Tim Spence: The disproportionate share of the clients that we are moving with conventional payments products and managed services are moving from another bank. So, it would be either they are a business that doesn’t run with any leverage and that relationship moves, or they make a decision to move their payables or receivables business to Fifth Third because we can provide a superior service. So, that is a share shift. In the case of the embedded payments businesses, we are quite often helping people to build products into their software applications that didn’t necessarily exist previously or where they had a smaller bank who had agreed to provide simple services and they’re looking for somebody who’s more robust controls the ability to support higher volumes. And then, in the case of the work we’re doing on the technology side now, a simpler process to do integration and future product development.
Gerard Cassidy: Appreciate all the color. Thank you, Tim.
Tim Spence: Absolutely.
Operator: Question comes from Ebrahim Poonawala from Bank of America. Your line is now open.
Ebrahim Poonawala: Good morning.
Tim Spence: Good morning.
Ebrahim Poonawala: I guess just one question for you, Tim. You’ve been fairly cautious on the macro outlook the last 12, 18 months. Has that changed today? And the reason I’m asking is I’m trying to sync that up with your messaging around buybacks both in terms of the back half and third quarter seem quite front-footed. So, just give us a sense of, do you feel better about economic outlook in your markets today than you did six or 12 months ago? And just broadly as a result of that, how are you thinking about capital allocation where should we expect some — this level of sort of second half buybacks continuing absent growth reaccelerating next year? Thanks.
Tim Spence: Yeah. Ebrahim, thank you. And as you know, we’re big believers in accountability here. So, I actually asked Matt to go back and look through the Q&A in the scripts from prior quarters to see when we got the first question on higher for longer rates, and you were the one that asked it, so — in the fourth quarter of ’22 earnings call. What we said was we thought the market was overly optimistic on how quickly inflation would come down, and I don’t remember what event it was last December. But the comment that I made then was that we thought either the bond market or the equity market were wrong. The question was just which one. And then, if we had to guess, it was bonds. So, I think for certain we know now that the bond market was the side of the trade that was wrong at the beginning of the year.
The factors that have influenced our more cautious outlook are pretty much exactly the same today as they were the last time we talked about it. We just view the current fiscal and monetary policies to be at odds and that the fiscal side in particular is unsustainable and inflationary over time. And the longer it goes on, right, the more that the Fed will need to remain higher for longer, which puts pressure on the long end of the curve. And then, I think as a knock on to that, we know that longer rates stay elevated, the more likely it is that you see adverse consequences either in asset prices or in credit performance. The big question is just how long does that take, right? When does that play out? And that is an area where we have low conviction.
So, what we are trying to do and what we will always try to do in low conviction environments is be liquid, be neutral and be diversified. Because historically, when you had a change, things slowly but suddenly or slowly then suddenly sort of a dynamic plays out in terms of big environmental shifts. On capital priorities, we do continue to expect to buy back between $300 million and $400 million in shares in the second half of the year. Our level of confidence in that just comes from the strength of the capital generation of the franchise. As Bryan and I both mentioned, we had the highest ROE and the most stable ROE, if you look at it on a year-over-year basis of any of our investor peers, and that is the basis of the confidence. If the environment ends up softening and we don’t see the loan growth, that will then create a capital opportunity because the capital need to support organic growth won’t be there.
So, you do have a buffer here if we do see a turn in the environment and softening in loan growth expectations. And if not, then we have more than enough capital generation to do $300 million to $400 million in second half of the year.
Ebrahim Poonawala: Got it. That was helpful. And to be clear, it wasn’t a planted question. But the other thing that caught my attention, you mentioned Texas and obviously you mentioned so we think about that Fifth Third Southeast. Just talk to us, remind us in terms of the strategy in Texas. Are we opening a lot of de novo branches there? And I’m assuming there’s no near term M&A, but that does open up potential opportunities I guess down the road? Thanks.
Tim Spence: Yeah, absolutely. So, we got into Texas in 2012 when we formed our energy vertical. We have deeply experienced folks there who have done a really excellent job. And then, over the course of the past several years added middle market offices in Houston and Dallas, where we were able to attract very strong talents from trillionaire banks, who understand the focus we have on whole relationships and we’re able to do what I think for us is a little bit unique, which is a heavy focus on C&I and then the delivery of the value-added services, whether they’re capital markets or payments as opposed to a focus on either loan-only relationships or buying participations or investor real estate or otherwise. That business now also has specialty products, so ABL equipment leasing coverage.
