Good morning. My name is Frederick, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bank Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn your call over to Jeff Richardson, Director of Investor Relations. Mr. Richardson, you may begin.

Thanks, Frederick. Good morning. Today, we'll be talking with you about our third quarter 2013 results. This call may contain certain forward-looking statements about Fifth Third pertaining to our financial condition, results of operations, plans and objectives. These statements involve certain risks and uncertainties. There are a number of factors that could cause results to differ materially from historical performance in these statements. We've identified some of these factors in our forward-looking cautionary statement at the end of our earnings release and in other materials, and we encourage you to review them. Fifth Third undertakes no obligation and would not expect to update any such forward-looking statements after the date of this call. I'm joined on the call by several people: our CEO, Kevin Kabat; and CFO, Dan Poston; Frank Forrest, who joined us as Chief Risk Officer and Chief Credit Officer last month; Treasurer, Tayfun Tuzun; and Jim Eglseder from Investor Relations. During the question-and-answer period, please provide your name and that of your firm to the operator. With that, I'll turn the call over to Kevin Kabat. Kevin?

Thanks, Jeff. Good morning, everyone. This morning, Fifth Third reported third quarter net income to common shareholders of $421 million and earnings per diluted share of $0.47. Earnings this quarter included the benefit of $85 million in gains on the sale of Vantiv shares, $6 million of valuation gains on our Vantiv warrant and a $15 million reduction in our mortgage rep and warranty reserve. These benefits were offset by litigation reserve expense of $30 million, $5 million in severance expense and $5 million in new Dodd-Frank large bank supervisory assessment fees. In total, these items produced an after-tax net benefit of about $0.05 per share for the quarter. Third quarter EPS increased approximately 1% from a year ago, adjusting both quarters for similar items, despite significantly lower mortgage banking income. This reflects core growth across most of our other business lines, particularly deposit service charges, which were up 10%, and investment advisory fees and card processing revenue, which were each up 6%. Returns on assets and equity remain strong, and tangible book value per share increased 3% sequentially and 8% from a year ago. Now turning to business activity, borrowers remained cautious on the sidelines, which supported higher average deposit balances and lead to some slowing in loan demand during the quarter. Average core deposits were up 6% from a year ago and included growth in transaction deposits of $5.7 billion. The strength in our deposit franchise was also reflected in the FDIC's annual market share data, in which we grew deposits in 15 of our 18 affiliates and gained market share in 14 affiliates. As you know, we've completely revamped the deposit products in our consumer bank and recently in our business banking segment. Our new offerings were designed with a focus on building full and profitable customer…

Okay. Thanks, Kevin. Good morning, everyone. I will start with Slide 4 of the presentation, and we'll discuss the results for the third quarter before turning to the outlook before the end of my remarks. Earnings per diluted share were $0.47, down $0.18 from last quarter, primarily due to lower Vantiv gains. Current-quarter results included a pretax $85 million gain on the sale of Vantiv shares and a $6 million positive valuation adjustment on the Vantiv warrant, whereas prior quarter results included a $242 million gain on the sale of shares and a $76 million positive value -- valuation adjustment on the warrant. Additionally, third quarter results included $30 million in charges to increase litigation reserves compared with $51 million in the second quarter. There were several other items that affected earnings in the quarter, which are outlined in our release, and I'll note them throughout my comments. As Kevin noted, these items contributed a net $0.05 to earnings per share this quarter. Turning over to Slide 5. Tax equivalent net interest income increased $13 million sequentially to $898 million, and the net interest margin was 331 basis points versus 333 basis points last quarter. During the quarter, we took advantage of higher interest rates to remix and add investments to our securities portfolio. The higher earnings from these securities, along with $6 million in benefit from higher quarterly day count, contributed to the increase in net interest income. NII also benefited from lower interest expense, reflecting the full quarter impact of debt maturities in the second quarter, as well as lower CD costs due to the maturity of approximately $500 million of 2008 AR CDs. These benefits were partially offset by the negative effect of loan repricing, lower mortgage held-for-sale balances and the full quarter impact of the interest…

[Operator Instructions] Our first question comes from the line of Paul Miller with FBR. Paul J. Miller - FBR Capital Markets & Co., Research Division: I wanted to touch base real quick on your reps and warrants, which is really going -- which is really coming in nicely, but we've seen some banks out there being able to enter agreements with Fannie and Freddie declare the decks of future reps and warrants. Have you had any success or tried to do this at this point?

Well, we have ongoing dialogue with all of the GSEs relative to current results, their expectations going forward. So we continue to have those discussions. We reflect our expectations relative to the impact of what they're telling us on our reserves and expected future losses, but we can't really comment relative to dialogues relative to settlements and so forth. But I think the expectation is across the industry that Freddie Mac, in particular, is attempting to reach settlements with a number of banks, and we've certainly seen that with some of the larger banks, and the expectation is that they may well continue to seek settlements with other banks as we go forward. Paul J. Miller - FBR Capital Markets & Co., Research Division: And if you do -- I mean, listen, I know we've seen some of these banks taking additional charges just to clear the decks. Do you think that your reserves right now is sufficient, or would you might have to just up it just a little bit just to clean the decks out?

Well, we -- as I said, we reflect in our reserve all of the current information that we're able to obtain from the GSEs relative to what they're seeing and what their expectations are. You saw in the recent quarter that we actually reduced reserves because our experience is coming in a bit more favorable than we had accrued. So we feel very comfortable with the level of our reserves. Whether that reserve proves to be adequate or excessive in a settlement kind of scenario, I think, remains to be seen, but at this point, based on information that we have, we're very, very comfortable with the level of our reserves.

Our next question comes from the line of Jon Arfstrom from RBC Capital Markets.

Maybe, Kevin, a question for you on the payoff and paydown commentary on lending. Is that a few specific deals or is it broad-based, and how persistent do you think that will be over the next couple of quarters?

Yes, John. So it's fairly broad. So it isn't concentrated. It isn't narrow from that perspective. It was really across a large swath. Persistency, I would tell you that our expectations, as we've mentioned in terms of our guidance today, is that we're seeing a typical increase in fourth quarter pipelines. We would expect that, again, given what happened in the last few days in Washington, whether that has a similar impact in the fourth quarter as it did, as we saw, and I think as the industries kind of talked about in the third quarter, remains to be seen, but our expectation is that we'll get a pickup. We're seeing the pipelines fill back again, but there's still an awful lot of cautiousness out there. There's still a lot of really kind of looking at things other than simply the broad economy, from that perspective. So how much of an impact that has is really hard to say at this point, Jon.

Okay, that's helpful. And then, Dan, maybe if you can provide a little finer point on the expenses. The last quarter, you talked a little bit about mortgage banking expenses coming out in the lag in terms of timing, and I'm just curious if you could give us some thoughts in terms of how much more mortgage banking expenses could come out and when that might happen and kind of where you are in that spectrum.

Yes, John. As you alluded to, as we talked about mortgage banking, I think our key messages have been and, I think, continue to be that we always try to anticipate where we might need to go with respect to mortgage banking expenses. We build our capacity in a way that facilitates us, our adjusting that capacity fairly quickly. And as a result of that, we believe that we are able to act very quickly in response to anticipated changes in volumes. That being said, there is always a bit of a lag. I think we were very pleased with the expense reduction results in the mortgage business for this quarter. The $25 million reduction that we saw was in line with what we expected to do at the beginning of the quarter. So it was in line with the capacity that we wanted to carry into the quarter. As mortgage volumes have continued to decline, and as we said this morning, our expectation is for further declines in the fourth quarter. You could expect that we would continue to work very diligently to keep our expenses in line with that revenue reduction. So embedded in our expectations for the fourth quarter is that we will continue to aggressively take costs out of the mortgage business.

Our next question comes from the line of Erika Najarian from Bank of America.

My first question is a follow-up to John's on the mortgage expense side, and maybe I'll just take a step back. Your adjusted efficiency went up by a percentage point this quarter, and clearly, mortgage banking revenues coming down had a lot to do with it. As we look out in 2014, I know you want to be careful in terms of giving us a dollar number of expense that can come out of the mortgage side, but is there room for that efficiency ratio to come down from the levels that you posted in the third quarter in light of what seems like a soft revenue outlook for the industry?

We would certainly believe that there is room in what -- as we build our plans for 2014, that will certainly be our objective. I mean, I think relative to the mortgage business, I would point out a couple of things. One, as I just mentioned, there are more costs to takeout and there always is a bit of a lag, and that will have an impact of improving the overall efficiency ratio as we get those things completely rightsized. The other thing I would point out is that, particularly with respect to the efficiency ratio this quarter, in addition to dealing with declines in mortgage volumes, which the volume declines present opportunities for taking expense out, we're also dealing in this quarter with declines in overall gain on sale margins, which were down fairly significantly for the quarter and a bit more than we expected. We expected some softening of mortgage margins, but we saw about almost 50 basis points of decline in mortgage margins, which is very significant. Fortunately for us, I think we may have fared better than most in the industry, but still, 50 basis points of margin decline is difficult to deal with from an expense perspective on a short-term basis. On a longer-term basis, obviously, if you expect those margin declines to be of a more permanent nature or more sustained, you have the opportunity to do things from an expense perspective. But it's difficult to react to those kinds of changes in margins on a short-term basis. So we believe that we have the ability to continue to work aggressively on our expenses. We've always had that mindset, and we do expect that our efficiency ratio going into '14 will reflect kind of a better environment and show improvements from where we are in the third quarter.

Erika, this is Kevin. And the only thing I would add to that is our expectations in terms of the way we manage the company really haven't changed. We always have stated that we believe we can get to our goals and targets. That hasn't changed. We expected the turn in terms of mortgage as our most cyclical business. So we -- as Dan states, there'd be some timing effect of this, some lag, but our expectations for ourselves over the long run really haven't changed going forward.

Got it. And my second question is on your comment during the prepared remarks with regards to the size of your bond portfolio and potentially taking advantage of higher long rates. Given that your core loan-to-deposit ratio is at 100% and you expect loan growth to match transaction deposit growth, are -- do you plan to potentially lever up the balance sheet to grow your bond portfolio and take advantage of higher rates, or would you just use excess deposit growth to do that?

Erika, we've discussed the size of our portfolio quite frequently over the past couple of years. This quarter, we've seen good entry points, and we took advantage of those opportunities to grow the size of the portfolio. Going forward, we always intended to normalize the size of the portfolio back to sort of a pure average. We're still below pure average, which leaves us with quite a bit more room to leverage the portfolio. Our intent is not necessarily to make up for weakness in loan growth, but by itself, determine whether there are good opportunities for us to grow the size of the portfolio. In terms of how much we grow, if we do see opportunities, we clearly have a lot of room in terms of liquidity and funding because deposits continue to be very strong, and we are very much underutilized and many of our wholesale funding items as well. So we think that both from a funding and liquidity perspective, as well as from sort of opportunistic profitable growth perspective, we have future opportunities to utilize more -- the timing of it is -- will depend on what the market really presents us. We are not going to be -- we're going to be patient. We have been patient for the last 2 or 3 years, and we took advantage of that patience last quarter. We'll do the same going forward.

[Operator Instructions] We have a question from the line of Ken Usdin with Jefferies.

I would just -- just on the loan side, auto is growing a little bit, but it looks like the industry's growing a lot faster. I just maybe wanted to ask you to kind of flush out how you're thinking about the auto business. And then also, just talk us through this use of the secure -- on balance sheet securitization and what that means for results and funding, if anything?

Sure. On the auto side, Ken, as we've always stated, we have a very strong origination engine, but we want to make sure that engine actually produces profitable results, and we're very keen on maintaining that level of profitability. There may be strong growth, but if that growth does not meet our profit guidelines and targets, we will not go after that, and the paper that we put on our balance sheet will meet our targets. We're happy with where we are. We'll continue to maintain our strong presence in that business. With respect to the securitization, this is our second securitization this year. The first one was off balance sheet for specific brokers to manage our capital more efficiently. The one that we executed in August in the funding securitization, the ABS markets continue to be very strong and it's a very efficient and cheap funding source. So it just basically will be a tool that we will use going forward to supplement the liability side of our balance sheet and manage our funding costs efficiently. Beyond that, there really is not much else to say on that.

Okay. And my second question is just with regarding -- I heard you talk very clearly about the preferred dividend step-up for the fourth quarter, but can you just give us your updated thoughts on just the preferred structure relative to that extra issue you had been talking about earlier in the year? We hadn't seen that yet. Just -- can you just talk to us about the setup around capital structure and if you would continue to anticipate putting more preferreds into the structure, including that one issue that you had put out there earlier?

Yes, I mean, we have disclosed that we had one more preferred issuance in our CCAR plan, which was not objected to. We plan to follow our CCAR plan, and preferred securities are very efficient sources of capital today. We currently have a significant amount of room in order to utilize that bucket. That -- this next transaction is just another step towards utilizing that bucket and manage our growing capital ratios efficiently. Right now, we plan to execute a transaction, and we're watching the markets, obviously, and that still is coming up.

Okay, and then last one for me. Just, Kevin, you mentioned that line utilization remains very low. I know, obviously, there's a lot of uncertainties that are still out there, but can you just give us just some thoughts on what customers are not doing and any tone change in terms of willingness to invest in businesses?

Yes, Ken, I think the theme has been pretty consistent. I think folks have really kind of been cautious in terms of trying to look forward in terms of the investments they're making. So we have -- we did see, in the latter half of the quarter, some pullback and some delay. In terms of some of the investments, I think that's been reflected in some of the utilization itself, as well as some of the pipeline and the activities. Now we're beginning to see it fill back. Again, I just -- it's really difficult to predict what an impact will be once we approach the end of this quarter again, but as we gave guidance in, we're hopeful that we see a little bit of a tick up from what we experienced. Production was good. It was really all in the paydowns, payoffs and deleveraging that's been going on, and I think, again, if you're managing a business today in the uncertainty of today, that cautiousness is pervasive. And so as we get better clarity, I think you'll see better activity. Companies, on the other side of it, as I think we've seen demonstrated over and over again in the improving credit metrics, companies are making money. They're doing well. They're just not taking a lot of risk at this point. So that's really kind of the feelings that we have and the things we're hearing directly from clients and prospects as well.

Our next question comes from the line of Ken Zerbe with Morgan Stanley.

A quick question on expenses. How much of the one-time expenses that you highlight on Slide 3 were included in your prior expense guidance for the third quarter? Because -- and I ask because some of those items, like severance, it seems like that would have been expected, so I'm trying to figure out if that was included or not.

Going back, I can't really think back to July that quickly, Ken. I don't think that the large bank assessment fee had been finalized by then. Severance, I don't know what we would have known at that point.

But it sounds like, broadly, you're saying that they were not...

I don't think they -- obviously, if we -- we had an expectation for reserve that gets booked when you have the expectation. Warrants on that, we can't estimate those...

Yes, of course. Okay. No, I didn't know or see any parts of that. That's fine. The other question I had, just on the mortgage repurchase reserve, obviously, you're comfortable with your reserve, but what is a more of a normalized level, right? Presumably, the reserve today set up for, let's call it, some problem years in the past. But as we move forward, the quality of the portfolio gets much better. I'm just trying to figure out where the reserve ends up. And is there a metric to think about, whether it's basis points of loans outstanding or loans sold, that we should be thinking about on a normalized basis?

Yes, Ken, I think that's difficult to estimate at this point. Certainly, historically, that normalized level for repurchase has approached 0. The optimistic view would be that, someday, we'll get back to that kind of an environment. I think that's still possible, but I think that will take some time for us to get there. So we've got a combination here of standards being enforced that perhaps weren't enforced previously, losses at record levels and those kinds of things kind of produced these results. Going forward, hopefully, the loss experiences will trend back toward normalized levels. And for us, at least, we would certainly believe that the improvements we've made in controls and processes would also contribute to there being far fewer defects on any losses that do result going forward. So we will work diligently to manage that number to close to 0, but that's years away. That's not quarters away.

We now have a question from the line of Scott Siefers. R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division: I think most of my questions have been answered, but I guess I was just hoping you could touch on the overall reserve. Generally, I mean, you guys have obviously benefited from drawing it down over the last couple of years, but by the same token, by most measures, I mean, you've still got a very strong reserve. So just kind of qualitatively, I was hoping you could give your thoughts on how much longer does that tailwind last. Where ultimately would you see it flushing out, et cetera?

Yes, I mean, relative to the reserve, we've talked in the past about the fact that our reserve methodology is what drives our reserve levels, and the reserve methodology by design tends to produce incremental benefits in terms of the overall levels of reserves as credit continues to incrementally get better. So we've continued to see improvements in credit quality. We've continued to see improvements in net charge-off rates and so forth. And as those things continue to improve, I think we will continue to see the impact of those improvements reflected in the reserve. In terms of when that levels out, I think that remains to be seen. There are a number of forces, I guess, I would say, that have an impact on that. There's the regulatory environment and what -- the posture that the regulators adopt with respect to reserves. There's also, obviously, discussions of changes and allowance rules and so forth. Absent changes in the rules, our best estimate at this point would be that we would be migrating toward about a 1.5% kind of reserve, but I think that's subject to change based upon accounting -- the accounting rules continuing to evolve, as well as regulator expectations and pressures.

Ladies and gentlemen, this -- we've now reached our allotted time for Q&A. I would now like to turn the call back over to Mr. Richardson and our list of panelists to give any closing remarks.

I have no closing remarks. So thanks, everyone, for joining us this morning. Have a good day.

Thanks, everyone.

This concludes today's conference call. You may now disconnect.