said, from a C&I perspective, going very well. We continue to expect 5% to 6% loan growth this year on an average basis, up 2% to 3% sequentially because the C&I does better. We continue to throttle back auto as one of our focuses is to emphasize those businesses that generate better returns and continue to deemphasize those businesses that have inferior returns. And right now, the auto market is one that just continues not to hit the return hurdles that we're focused on. And therefore, by adjusting price, we're slowing down volume so that net-net, our loan outlook remains up 2% to 3% for the second quarter.

Got it. And I guess sticking with the balance sheet. In Tim's remarks, you mentioned buying $13 billion in securities in the first quarter, and that was after being very patient throughout the last couple of years. Can you talk to in terms of kind of how you're thinking about the securities book going forward in the current backdrop?

So we were very pleased to be able to get done what we were able to get done in the first quarter. We've continued to add some securities. Our goal was to add $2 billion of additional leverage in the second quarter. So we're tracking nicely to that, continue to see attractive yields, and we continue to be focused on adding structure to the portfolio so that the [ blend ] locked out percentage continues to edge up a little bit. So perhaps we'll finish in the 65% range at the end of the quarter. I was flipping through 10-Qs last night because I couldn't sleep from Jet lag, and I saw that a few of our peers had some duration extension forced upon them in the residential mortgage book and some of these portfolios expanding more than a year. For us, our goal in managing the securities portfolio is to add duration when we want to add duration, not add duration when the market forces us to. And so that's really the guiding principle and what you've seen in our portfolio where we've, on purpose, added a little over half a year or so to the duration of the portfolio. And then as you saw in Tim's presentation, this quarter, we've been focused on adding protection to the out years. So we did add $6.3 billion of receive-fixed swaps, 1 year forward starting, 7-year on average is what it blends out to. So really the focus being to replace the maturities that we have in the swap book in '23 and '24, then the new ones will start up. So no impact to the 2022 NII outlook from those swaps, but rather just added protection as we look forward to Tim's role as the new CEO of Fifth Third.

I guess on the 2022 net interest income outlook, you kind of reiterated or Tim, reiterated guidance by 13% to 14% growth this year. But I noticed you put in a new disclosure of a 3.25% NIM for 4Q '22, which if I look at consensus, it's closer to 2.95%. So that's a bit higher kind of exiting this year, which I expect as implications for next year. Just maybe just talk to some of the drivers of that, maybe where you think people are kind of missing? And is that the right interpretation?

So definitely, your write-up was on point this morning, that is the right interpretation. As we were leaving the earnings season and looking at how consensus was shaking out, certainly, the guide of 13% to 14% NII is what we expect to deliver. But when we were looking at how the models were coming together, the NIM was one that caught our eye that perhaps we didn't do as good a job explaining all of the balance sheet movements in building those models. And really, as you and I were talking about, it's more of an impact on the 2023 outlook that as we exit the year, fourth quarter of 2021, we exited at a 2.55% NIM. We're looking to 3.20% to 3.25% in the fourth quarter of 2022 and that NIM improvement, certainly driven by the NII but continues to be up 13% to 14%. But more importantly, as we've repositioned the cash into the portfolio. We do have modeled some deposit runoff in the second quarter related to those nonoperational deposits in that $5 billion range, and those deposits will certainly -- the loss of those deposits will certainly help improve the NIM. And so overall, we feel that the balance sheet is very well positioned with strong earnings potential into 2023 and that was perhaps the one thing that was missed in our earnings call that we wanted to highlight.

And just maybe just expand up on deposits. You kind of mentioned some runoff in the second quarter. Just maybe talk to kind of how you think about that for the cycle, Q2 starts I guess, June 1. So both kind of a level of deposits and just maybe your thoughts around deposit betas in the current backdrop. Betas the first 25 didn't really have any impact on pricing, we've gotten 50 since the quarter ended. And you maybe talk to in terms of anything you're seeing there?

Sure. The deposit outlook for the industry is one that certainly gets a lot of attention. It's been over the last 100 years or 2 years that the industry was not able to grow deposits and that was in World War II. So the industry year in and year out, does a good job of growing deposits. However, this year, might be one of those years where the industry is stable or even down slightly. But that, I believe, is solely driven by the fact that the industry is so well positioned with liquidity heading in to the year where loan-to-deposit ratios are 20% better than they were heading into the last tightening cycle. So in other words, the banks can afford to have some deposit runoff. And what we've seen in April, and we expect there'll be a continuance of this is that some deposits ought to find a better home. There are some deposits that are 100 beta type of customer demands in order to keep it. Those are not deposits we're looking to maintain on our balance sheet, and that's fine that they depart. So for us, when you look at the March balance sheet, we had $15 billion of excess cash. If we had $5 billion of deposit runoff, even if all of that were in the second quarter, that would be great. That's targeted to nonoperational deposits and more of that commercial surge deposit book. So for us, then leading into the deposit conversation -- the deposit beta conversation, it's maintained our pricing discipline. And if there's a volume impact for that on the deposit side, that would be fine. So for us, we're targeting a 15% beta on the first 125 of moves and then 25% beta by the end of the year, so call it, on the first 200 basis points of move.

Yes. We have the benefit, Jason. This is where the focus on treasury management, the focus on primary banking relationships is so important, having sustained that focus over a period of several years now we have the benefit of being a little bit more disciplined because those impressed deposits that you get from your treasury clients are operational in nature. They really don't react to swings in rates or alternatives. And on the consumer side of the equation, it's the same story.

I guess there is a concern out there that betas will see higher outcome than we saw last cycle just given the advent of more kind of digital direct bank players. And at the same time, just how quickly the Fed is expected to move this cycle versus last cycle. And I get the fact, Jamie, your comments that loan deposit ratios are a lot lower heading into the cycle than maybe last cycle. But I guess, any concerns in terms of there may be risk to that beta assumption?

So we did raise the beta expectation because of those concerns last quarter. So we had originally been targeting the 20% beta with the Fed moving faster in 50 basis point movements as opposed to 25. We raised our beta expectation to 25%. I think the segmentation of the book, where the wealth and asset management portfolio should have the highest beta, the commercial deposit book should be really right on the average that we're talking about. And then the retail book because of the enhancements with momentum and it's -- the value proposition and the trade-off from the retail perspective is that they're willing to -- a consumer is willing to accept a lower deposit beta in an uprate environment for all of the other services that they received for free. And so that really anchors back to our best-in-class customer service, customer satisfaction, and the rollout of these products that we believe we ought to do a little bit better on the retail side. So that on a blended basis, we're a little bit better on the deposit beta than we were last cycle. If that were not to play out as we expect and betas are achieved the industry average of last time or even a little bit higher, it's still productive for us given how the balance sheet is positioned, but certainly would have an impact on that NIM guide that we talked about.

Got it. And then I guess on expenses, you guided to basically flat expenses this year, excluding the impact of some of the acquisitions you talked about. Some banks are seeing higher expenses. So I guess on one hand, Fifth Third being managing expense as well. On the other hand, maybe we should be concerned, Jamie, investing enough to stay competitive for the future. Just how should we, I guess, be thinking about -- or how are you kind of thinking about expenses in the current backdrop and the thoughts around just kind of positive operating leverage going forward?

So we're pleased with what we've been able to do from an expense discipline perspective. As you mentioned, standalone expenses roughly flat year-over-year. But underneath that headline number are flat, there is a lot of activity, where, as mentioned in Tim's prepared remarks, we're very focused on expanding both the branch network and the sales force and the Southeast. We continue to invest in technology, a 10-plus percent expense growth rate in technology. So what we've been running at. We expect that will continue for several years to come. So we are making a lot of investments, but we've been fortunate to be able to lean out a lot of the costs through automation, vendor savings and then we did close 42 branches in the first quarter, mostly in the Midwest as we continue to rightsize the network in some of our legacy markets. So we have those opportunities. We've utilized them and then the focus being, let's deliver 3.5 points of operating leverage -- positive operating leverage and efficiency ratio improvement and let that NII benefit drop to the bottom line to benefit the shareholders.

Got it. And then Tim mentioned higher rates potentially having credit quality normalized faster than expected or maybe [indiscernible] have otherwise. But yes, I think for charge-offs this year, you guys are guiding to like 20, 25 basis points, which is, obviously, a fairly benign figure. Maybe talk about how should we be thinking about that normalization process? I guess how long do you think it takes to kind of get to normalized losses and maybe your view on normalized losses? And then with that, we did see some modest reserve build in the first quarter. How should we think about the reserve against this backdrop of rising rates?

So the outlook for the second quarter and the year is the 20 to 25 basis points of losses. As we look out to 2023, we're modeling through the CCAR process and other stress testing, 25 to 35 basis points of charge-offs. And from there, we'll see if we normalize in that 35 to 45 basis point range after that or if the improvement in the loan portfolio, both from a commercial and consumer perspective, are enough that perhaps you would with a soft landing, maybe you end up in the 25 to 35 range, longer term, we shall see. We're very happy with how we've underwritten the portfolio, client selection. And the consumer continues to do very well. We were -- Tim and I were looking at this last week and preparing for your Q&A on how is the consumer doing? And we're seeing the deposit balances at least within the Fifth Third portfolio is that lower segments within consumer continue to have significant amounts of excess cash. And thus far, we're really not seeing an uptick in credit trends that would be concerning. We think the portfolio is going to do well, looking forward to 25 to 35 basis points of charge-offs in 2023.

That's good. But stock market seems to be telling us something different.

Yes. It's hard to tell if it's the recession fear factor or reality in terms of the Fed's actions, and ultimately, what happens to the economy. We were chatting last night at dinner that there have been 17 Fed hiking cycles and 14 of them have ended in a recession since the Fed opened up business. So could this be the fourth that results in the soft landing? It looks like if Powell can repeat the '94, '95 Greenspan actions, then it looks like that's the path we're on of faster, aggressive hikes that it may be able to deliver the soft landing. But as Tim mentioned in his prepared remarks, if we were to have a downturn in the economy, we believe we've taken the right steps to protect NII over the next 6 or 7 years to a downrate scenario, and the improvements we've made in the credit portfolio really make Fifth Third a much different bank than we were a decade ago.

Maybe shift gears to just the acquisitions. Tim highlighted Momentum -- not Momentum, Provide and dividend in terms of acquisitions. Can you talk about in terms of kind of what other kind of nonbank, either fintech or otherwise, acquisitions kind of may be interested in kind of what kind of fit, [ you're missing ], and kind of where the focus is in that area.

Sure. Absolutely. As you mentioned, from a capital priority perspective, our number one priority is always to fuel our own organic growth. And then behind that, nonbank acquisitions, paying a strong dividend and share repurchases have been the priorities in order. Those you should expect to stay consistent. Bank M&A is just not going to be a high priority for us, given the strength of our organic growth prospects and the ability that we have had to continue to grow organically. You've seen us make nonbank acquisitions in essentially 2 areas. Either we have been acquiring firms that provide value-added advice on the wealth management side of the business or the capital markets business that allow us to really change the nature of the relationship that we have with our commercial clients or our high net worth clients or you've seen us acquire fintech companies who have technology and a proven business model that allows us to accelerate our transformation faster than we would be able to do if we were just doing it organically. So if you think about where we would be looking going forward, I think we have been vocal about the fact that we felt we were missing a fintech-enabled point-of-sale platform that we -- like the home improvement and renewable energy space. We have that with Dividend. We feel really good about that. I think we have talked in the past about the desire to add granularity to our commercial portfolio, Provide is a dead center hit in that particular area. The other areas from a technology perspective, fintech perspective, we continue to be interested in are linked-to-payments and continuing to support the buildout that has been underway on the managed services front, where we've not been an outright buyer, but we have been, as I think you know, quite frequently a minority equity investor in companies that were additive to our product platform. And then I think we will continue to look where there are opportunities to add boutique capabilities into the M&A advisory space or on our wealth management platform.

Got it. And I guess, it was striking to see some of the slides up there in terms of Fifth Third today versus Fifth Third 10 years ago and the improvements that you guys have undertaken, be it mostly organically. There are thousands of other regional banks that have not been able to do that. And I guess in an environment where scale is increasingly important, I guess would there be an appetite -- I know you've kind of downplayed this, but I guess, why isn't there more of an appetite to go out and maybe buy some of these regional banks and kind of do on to them what you guys have done to yourselves?

From my perspective, bank M&A is not a strategy unto itself, right? I know not everybody agrees with that as a perspective, but scale at any cost is not valuable. You have to have the right kind of scale. And the scale that we have always priced is a form of density, right? It's a level of presence and a critical mass of resources in the metro markets where we're focused on operating. And the reality is there just aren't that many things out there that would achieve the level of scale that we would like to be able to achieve in those markets and it wouldn't distract us from doing what we're doing already, which is the organic investment in the build. You think about the progress we've made in the Southeast, and you referenced the slide Jason, you can see the impact of the investments in the nearly 75 de novo branches that we built in the Southeast over the course of the past several years. You can see the impact in the run rate of the organic build in the West Coast markets, in Southern California and Texas now from a middle market banking perspective, right? If there were an acquisition that allowed us to achieve that right level of scale and to do it more efficiently from a capital deployment perspective, then that's a thing that Greg has always said that we would explore. But the reality is, just given the environment, that doesn't exist today. So the right focus for us is to continue to invest organically to build the scale we need in the markets where we want to compete and to take share as a means of growth.

Makes sense. I guess on the capital theme, I guess CET1 was 9.3% at the end of the quarter, you're kind of targeting something closer to 9%. I know you're expecting some good loan growth. I think you kind of talked about buyback maybe resuming by the end of the year. Just kind of maybe your thoughts around that.

Yes. If all goes well, we'll close on the Dividend Finance acquisition this week. So that in and of itself would pull down the CET1 to our target level. So we'll perhaps end the quarter in the 9% to 9.1% area. And right now, our current intention is that we would resume buybacks in the fourth quarter of this year, that's certainly outlook dependent. But at this point in time, that's what we're modeling.

And I guess as I think through the income statement and my question, we skipped over fee income, which is obviously a big category for you. Obviously, some headwinds with mortgage and some of the equity market-sensitive businesses. Can you maybe just talk to maybe kind of your outlook there and kind of what you're seeing in some of the bigger segments for you?

So for us on the outlook, I think we had a productive guide in the up high single digits on fee income on a sequential basis. We've done a nice job over the past several years of building out a diversified fee business. I think the wildcard for us certainly in the near term is just going to be valuations and market-dependent fee businesses. So mortgage, capital markets, while capital markets had a solid April certainly subject to volatility in this type of environment. So we'll see how the quarter plays out. But right now, our guide of the high single digits is what we're expecting. But for a little bit of noise and QDC, again, those valuations where you could have offsets in expenses and lower fee headline numbers, certainly possible, as we saw in the first quarter. But overall, we'll see how the next 2 months go. But for now, we have had good success in the fee business and just will be dependent upon valuations.

And then, I guess, we're 5 days to the midway point of the quarter, so I guess I could maybe still ask this. But in terms of 2Q guidance, we kind of went through, I think, a lot of the pieces, but kind of anything on that slide you put out at the end of the first quarter, you care to update or kind of still steady as she goes.

The quarter is actually playing out very well and almost right on top of our expectations. As I mentioned, loans will be right in the range, and we're actively managing and pulling different levers to deliver that outcome. Deposits may ultimately be a little bit softer. We have some 100 beta deposit outflow. Again, we thought that would happen over the course of the year. Maybe a little bit faster in the second quarter, but also there's the seasonality of corporate tax payments. So it's a little challenging as we sit here in early May to determine, which is the bigger driver of that. And then fees and expenses, I think, in total, should deliver a solid PPNR results so that overall second quarter should be another good one for Fifth Third.

Sounds good. Any questions from the audience?

You talked about third quarter credit over time. I'm just trying to get a feel for -- is there a driver of that and get a feel for kind of long-term durability? Is it cultural? Is it mix?

So we've focused under Greg's leadership, right, when he took over as CEO in 2015, 2016, which was really to improve the credit profile of the company. And so we exited and really changed the credit underwriting parameters for the company so that -- now as Tim is taking over as CEO. He's the beneficiary of much improved credit portfolio. I think it's better balanced geographically, it's better balanced from an industry standpoint. And we just have tightened the underwriting standards so that we will deliver solid through-the-cycle performance as opposed to the Fifth Third of old, which was really feasting when the markets were good and really being challenged when the markets were challenged and therefore, those credit outcomes in '08, '09 are something that we want to make sure never happen again. And so it's a little bit of culture. It's a little bit of a process and it's a little bit of product. I don't know, Tim, if you...

Yes, I do think the culture and the process of the product, as Jamie mentioned, then produces a different mix in terms of the portfolio composition, right? So Fifth Third has the lowest subprime. If you just read through -- parse through the available disclosures, the lowest concentration in subprime consumer credit of any of our peers, which would be a rounding [ error ] to 1% in terms of our credit profile, north of 3/4 of our consumer borrowers or homeowners, which makes them a little bit more inflation-resistant because if you had a mortgage in the U.S. in the last few years, you refinanced it. And so you fixed the single largest component of your expenses for several years into the future, if not all 15 or 30. And then on the commercial side of the equation, you have this nice balance between a granular middle market book with investment-grade corporate credit attached to the corporate banking verticals that we have built out over time in the lowest concentration in commercial real estate and a significantly smaller leveraged lending book, which in turn then is meant to be more robust, right? In totality, when you think about that composition of the portfolio, it should produce a less volatile through the cycle credit performance.

Maybe time for one more question. If not, please join me in thanking Tim and Jamie for their time today.

Thank you, Jason.